The Royal Monetary Authority (RMA) has approved the rules and regulations for Cottage and Small Industries Banks (CSI banks).

The main objective of framing such regulations is to develop, promote, assist and support the establishment, expansion and improvement of cottage and small industries in the country by granting credit facilities.

To start with, RMA will accept applications only from the proposed Non-Deposit Taking CSI Banks from August 1 till October 31 this year.

With the approval of similar regulation and lauch of software, micro-finance institutions like RENEW, BAOWE and REDCL have already obtained licences. But such institutions are eligible to provide microloan, a laon not exceeding Nu 500,000 excluding those for personal consumption purposes.

This limits the loan for start-ups requiring capital investment higher than Nu 500,000. Currently, the DHI-Loden fund grants interest free loans of up to Nu 2M.

Since CSI sector is identified as one of the five economic jewels of the country, this sector, according to the RMA, has immense relevance to the Bhutanese economy as the largest source of domestic production and employment, especially for our growing youth population, while also addressing challenges in the agriculture sector and challenges related to rural-urban migration.

“There is huge potential given the rising demand from the growing urban populace and subsequent brand image present in numerous opportunities especially in the organic and niche food market to transform agriculture into a more enterprising and commercially-oriented CSI business,” the RMA stated in the objectives of the new regulation.

To transform CSI sector into a more enterprising and commercially-oriented sector, RMA stated that coordinated interventions from various stakeholders and better access to finance was necessary.

As per the rules and regulations, a CSI bank could mean either a deposit-taking CSI bank or a non-deposit taking CSI bank. But the definition and criteria of the CSI is as per the threshold set by the Department of Cottage and Small Industries.

An industry is classified as cottage if the investment size is less than Nu 1M or employing one to four people. Similarly, if the investment size is between Nu 1M and Nu 10M providing an employment of 5 to 19, it is classified as small industry. In case of conflict between the investment and employment, investment takes the precedence.

RMA further classified CSI sector into agriculture CSI and non-agricultural CSI activities. Agricultural CSI includes primary production and value-added activities such as processing, packaging, marketing and sales. Non-agricultural CSI shall comprise production and manufacturing, and services.

To set up a CSI bank, the minimum paid up equity capital should be Nu 300M for deposit-taking CSI Bank and Nu 150M for non-deposit-taking CSI Bank with the promoters’ initial contribution locked-in for five years.

A CSI bank should also float at least 40 percent of its shares to the general public through the initial public offer except in case the ownership is held directly or indirectly by the government, which shall be permitted to own 100 percent of a CSI bank. The foreign direct investment by a foreign bank (joint venture) in the proposed CSI bank shall not exceed 30 percent of the paid up capital of a CSI bank at any point of time. A CSI bank shall not, directly or indirectly, without written approval from the RMA, own shares in a company in excess of 20 percent of its capital fund.

Borrower are also eligible to avail financing up to 75 percent of the proposed investment cost. A CSI bank shall not take any exposure on CSI borrowers in which any of its directors, significant owner holding 10 percent or more of the share capital of a CSI bank or its CEO, or an employee or any family member of these persons, is interested.

However, there will be a gestation period of two years, which is subject to extension on approval by the RMA case by case.

A CSI bank is also mandated to set up a customer grievance cell to help and assist the customers as well as to handle customer complaints.

Tshering Dorji