The Bhutanese Leading the way.
The National Council, Economic Affairs Committee Chairperson, Tshewang Rinchen shared that, despite agriculture being crucial for the economy, it receives less than 5 percent of total loans.
He said that as of 2022-23, agricultural credit dropped by 24.5percent, from Nu 6,330.6 million to Nu 4,779.9 million and only about 21.79 percent of Bhutanese adults have access to loans. He also shared the constraints faced by lending institutions, including difficulties in assessing borrowers’ creditworthiness, exposure to credit risks in agriculture and inadequate agricultural insurance. Also, borrowers encountering challenges such as inadequate financial literacy, high interest rates, collateral requirements and valuations, complex documentation processes, and lack of credit for innovative projects.
The Economic Affairs Committee (EAC) presented its interim review report on Rural Credit Access to the House. The EAC recognized the need for this review report following His Majesty’s address to the nation during the 109th National Day celebrations at Trongsa.
The review is based on the mandates outlined in Article 10.2 and 11.2 of the Constitution of Bhutan, as well as Section 7 of the National Council Act. Stringent collateral requirements, high interest rates, low financial literacy, and arduous loan process are some of the major obstacles in accessing credit for rural communities.
According to the committee, these barriers hinder small farmers from securing funds for agricultural investments. In addition, the committee also reported that high credit risk and inadequate insurance make banks reluctant to lend money to farming communities. The committee highlighted that addressing these issues requires policy changes to boost agricultural productivity.
One of the challenges faced by the borrowers is the high interest rate. Agriculture sector contributed 14.67% to the GDP and employed 43.5% of the workforce in 2022.
As for the Bhutan Living Standard Survey, out of 164,331 households in Bhutan, 67% are classified as rural households.
Poverty Analysis Report shows that 12.4% of the population is considered poor, with rural areas experiencing more poverty than urban areas.
Also, the 2022 Labor Force Survey shows a higher percentage of the population working in rural areas 65.8% with agriculture being the number one employer.
However, the agriculture sector faces low productivity, with only 2.98% of arable land under cultivation.
Factors such as labor shortages, irrigation water shortages, human wildlife conflicts, and limited market accessibility contribute to this issue. The growth in the agriculture sector saw a decline of negative 1.15% in 2022, as many farmers lacked the necessary financial resources to invest in inputs, equipment, and technology to enhance agricultural productivity.
There are 5 banks, 2 insurance companies, and 5 Microfinance institutions in the country that function as the source of credit. The key institutional source of rural credit in Bhutan is the Bhutan Development Bank Limited (BDB).
Microfinance Bhutan Private Limited also provides three loans for rural people in Bhutan. Agriculture loans, microenterprise or small business loans, home loans and education loans. However, till date the disbursement has only been made in three Dzongkhags, Thimphu, Samtse, and Tsirang.
RENEW Microfinance Private Limited and Tarayana Microfinance Private Limited also provides various loans for rural people.
Further, Bhutan Care Credit provide several loans, all loans collateral-free with a maximum loan amount of Nu. 500,000 and a maximum tenure of 5 years.
For women, Bhutan Association of Women Entrepreneurs provide loans to disadvantaged women, mostly single and unemployed mothers and unemployed youth in urban and rural areas. The association is now seeking to help its members connect with the global market and increase their revenue through branding and IP.
The agriculture and livestock sector loan accounted only 2.35 percent of the total loans with high NPL percentages of 8.75%.
In the last 10 years, the disbursement in the agriculture and livestock sector saw a significant increase over the years, starting from Nu. 39.19 million in 2014 to a peak of Nu 1,539.52 million in 2021. However, there was a sharp decline to Nu 258.30 million by 2024.
