Nine dzongkhags have disbursed almost half of the sanctioned amount 

Since the launch of the priority sector-lending scheme, Nu 43.9M has been sanctioned against the agriculture sector and non-agriculture cottage and small industry (CSI).

While the scheme was launched on January 1 this year, because of the institutional arrangement it took until March 8 to sanction the first loan to a 26-year old farmer from Wangduephodrang.

In the first quarter of the year, seven dzongkhags of Chhukha, Dagana, Gasa, Sarpang, Thimphu, Tsirang and Wangduephodrang has received 92 applications, of which 67 were approved, 15 are under review and 10 were rejected. With the approval rate of 73 percent, these dzongkhags have together disbursed loans worth Nu 4.87M in the first quarter.

Updates from the banks for April indicate that an additional 17 applications were received and two more dzongkhags, Paro and Trashigang have facilitated the loan approval.

An additional Nu 15.35M loan has been disbursed under the scheme last month alone. This takes the total loan disbursed close to Nu 20M in the first four months.

Governor of the Royal Monetary Authority (RMA), Dasho Penjore said the figure speaks for itself. “It appears that people are taking opportunity of the policy we implemented,” he said. “Even the speed of approval is impressive.”

Dasho Penjore said agriculture and CSI is at the core of the self-reliant goal. Should the country be self-reliant, he said people should engage in enterprise farming and move away from conventional subsistence farming.

Among other factors, access to finance had been identified as one of the hurdles for entrepreneurship. That 52 of the 67 approved projects from the dzongkhags are in the agriculture sector, he said is a positive indication.

Since the approval of dzongkhag PSL committee doesn’t assure loan, banks have received 12 proposals as of March and all were approved. Last month, the banks received 49 applications, of which 21 were approved, 19 rejected and nine under review. Here also, the agriculture sector received more than twice the number of applications for non-agriculture CSI.

However, to date only Bank of Bhutan and Bhutan National Bank have been engaging in the PSL scheme. Other banks and non-banking financial institutions are yet to approve a PSL project.


Challenges and opportunities

While a target has been set for the banks and responsibilities delegated to the dzongkhag authorities, without accountability the scheme’s prospect look dim.

However, the governor said that the scheme is in its trail phase this year. Come next year and the Dzongkhag PSL committee’s performance will be tied with the Annual Performance Agreement (APA). This will be done in collaboration with the government performance management division of the Prime Minister’s office.

As for the Banks, he said a realistic target would be set and non-achievement would lead to penalty.

High premium on insurance is highlighted as one of the deterring factors. For instance, if a proponent buys a cow, the premium is about 10 percent. This is made mandatory because there is no collateral and guarantor involved. However, the governor also said that discussions are on with the insurance companies to make it affordable.

Dasho Penjore also pointed that the government at one hand promotes CSI and on the other, levy registration fee on CSI. One issue that applicants raised is on the requirement of CSI license even before the loan approval. If the loan is not approved, the registration fee on the license is considered a waste. “If possible this fee must be waived off,” Dasho Penjore said.

Some bankers are also skeptic about their business because the interest rate charged is 8 percent on agriculture and 8.5 on non-agriculture CSI, lower than their normal lending rate. While banks are exempt from tax on income from lending made for the PSL, some bankers still believe that it’s a loss.

Dasho Penjore said that the primary role of the central bank is to ensure the health of the financial institution. He said everything is calculated and there is some margin for the banks as well.

He said that the whole PSL will be reviewed after a year and that PSL success is crucial for the Bhutanese economy as it has the potential to diversify the country’s economy base, substitute import, promote export and create jobs.

The governor also said that people availing PSL loans must be responsible borrowers, who would save their profit and re-invest into the business.

The central bank plans to meet PSL loan recipients for feedback and to monitor the projects.

Tshering Dorji