New Delhi: The Asian Development Bank (ADB) has approved a $20 million loan to improve access to financial services of rural cottage and small industries (CSIs) in Bhutan.
Rural CSIs in Bhutan have limited access to financial services due to complex and inadequate understanding of loan requirements. The Bhutan Development Bank (BDB), the country’s key rural finance intermediary, provides financial services to agricultural, commercial, and industrial enterprises, especially CSIs. It accounts for 95% of the total agriculture loan portfolio and 84% of the CSI loan portfolio in the country in 2019. Agriculture, the primary source of livelihood in rural areas where more than 60% of the country’s population live, is driven by CSIs involved in on-farm (crop and livestock production) and off-farm enterprises (small-scale manufacturing and services such as retail shops and restaurants).
The project will provide BDB a $15 million credit line to extend its collateral-based loans to small-scale enterprises engaged in crop cultivation, livestock production, retail shops, and restaurants. An additional $5 million credit line to BDB will be provided to offer noncollateral-based group loans to rural CSIs engaged in micro-scale enterprises.
“ADB fully supports the government’s 12th Five Year Plan, 2018–2023, which aims to diversify the economy by creating jobs and promoting the private sector, including rural CSIs. The project will strengthen and improve BDB’s capacity to carry out its mandate to service CSIs,” said ADB Senior Portfolio Management Specialist for South Asia Mayumi Ozaki. “Ultimately, the project envisions the country’s rural communities to be productive, gainfully employed, and contribute to Bhutan’s development.”
To supplement the loan, a $1 million technical assistance (TA) grant from ADB’s Technical Assistance Special Fund and Financial Sector Development Partnership Special Fund will strengthen BDB’s corporate governance, such as improving portfolio quality and resolving nonperforming loans, improving management information systems, and strengthening internal control and risk management. The TA will directly support potential rural CSI borrowers, especially women, through financial literacy training and business development support.
ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.