National Credit Guarantee Scheme to 100% debt finance CSIs

Last week, the government launched the National Credit Guarantee Scheme (NCGS) to enhance access to financing as a counter cyclical policy measure during the COVID-19 pandemic situation. It will sustain investments by easing access to credit during the COVID-19 times.

The government will guarantee a portion of the loans availed for establishing a viable business entity. The scheme does not require collateral for business entities.  

Growth in domestic credit is critical for investments, boosting domestic demand and generating employment. However, collateral requirement has been a major impediment, in particular, for aspiring entrepreneurs to avail financing.

Therefore, the NCGS will alleviate this challenge of aspiring entrepreneurs. Under the NCGS, for availing loans, Cottage and Small category will not require collateral except 10% equity and startups under this category will be eligible for 100% debt financing under the NCGS.

During the launch, the finance minister Namgay Tshering said that he is optimistic and worried as well about the scheme because though there were similar initiatives like this before, they had not been very successful.

Lyonpo said that the government will provide guarantee coverage up to Nu 3bn for three years under this scheme.

Lyonpo said that initially three financial institutions will be in partnership with the State-owned Banks, namely Bank of Bhutan, Bhutan Development Bank and the National CSI Development Bank (NCSIDBL).

“If the program is successful, we will involve other financial institutions as well,” said Lyonpo adding that the government will also amend relevant laws to enable access to finance.

Royal Monetary Authority Governor Dasho Penjore also expressed that since the loan does not require collateral, people should not take it lightly and be irresponsible.

“With this program unemployment issue can be solved, it will benefit farmers and will benefit businesses which are not successful,” said Dasho Penjore.

Dasho also said that recognizing the private sector as a critical partner for economic growth, the government has always placed high importance on the private sector.

The medium and large categories will also be eligible for loans under the NCGS. However, under such categories, a loan financing up to 50% or Nu 30mn, whichever is lower will be guaranteed by the government and the balance will be shared between the lender and the borrower.

In addition, NCGS will also be available for up-gradation of businesses from CSI to medium and medium to large.

The projects under the NCGS will focus thrust areas of boosting exports; reducing economic dependency by investing in import substitution-based projects, promoting innovation and technology; and creating jobs to absorb the displaced and unemployed.

The NCGS will be implemented under the overall guidance of a National Credit Guarantee Committee, which will be chaired by the Finance Minister with representative from key economic sectors.

Under the COVID-19 pandemic situation, the NCGS is expected to go a long way in securing financing for the establishment of viable new business entities besides supporting the up-gradation of existing businesses.

A finance official said that while the government will ensure and fulfill its responsibility to create the environment and platform, the private sector must grab the opportunity, with responsibility.

“Through collaboration with responsibility, the investments that emerge as a result of the NCGS will sustain economic activities, and turn aspirations into reality for a resilient economy.”

Dechen Dolker from Thimphu