This comes in response to recommendations made by the NC during the 36th Parliament Session
As concerns grow over persistent lending barriers, rising non-performing loans (NPL), and the limited effectiveness of existing financial support mechanisms for small businesses, the government is exploring sweeping reforms to improve access to finance for Bhutan’s priority sectors, including Cottage and Small Industries (CSIs).
For this, the Ministry of Industry, Commerce and Employment (MoICE) has developed the Industrial Development Roadmap of Bhutan (IDR) 2025, a strategic framework aimed at strengthening Bhutan’s industrial sector as a driver of sustainable, inclusive, and innovation-led economic growth.
According to the ministry, the roadmap aligns with Bhutan’s 21st Century Economic Roadmap and seeks to diversify the country’s economic base, generate quality employment, enhance productivity, reduce import dependency, and build a more competitive economy.
Within this, the ministry has proposed several alternative financing mechanisms intended to support 10 priority sectors, including CSIs as the sector relies heavily on collateral-based lending,
Among the key proposals is the introduction of concessional loans and sector-specific credit quotas that would allow financial institutions (FIs) to allocate portions of their loan portfolios to priority sectors at lower interest rates and with reduced collateral requirements.
The initiative is intended to ease financing constraints for entrepreneurs.
The roadmap also recommends moving beyond conventional collateral-based financing by encouraging venture capital and equity financing models, particularly for startups and innovation-driven enterprises.
Another proposal is performance-linked financing, where loans would be assessed based on the borrower’s creditworthiness, business model, customer base, or projected earnings rather than fixed assets alone.
The ministry said this model could particularly benefit startups and technology-oriented businesses whose value lies more in intellectual property and market potential than in tangible property.
A proposal for asset-based lending that would allow industrial assets such as machinery, factory land, equipment, and inventories to serve as collateral has also been made.
The roadmap also advocates for revenue-based financing systems under which businesses would repay loans based on a percentage of monthly revenue instead of fixed monthly installments.
Further, the ministry has proposed the reintroduction of credit guarantee schemes to reduce lending risks for FIs by partially covering potential losses on loans issued to CSIs.
Additionally, the roadmap calls for blended and soft financing options that combine public and private funding sources to provide favorable loan terms, partial grants, and industrial development support.
While outlining these reforms, the Royal Monetary Authority (RMA) has acknowledged that access to finance remains one of the most significant challenges facing Bhutan’s CSI sector. The country’s Central Bank stated that both past and present governments have introduced multiple interventions over the years to improve financing access for small businesses.
These include the Priority Sector Lending (PSL) framework, the National Credit Guarantee Scheme (NCGS), the establishment of the National CSI Bank, and financing support through the Bhutan Development Bank Limited (BDBL).
“In principle, these interventions were aligned with international best practices for promoting financial inclusion and enterprise development,” the RMA stated. However, the central bank admitted that the outcomes of many CSI-focused lending schemes have remained below expectations.
It noted that Non-Performing Loans (NPLs) within CSI lending windows continue to remain high, reflecting broader structural challenges such as weak project viability, limited financial literacy among borrowers, and inadequate post-disbursement support systems.
As a result, many FIs have remained cautious and risk-averse, often reverting to strict credit assessment practices despite government directives encouraging relaxed lending.
The central bank also highlighted the government’s Economic Stimulus Programme (ESP), under which concessional loans at four percent interest rates were introduced alongside regulatory relaxations such as increasing Loan-to-Value (LTV) ratios up to 90 percent.
While the ESP provided immediate liquidity support and demonstrated strong government commitment toward supporting businesses, the RMA acknowledged that concerns over repayment capacity, sustainability, and targeting efficiency remain unresolved.
The authority also noted that many aspiring entrepreneurs continue to face difficulties accessing timely and adequate financing despite possessing viable business ideas.
The authority stressed that improving financial inclusion requires more than simply lowering interest rates or relaxing collateral requirements.
During the 36th session of the Parliament, the NC had called on the government to incentivize FIs to relax loan requirements for CSIs and establish dedicated low-interest financing facilities tailored specifically for small-scale enterprises.
Tashi Namgyal, Thimphu
