Criteria for loans finalised

MB Subba

Banks have finalised the lending criteria for the National Credit Guarantee Scheme (NCGS) more than a month after the scheme was launched on October 5.

Three state-owned banks—Bhutan Development Bank Limited (BDBL), Bank of Bhutan Limited (BOBL) and National CSI Development Bank Limited (NCSIDBL)—have started accepting applications from clients.

But the scheme, under which the government guarantees a portion of loans, is yet to pick up—the first loan under the scheme is yet to be disbursed.

BDBL’s general manager for credit, Tshering Dukpa, said that as of November 12 the bank had received seven applications. The bank has received two applications each for agriculture and ICT-based businesses, one application each for construction of a service apartment (guest house), a manufacturing unit, and establishment of an online ticketing service.

Chief executive officer of the Paro-based NCSIBL, Kinzang, said that the bank received about 10 applications. “We started receiving applications from October 23 but we are yet to disburse the loans.”

Chief executive officer of BOBL, Dorji Kadin, said that all the BOBL branches had started receiving applications. He said that the applications needed to be compiled from various branches to know the numbers. 

The NCGS aims to overcome one of the major impediments in availing credit facilities from financial institutions by providing collateral-free loans for investments in the cottage and small category.

The government has established a NCGS Facility at Chubachu, Thimphu, as a one-stop shop for NCGS clients. It will support project development, facilitate clearances and approval for business establishment, and smooth implementation of the approved projects.

Eligibility criteria

Businesses that concern crop cultivation, agro-processing, livestock farming and forestry can apply for NCGS loans. Import-based retail and whole businesses, however, do not qualify.

Business proposals for production of renewable energy; handicrafts and textiles; wood-based products; traditional and herbal medicines; and manufacturing enterprises also qualify for loans under the scheme.

As per the criteria, project proposals in already concentrated areas will not be eligible. For instance, bakery or furniture units in Thimphu town will not be eligible, but ones in the outskirts and non-concentrated areas or remote dzongkhags will be eligible.

Under the service sector, ICT; hospitality, entertainment and recreational services; health services; construction and cold storage and cold transportation services have been identified as eligible for loans.

According to the criteria, ICT-based project proposals should aim at promoting mechanisation and digitalisation, and enhancing productivity and substitution of labour.

Tourist standard, budget hotels and tourism-related services with long gestation periods are not eligible. The criteria also state that projects for hospitality services and entertainment should not be targeted in towns and cities.

Construction companies and contractors that use 80 to 90 percent of domestic products and employ national workers, including Build Bhutan Project (BBP) employees, will be eligible to apply for loans under the NCGS.

The interest rates for cottage and small industries (CSI) have been fixed at 7 percent during the gestation period and 8 percent after commercial operation of the business project.

For businesses under the medium and large industries category, the interest rates have been fixed at 8.75 percent during the gestation period and 9.75 percent after commercial operation.

The debt to equity ratio will be 90:10, which is much lower than the existing ratio of 75:25. Startups, however, will be eligible for 100 percent debt financing.

According to NCGS rules, the guarantee will be limited to the debt finance of the project and will not exceed Nu 30 million. The government has plans to provide Nu 3 billion in loan guarantee coverage.

The scheme was launched as a counter-cyclical policy measure during the Covid-19 pandemic situation. NCGS is aimed at countering the Covid-19-induced economic disruptions in the country.