Access to finance, main constraint for CSIs

Access to finance, main constraint for CSIs

Access to finance is the main constraint that Cottage and Small Industries (CSIs) face, according to entrepreneurs.

This includes collateral requirement, cumbersome loan procedures and security valuation.

During the second day of Bhutan Economic Forum for Innovative Transformation (BEFIT) 2019, during the panel discussion on “access to finance: financing CSIs”, Matthew Saal, lead financial sector specialist of World Bank, pointed out that most problematic factors for doing business in Bhutan is access to finance which is on top list, labor regulation, tax rates and competition in the informal sector. 

Matthew Saal said that other challenges are small market, limited scale economies and nascent digital payments.

“Digital activity leads to more digital activity. Digital footprint is important and can be leveraged in the credit extension process. Technology is not a panacea but is crucial in reducing costs to serve and increasing access,” Matthew said.

He also mentioned that opportunities could be learned from neighbors; about borrowing and adapting business models, leveraging developments in secured transaction infrastructure and credit bureau, white labeling through local banks and international or cross-border entrants.

 Managing partner of Green e-Solutions, Sangay Tshering said that most startups struggle with funding.

He said that though they get small funds, most of it is spent to purchase machines and equipment. “Access to finance for scaling up the business is not easy as there are diverse business needs.”

He also mentioned that some of the challenges for them is government competing with private sector versus focusing on providing essential services for private sector growth.

“Investment in human capital needs focus; and in particular, focusing incentives to individuals,” said Sangay Tshering.

Similarly, founder of DrukRide and My DrukRide, Jigme T Yoezer Rinzin said some of the challenges are difficulty in getting loans from financial institutions due to stringent collateral requirement and lengthy procedures.

“We need quick information dissemination and processing system, collaboration among funding agencies, and necessary and relevant training for the entrepreneurs. Entrepreneurs have to be responsible borrowers and sensitive to social wellbeing,” said Jigme.

One of the panelists, Suresh Balakrishnan, regional technical advisor of UN capital development fund, talking on de-risking lending to MSMEs in Bhutan said that there should be a shift from subsistence to market-oriented economy.

He said that it must be ensured that these transformation processes are sustainable.

“Risk sharing, development agencies providing insurance cover and subsidizing risks by financial institutions to encourage them to lend more, and the use of FinTech to help make better credit decisions as well as allow borrowers to explore multiple options are some of the ways in which credit access to MSMEs could be improved,” said Suresh Balakrishnan.

The head of sustainable investing of Oppenheimer Funds, Aniket Shah said that Bhutan can show the way in how to develop sustainably.

However, he said that in order to accelerate economic transformation, three things need to be in place, a smart institution that attracts foreign capital; ability of domestic industries to export and development of financial institutions with clear mandate.

BEFIT was inspired by His Majesty’s vision in ensuring a successful democratic transition accompanied by successful economic transformation based on the foundations of a just, equal and harmonious society. BEFIT is a national platform to bring together a wide range of expertise to share best practices and discuss innovative solutions to emerging national economic challenges with the overarching objective of transforming and bettering lives.

The theme for BEFIT 2019 is ‘Catalyzing Cottage and Small Industries to Drive Bhutan Economic Diversification.’

Dechen Dolkar from Thimphu