Cottage and Small Industries (CSI) banks can lend collateral loan free up to Nu 400,000 in case of cottage industries and up to Nu 2mn in case of small industries against the personal guarantee of the owners of the CSI until such time the Credit Guarantee Schemes are in place.
This is one of the rules and regulations framed for CSI banks drafted by the Royal Monetary Authority (RMA) taking into account the role of CSI in the overall economic development of a country particularly for developing countries like Bhutan and the fact that CSI banks can play an important role in the supply of credit to CSI in the country.
CSI banks will engage in giving loans to CSI, which includes manufacturing, services, trade and commerce, and agriculture sectors.
According to the Department of Cottage and Small Industry, cottage industries should have around four employees with investment costs up to Nu 1mn. The employment size for small industry should be up to 5-19 while investment cost should be from Nu 1mn-10mn.
CSI banks will develop, promote, assist and support the establishment of, expansion or improvement of cottage and small industries by granting credit facilities to foster job creation and income generation thereby increasing their participation and contribution to the Bhutanese economy. It would also further financial inclusion by providing saving facilities in case of deposit-taking CSI bank.
A CSI bank may seek collateral for credit facilities of more than collateral free loans. Where a CSI bank seeks collateral in support of an application by a borrower for credit, a CSI bank will ensure that any collateral being sought is reasonable and proportionate.
Also, a CSI bank may, on the basis of good track record and financial position of the CSI enterprise with the approval of their board, increase the limit to dispense loans without the collateral requirement up to Nu 500,000 for cottage industries and Nu 3.5mn for small industries.
The interest rates on loans will be based on Minimum Lending Rate Framework of the RMA. However, a CSI bank wishing for waiver of income tax on interest income earned through preferential lending to CSI enterprises would be governed by the Fiscal Incentives of Government issued by the Ministry of Finance.
The preferential lending rate shall be determined by the RMA in consultation with the finance ministry. The deposit rates in case of a deposit-taking CSI bank may be revised from time to time with approval of their respective board and subsequent notification to the RMA. The approved rates and any revisions thereof must be publicly announced.
Dechen Dolkar from Thimphu