Bhutan launches credit guarantee coverage of Nu 3B
The finance minister Monday announced Nu 3 billion (B) in loan guarantee coverage under National Credit Guarantee Scheme (NCGS) which will run for three years.
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 will guarantee a portion of the loans availed for establishing a viable business.
All that is needed under this category are viable business proposals and a 10 percent equity. Startups will be eligible for 100 percent debt financing.
Businesses under the medium and large categories will also be eligible for loans under the NCGS.
However, under these categories, loan financing up to 50 percent or Nu 30 million, whichever is lower, will be guaranteed by the government. The balance will be shared between the lender and the borrower.
In addition, loans under the scheme will also be available for up-gradation of businesses from cottage and small industries to medium and medium to large.
Describing the launch as an “important national event”, Lyonpo Namgay Tshering said that all aspiring entrepreneurs, including youths and farmers, with viable proposals could apply.
The credit will be initially provided by the three state-owned banks—Bank of Bhutan, Bhutan Development Bank and the National CSI Development Bank (NCSIDBL). He said that the government would enable other banks to provide the facility by amending relevant laws.
Officials said further details of the NCGS such as the interest rates, however, were being worked out.
The scheme is expected to be open by the end of this month, according to officials.
The NCGS will be implemented under the overall guidance of a National Credit Guarantee Committee, which will be chaired by the finance minister with representatives from key economic sectors.
Lyonpo Namgay Tshering said that he was both optimistic and concerned about the NCGS given that similar programmes in the past had not been successful.
“But the reward for taking risks is the profit. We are in a situation where the private sector needs unconditional support,” he said.
A full-time NCG Support Facility (NCGSF) will be established with the NCSIDBL to provide all necessary support in availing loans and implementing projects under the NCGS.
Governor Dasho Penjore highlighted the risks involved in the NCGS and asked the banks to carry out due diligence while approving the loans.
“The NCGS has come as a blessing, but it can turn into a curse if the borrowers and lenders are not responsible,” he said. Dasho said that the scheme was expected to benefit a wide section of people including farmers.
A press release from the Prime Minister’s Office said that 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.
“It will sustain investments by easing access to credit during the Covid-19 times,” it stated, adding that it had been designed to be an inclusive instrument for all categories of industries.
The government hopes that the scheme would boost exports, reduce economic dependency by investing in import substitution-based projects, promote innovation and technology; and create jobs to absorb the displaced and unemployed.