The Bhutanese Leading the way.
Of Nu 15 bn ESP Nu 10 bn for credit support and Nu 5 bn for fiscal projects
So far, the exact break-up of the Nu 15 billion (bn) Economic Stimulus Program (ESP) has been a mystery in part due to the fact that the programs were still being formulated or the details being worked out.
However, in what is the latest and most detailed break up for the ESP, the plan is to spend Nu 10 bn in credit support for various sectors and Nu 5 bn on the fiscal side for various programs.
Nu 4.7 bn proposed credit
In addition to the Nu 5.3 bn allocated for Concessional Credit Line (CCL) and Reinvigoration Fund (RF) via banks, the plan is to allocate an additional Nu 4.7 bn in terms of low interest loans at around 4% for housing, education and tourism.
An official said that in terms of housing the focus would be on first time home owners.
For education loans, the loans would be for deserving students of a humble background to carry on their studies like graduation etc.
In tourism, the low-interest loans will focus on helping hotels to upgrade to tourism class hotels so that they can keep tourists too.
The cabinet has given in-principal approval for the above. The money will be given to the banks to loan out.
The Technical Committee for the ESP which meets every week is drawing up the details and the terms and conditions for the above loans like, for example, what size and type of homes can be bought or built by the loan.
The Nu 4.7 bn for credit programs will be announced in the next one to two months in order to not put pressure on the banks who are yet to get any ESP money from the government.
Nu 5 bn fiscal side
On the fiscal side of the Nu 5 bn, Nu 2 bn will be given to the Desuung Skilling program which carries out short term trainings for gaining various skills and has had a major impact on the ground already.
Nu 500 mn is to the Ministry of Industry, Commerce and Employment (MoICE) for entrepreneurship, skilling and internships.
Nu 500 mn is aggregator support to the FMCL and BLDC to set up cold chain infrastructure and other facilities to help gather agricultural products and also value add.
Another Nu 500 mn is for a price guarantee scheme for farmers for 6 crops which are rice, wheat, maize, soya bean, quinoa and peanuts. The crops have been chosen to enhance food security.
Rice is obvious since this is the highest consumed and imported cereal, wheat can alternate with rice in winter and maize is chosen as large parts of the east grows it.
Quinoa has export potential and can also be used in feeding school children, hospitals and Gyalsung. Peanut can be used for peanut oil and also making peanut butter which can be given to Gyalsung and others.
The aim to push the above crops from a subsistence mode to being more commercial.
In terms of Livestock the products will be chicken, fish and pork mostly focused in the south.
Around Nu 1 bn will be allocated for OGOP which will be in the same modality like the crops but the focus will be more on high value niche products and value adding. Gewogs can promote and identify crops and unique products.
OGOP has been chosen as it is already closely involved with farmers right at the Gewog level. The aim will be to get farmers to produce and also value add to get higher prices.
Nu 500 mn will be given to MoICE for tourism infrastructure, craft bazar, night market, creative industries and media.
A source said that agricultural loans will be up to Nu 1 mn, CSI loans up to Nu 10 mn and medium industries will get up to Nu 100 mn loan.
Why 4% interest rate
Under earlier proposals for the ESP a higher amount had been allocated for fiscal projects with only Nu 2.5 bn meant for banks in credit support, but a source said the Prime Minister Dasho Tshering Tobgay wanted a much higher allocation on the credit side so that the money would directly be accessible to the people to benefit them as more fiscal spending would also mean bureaucracy and wasteful expenditure through the system.
Apart from the 4% interest rate the banks will also reduce the loan to value ratio which is currently 30:70 and even 40:60 in banks. Simply put, it is the ratio of your own money you must show to get a loan.
On how the 4% interest rate was decided, a source said that 1% is the operational cost of the banks and 3% is the risk premium for Non-Performing Loans.
Banks have to pay back Govt
While banks have an opportunity to make some profit they also have to carry some risk as the entire principle amount will have to be returned to the government starting from the 5th year and going to the 10th year.
In the 5th year banks have to give back 30% of the principle to the government in time with the end of the 13th plan when there is a gap between plans with no money and so this money can be used to help at this time.
After that, 14% has to be returned every year till the 10th year.
Given the profits the bank can make the government will not consider NPL excuses when the money is due back.
This will put pressure on the banks to give the collateral free loans only to strong and credible proposals and do adequate follow up. The project assets will become a form of collateral. Those failing to pay will see their credit worthiness suffer and will face legal action too.
An official said that the government and banks will provide access to credit and now those taking the loans must show financial discipline.
The loan duration will be around 1 to 2 years for agricultural loans and 3 to 4 years for CSI projects.
High Public interest and monitoring
With the government earlier announcing the Nu 5.3 bn CCL and RF programs there has been tremendous public interest as Banks, media houses and even MPs are getting numerous queries from the people on how and when they can apply.
The banks are in the process of finalizing the SOP.
The banks will temporarily use their own liquidity or money available for these schemes which will later be compensated by the government once the remaining tranches of the ESP comes from the Government of India.
So far Nu 2.5 bn has come which has been allocated to the fiscal programs like Desuung and agriculture aggregation and price support.
Another Nu 2.5 bn is expected to come by the end of August. The Indian government has agreed to send the Nu 15 bn ESP amount by the next 18 to 20 months.
In terms of monitoring, the RMA will monitor the banks and the respective agencies implementing the various programs will have to do their own monitoring.
The skeletal ESP office will look at overall policy issues that need to be sorted like need for clearances from BAFRA, NEC etc.
Big industries have been consciously kept out of the ESP as they have better access to finance and each project by itself could suck up Nu 500 to Nu 600 mn.
An official said the government, unlike the BOIC of the past, is going with professional banks as banks have good experience in handling loans and also to avoid allegations and getting issues blown out of proportion.
Nu 5.3 bn of credit already announced
Around two weeks ago the government had already launched the Nu 5.3 bn ESP CCL and RF.
CCL provides new business loans and expansion funding at a low interest rate of 4% per annum. These loans are collateral-free but require backing by project assets. CCL supports primary agriculture, livestock, cottage and small industries, and medium-scale manufacturing enterprise.
Nu 3.3 bn was allocated for CCL with Nu 1.8 bn for medium-scale businesses in manufacturing, Nu 500 mn for small-scale investments in agriculture and livestock, including crop cultivation, poultry farming, and aquaculture, Nu 500 mn designated for small-scale manufacturing, excluding services, mining and construction. There is Nu 300 million for startups and Nu 200 million for movie production.
RF is designed to assist distressed businesses impacted by the COVID-19 pandemic and other external challenges by either of two ways and borrowers can only choose one.
One is to provide an interest subsidy of 4% per annum on existing loans for up to three years, with clients covering any difference between the subsidized and prevailing rates and another is allowing for subsidized interest at 4% per annum on additional loans from participating financial institutions, with clients again responsible for the rate difference.
RF is designed to provide partial and time-bound interest subsidies to help revive distressed businesses.
Nu 2 billion is aimed for RF, with a 4% interest rate and a maximum three-year loan tenure.
