Financial institutions will grant loans at preferential rates to agriculture and non-agriculture Cottage and Small Industries (CSI) in the country indentified as priority sector under the Priority Sector Lending (PSL) from next year.
The PLS guidelines identify the CSI sector as a priority sector for targeted lending and increased coordination and efficiency in the delivery of government support schemes and incentives.
The CSI sector is divided into agriculture and non-agriculture activities. Agriculture CSI includes primary production and value-added activities such as processing, packaging, marketing and sales. Non-agriculture CSI comprises production, manufacturing and services.
According to the guidelines, in line with the definition set by the Department of Cottage and Small Industries in the Ministry of Economic Affairs, projects with investment size of up to Nu 1mn is defined as cottage and investment size above Nu 1mn up to Nu 10mn is defined as small industry.
The government has recognized the CSI sector as one of the five economic jewels of Bhutan.
Prime Minister Dasho Tshering Tobgay, during the launch said that PSL program is going to revolutionize the country’s whole economy.
Lyonchhen said that agriculture and CSIs are among the five jewels that the nation recognizes and that their development is constrained due to financial opportunities which can be resolved with the PSL.
The PSL guidelines is an integrated platform that will coordinate interventions from several government agencies to stimulate the CSI sector as an important driver of Bhutan’s economic transformation through improved access to finance. The PSL guidelines will be effective from January 1 2018.
The interest rate for lending to primary production under agriculture CSI is 8% and lending rate for non-agriculture CSI and value addition agriculture CSI is 8.5%.
The guidelines also state that loans to primary production under agricultural CSI will be based on mandatory insurance which will substitute as collateral. The loans for all other activities will be based on cash-flow or project financing along with fire and theft insurance. Options for additional insurance will be left to the discretion of the borrowers.
Farmers and young entrepreneurs are the preferred clients for PSL lending. PSL clients can avail loans as individuals, groups, cooperatives or as a company incorporated in Bhutan within the CSI investment size. PSL financing will be available for both new CSI businesses, startups as well as for CSI business expansion.
The guidelines state that the financial institutions will ensure that loans to priority sector activities are serviced through special credit channels that provide prospective PSL clients with all the requisite information and support as well as coordination with the government special technical window.
All priority sector project proposals should be routed through the special technical window services of the government.
The target for lending to agriculture CSI for 2018 is 1% of each bank’s total loans except for Bhutan Development Bank Limited, Royal Insurance Corporation of Bhutan Limited and Bhutan Insurance Limited.
Similarly target for lending to non-agriculture CSI for 2018 is 1% point increase over each financial institution’s respective exposure in 2017.
The Royal Monetary Authority launched the PSL guidelines at the Simtokha Dzong on Wednesday.
Dechen Dolkar from Thimphu