As a strategic initiative under the Economic Stimulus Programme (ESP), the government has allocated Nu 5.3 billion for the first phase of the concessional credit line. This fund is divided into two main components: Nu 3.3 billion for concessional loans and Nu 2 billion for the reinvigoration fund. The update on the concessional credit line was shared by the Minister of Finance, Lekey Dorji, during the 7th press meeting on August 30th, 2024.
The minister said that this initiative is designed to provide financial support with key features such as no collateral requirements and a favorable 4% interest rate. This means that participating banks will only need to repay the principal amount.
The ESP concessional credit lines involve eight participating financial institutions (PFIs), including both commercial and non-commercial banks. These institutions will offer collateral-free loans at a 4% interest rate, with the tenure depending on the size of the investment. The participating financial institutions are: Bank of Bhutan, Bhutan National Bank, T Bank, Druk PNB Bank Limited, Bhutan Development Bank Ltd., Royal Insurance Corporation of Bhutan Ltd., Bhutan Insurance Ltd., and the National Pension and Provident Fund.
However, the minister stated that any negative performance, such as non-performing loans (NPLs), will be the responsibility of the participating financial institutions.
Each bank must submit a proposal to access the reinvigoration fund after conducting its own risk analysis.
The guidelines for implementing the ESP credit line were officially launched and issued to the PFIs on August 7, 2024 for execution. At the bank level, a consensus has been reached to create a unified internal Standard Operating Procedure (SoP) and accompanying guidelines. This initiative, led by the Financial Institutions Association of Bhutan (FIAB), was approved by its members on the same day. The finalized SoP or guidelines have now been circulated and shared with all the PFIs.
The delay in communicating these details to branch offices was due to the need for a robust assessment framework and SoP, which required approval from the boards of both the PFIs and the FIAB. A unified SoP was necessary for all financial institutions. Additionally, the Royal Monetary Authority has been designing a real-time reporting framework to control fund distribution limits across designated sectors and monitor investment concentration, ensuring efficient and effective allocation of funds.
Starting from September 2, 2024, applicants are encouraged to visit their respective banks with proposals. The reinvigoration fund will subsidize the existing interest rate by 4% for up to three years, depending on the fund allocation within the PFIs. The final distribution of funds will be determined by the proposals received and assessed by the PFIs.
This credit line offers concessional loans with relaxed borrowing conditions. It consists of two funding windows: the concessional credit line, which provides loans for new ventures and scale-ups in the primary agriculture and livestock sector, cottage and small industries, and medium-scale industries in production and manufacturing; and the reinvigoration fund, which offers time-bound interest subsidies for eligible distressed borrowers and businesses with the potential to recover from setbacks caused by the pandemic.
By Dechen Tshomo, Thimphu
