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With the implementation of regulation for micro financing institution and financial institutions made to report on loans disbursed to micro, cottage, small, and medium enterprises, loans towards these sector is seen increasing.

The Royal Monetary Authority (RMA) has issued registration certificate to Respect, Educate, Nurture and Empower women (RENEW), Rural Enterprise Development Corporation Limited (REDCL) and Bhutan Association of Women Entrepreneurs (BAOWE) certifying them as micro financing institutions.

As of June 2017, according to the financial performance review report of the RMA, the three micro finance institutions have sanctioned loans to 3,151 clients amounting to Nu 227.40M. Out of the total loan outstanding of Nu.165.98million, 1,760 accounts amounting to Nu 165.06M was sanctioned as long term loan(more than 1 year) and the remaining 1,391 accounts amounting to Nu.62.34million was sanctioned as short term loan.

However, as of June 2017, 515 accounts amounting to Nu 35.31M was identified as non-performing loan (NPL), resulting in a gross NPL ratio of 21.27 percent for micro finance institutes.

Of the total clients, REDCL alone has more than 2,000 as of June this year.

From a total domestic loan of Nu 95.06B, loans to micro, cottage and small enterprise comprised of 17.78 percent (16.91B) of the total loans.

Further analysis revealed that the loans to small, medium and non-enterprise sector saw an increasing trend for all three quarters this year. However, the loans to micro and large enterprise have decreased in March 2017 by Nu 35.61M and Nu 195M respectively when compared with December last year.

On the other hand, the loan to Cottage enterprise which increased till March 2017 showed a decline in June 2017 (Nu.75million), mainly due to decrease in the agriculture loan which is one of the subsectors of cottage enterprise.

While the RMA has initiated various schemes to boost domestic production and promote financial inclusion, these initiatives are also expected to fuel domestic credit to almost 50 percent of the GDP in the medium term.

According to the RMA’s monetary policy statement, financial inclusion initiatives would enhance access to credit. However, it was also stated that credit growth has a direct impact on the current account deficit because Bhutan is highly import dependent and therefore a large portion of any credit extended by the financial sector translates into imports and subsequent pressures on the current account.

“This is why credit towards small, cottage, medium and large enterprise is considered healthy because these sectors would augment domestic production and create jobs,” said an economist.

Priority sector lending, micro-financing, agent banking, promotion of cottage and small scale industries and minimum lending rate policy among others are some of the initiatives under the financial inclusion programme targeted to improve access to finance.

As per the RMA’s monthly statistical bulletin, the financial institutions have lent about Nu 97B worth of credit as of June this year.

The highest share of domestic credit is in building and construction accounting for more than Nu 21.9B. Service and tourism sector has received more than Nu 20B of the total domestic credit. This is followed by personal loans hitting Nu 13.8B. Loans towards trade and commerce sector account for Nu 13.6B while the manufacturing sector received a credit of Nu 13.1B.

Tshering Dorji

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