Loan accessibility still an issue

Loan accessibility still an issue

Rural populace deprived of credits despite various loan products on display

Access to rural credit is a compounding issue, which, if not taken care, could prove to be a menace for the country later on. While dzongkhags like Thimphu, Paro and Chhukha continue enjoying the fruits of rural loans, there are dzongkhags like Gasa, Lhuentse and Trashiyangtse which are still struggling to have access to credit.

Chairperson of the economic affairs committee in the National Council (NC), Tshewang Rinchen said that the issue emerged as a significant concern during their grassroots-level interactions across districts such as Haa, Zhemgang, Trashigang, Trashiyangtse and Samdrup Jongkhar.

The Chairperson said that Zhemgang, known for its high poverty rates, followed by Samdrup Jongkhar are areas that need to be emphasized more. The Chairperson also highlighted that most of the rural loans are accessible for most parts of Haa dzongkhag. Going by the 2023 statistics, Trashigang had secured the highest loan amount and Trashiyangtse the least.

In terms of credit accessibility in agriculture, 12.04% of the total farming households in Bhutan has accessed credit. Among the dzongkhags, Haa stands out with the highest proportion of households availing credit, accounting for 31.93%. On the other hand, Trashiyangtse has the lowest proportion, with only 3.31% of households accessing credit.

Statistics also reveal that while only about 7% of Bhutan’s land is arable, with merely 2.9% utilized for agriculture, a significant portion (62.2%) of the population resides in rural areas and 47% of this population are engaged in agricultural activities.

With only 21.79% of the adult Bhutanese population having access to loans, many farmers lack the necessary financial resources to invest in inputs, equipment, and technology that could enhance agricultural productivity. Despite its importance, credit allocation to the agriculture sector remains below 5% of the total credit portfolio. In the fiscal year 2022-23, there was a notable decline of 24.5% (Nu 1,550.8 million) in credit to the agriculture sector, reducing the outstanding loan amount to Nu 4,779.9 million from Nu 6,330.6 million in the previous fiscal year.
The Chairperson said that this stark reality underscores the need for action to address rural credit accessibility. He said that there are about 18 departments where public can access loan but Bhutan Development Bank Limited (BDBL) emerge as a key institution for rural loans.

“BDBL offers around 29 different loan schemes, with 11 specifically for agriculture, including seasonal, small-scale industrial, and agriculture/livestock loans.” The loan values range from Nu 1 million to 30 million, with interest rates between 10-15% and loan tenures from 1 to 30 years.

Microfinance Bhutan Private Limited also provides three loans for rural people in Bhutan, agriculture loans (18.50% p.a.), microenterprise/small business loans (19.50% p.a.), home loans (18% p.a.), and education loans (18.50% p.a.). However, to date, the disbursement has only been made in three dzongkhags of Thimphu, Samtse, and Tsirang.

RENEW Microfinance Private Limited provides various loans for rural people in Bhutan. It provides agriculture loan at the interest rate of 24%, business loan at the interest rate of 24%, emergency loan at the interest rate of 24%, multipurpose loan at the interest rate of 24%, Power Tiller loan at the interest rate of 16%, and rural development loan at the interest rate of 15-22%.
The Tarayana Microfinance Private Limited offers credit products like Classic-Small Business Expansion, Classic-Agriculture, Development – Dairy Farming, and Purchase Farm Machinery. These credit products range from Nu 40,000-Nu 250,000, with tenures of 6 to 36 months.

With the Bhutan Care Credit, all loans are collateral-free with a maximum loan amount of Nu 500,000 and a maximum tenure of 5 years. Interest rates vary according to the loan products. The available loan products are Land Rehabilitation Beneficiaries Loan; Armed Forces Personnel and Spouses Loan; Youth Loan; and Kin-phen Financing Loan.

While there are Financial Institutions (FIs) offering various loans to the rural populace, both the provider and the receiver had their own plights to share.
“During discussions with rural communities, one of the main concerns raised was the high interest rate. Many people expressed a desire to see interest rates reduced, which would greatly benefit those seeking loans. Moreover, an extension of loan tenure periods would also be beneficial for them,” the Chairperson said. He reiterated that they are in discussions with relevant agencies to address the issues.

The Committee Chairperson also delved into loan services from other financial institutions.
“According to the Bank of Bhutan’s annual report for 2023, only 5% of loans were allocated for agricultural purposes, with the remaining 95% directed towards business and construction loans,” he said, adding that in order to balance this disparity, in-depth research and deliberations were held.

Rural credit plays an important role in addressing the financial needs of rural populations and promoting sustainable economic development. Access to rural credit is essential for fostering agricultural development, promoting rural entrepreneurship, and improving overall economic wellbeing of rural communities.

Rural credit in Bhutan was formally established in the early 1980s. However, the initiatives were short-lived due to a significant imbalance between supply and demand. Today, rural credit in Bhutan is supported by a diverse range of financial institutions, including commercial banks, and microfinance institutions. These institutions offer various financial products and services tailored to the needs of rural populations, such as agricultural loans, microcredit, and savings accounts. Despite various challenges, rural credit in Bhutan focuses on enhancing agriculture within the country.

By Tashi Namgyal, Thimphu