Non-Performing Loan (NPL) of the National Credit Guarantee Scheme (NCGS) stood at Nu 169.74 million (M) with a total approved projects of 188 and a total loan disbursed of Nu 874.54M as of December 2024.
The Finance Minister, Lekey Dorji shared during the 11th meet-the-press on Friday, saying that the participating banks were the Bank of Bhutan (BoB); the then National CSI Development Bank (NCSIDB); and the Bhutan Development Bank Limited (BDBL).
BoB financed 69 projects, with total loans sanctioned valued at Nu 515.56M and NPLs at Nu 69.90M. The BDBL approved 63 projects with the total loan value of Nu 205.02M, with NPLs standing at Nu 14.45M. Additionally, NCSIDB funded 69 projects, totaling a loans disbursement of Nu 185.30M, while the NPLs reached Nu 116.51M.
The majority of projects were secured under small investments (under Nu 1- 10M) with a total projects of 138 in total, secured loans amounting to Nu 469.93M, with NPLs totaling Nu 150.18M. Under medium investments (Nu 10M to Nu 100M), 12 projects were secured loans totaling Nu 389.53M, with a considerable NPL amount of Nu 36.49M. However, under large investments, few projects availed the scheme in this category, with significant loan disbursements.
According to the minister, a Memorandum of Understanding (MoU) was signed between the MoF and the participating banks for the operation of the NCGS. The government provided guarantees for 3 years. Upon the completion of the government’s guarantee period, the project assets shall be securitized. If the project assets cannot cover the outstanding amount, the banks may require additional collateral.
The NCGS was launched by the previous government on October 5, 2020 to ease access to finance by the government guaranteeing a portion of the loans availed under it. The NCGS was established as a counter cyclical policy measure during the COVID-19 pandemic.
Under the scheme, the loans were made available for businesses that boost exports, reduce or substitute imports, promote innovation and technology and create employment. However, the loans under the Cottage and Small Industry (CSI) category did not require any collateral and start-ups under the CSI category were eligible for 100 percent debt financing under the NCGS.
The medium and large scale categories were also eligible for loans under the NCGS. However, under these categories, a portion of guarantee was shared between the government and the banks, and the balance was secured with the collateral from the borrower. The NCGS was designed to include all categories of industries.
The minister said that some clients, due to the government guarantee were less motivated to repay, assuming the risks would be absorbed by the government. Additionally, the minister said that being a short guarantee period, the three-year guarantee was seen as too brief to adequately assess the long-term viability of many projects.
The additional challenge includes lack of limited collateral. “With no collaterals, the loans are exposed to risk, while the agreement ensures 3 years guarantee and securitization of project assets thereafter, the project assets do not cover the risk and in most cases there is no adequate project assets given the nature of the projects supported under the scheme,” the minister said, adding that the banks also have struggled with court procedures due to insufficient collateral for legal proceedings.
The minister acknowledged both the successes and limitations of the NCGS. “While the scheme has provided much-needed financing, led to job creation, and supported first-of-its-kind initiatives (e.g., OTT services, drone operations), it has faced significant challenges. The scheme has facilitated access to affordable finance, but given the early stages of many projects, it is still too soon to conclusively determine its long-term success.”
The minister also suggests that while the NCGS was crucial for its intended short-term goals, a similar scheme should be reconsidered in the future, learning from the lessons the NCGS has provided.
By Nidup Lhamo from Thimphu
