A year after it was launched, financial institutions sanctioned a total of Nu 305.8 million (M) and disbursed Nu 229.8M towards Priority Sector Lending (PSL) schemes.

According to the latest quarterly report of Royal Monetary Authority (RMA), Thimphu received the highest amount of loan worth Nu 90M  for 247 projects, followed by Chukha Nu 25M  for 40 projects and Tashiyangtse received Nu 0.06M, the least for four projects.

The Dzongkhag PSL committees received 1,274 PSL applications, out of which 1,009 were approved. A majority of projects (78%) were agriculture-related initiatives with the highest concentration in primary production.

Financial institutions rejected 463 projects because of the clients’ poor credit history. Only 316 projects were approved of the 779 projects assessed in 2018.

While no non-performing loans (NPLs) were reported as of December 2018, the current update shows that seven accounts were classified under NPL category.

Bank of Bhutan (BoB) approved 145 projects worth Nu 97M while Bhutan National Bank approved 121 projects worth Nu 152M. This is an increase of 41 projects for BOB and seven for BNB when compared to the third quarterly report.

T-bank sanctioned Nu 18M against eight projects, Bhutan Development Bank Ltd approved 10M for 21 projects and Druk PNB approved more than Nu 6.7M for 13 projects.

Overall there was an increase in the number of projects approved and loan sanctioned from all the financial institutions.

Non-banking financial institutions such as the Royal Insurance Corporation of Bhutan Ltd approved seven projects worth Nu 23M. Bhutan Insurance Ltd approved a lone project worth Nu 0.33M.

A total Nu 121M was insured for the project against 284 different policies, which is an increase of Nu 39M (85 projects).

“While committee members have good experience in the crop and livestock sectors, there is limited capacity in assessing non-agricultural proposals,” the report stated.

It was found that most clients lacked capacity in accounting and bookkeeping and that there was a need to institute a formal accountability mechanism to incentives efficiency and performance.

A common feedback from prospective clients according to the report was related to delay in processing applications especially by the financial institutions. However, the report stated that consultations are underway to explore how all financial institutions could participate in a fair manner in PSL lending.

While mandatory insurance was introduced to substitute for collateral or guarantor requirements, clients found the insurance premiums, especially for livestock are high. However, the insurance companies are exposed to high risk with premiums collected excessively lower than the sum insured.

Meanwhile, the report stated that insurance companies were exploring expansion of insurance products beyond the PSL and some form of cost sharing with the government had also been suggested to reduce the cost for PSL clients.

A major challenge the scheme faced was that many entrepreneurs and startups are unable to produce the 30 percent equity required to access  PSL loans. “There is a need for product diversification and alternate financing mechanisms such as supply-chain financing, crowd funding, venture capital and other forms of risk capital.”

The Priority Sector Lending (PSL) initiative was launched on December 13, 2017 and was implemented from January 1, 2018.

Phub Dem