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RMA and Banks agree to prioritize lending for Agricultural projects

One of the key aspects of His Majesty’s National day address was on the opportunities for the youth in commercial farming and food processing, and also the benefits to the country and the youth if the banks can enhance credit to this underfunded sector. His Majesty also recognized and acknowledged the Royal Monetary Authority (RMA) and Financial Institutions for bringing down loan interest rates.

Inspired by His Majesty’s address all the Financial Institutions in a meeting this week with the RMA Governor pledged to voluntarily enhance credit and support to agricultural projects as a priority sector.

The RMA will also list agriculture as a priority sector in its Financial Inclusion Policy which is currently being drafted with the aim of providing financial services of credit and deposit to every citizen in Bhutan.

“The RMA is starting a Financial Inclusion unit so that financial inclusion can be implemented and taken down to the Dzongkhags and Gewogs. The Financial Institutions will also be supporting us in this,” said the RMA Governor Dasho Penjore.

The Governor reasoned that be it in terms of population or even if one took at a landscape of Bhutan, agriculture is still the prime occupation in Bhutan. The Governor pointed out that Bhutan as of now still has not enforced a priority lending sector like in India where 20 percent of the bank’s loans have to go to priority sectors like agriculture. The Governor said that it is good that the FI’s have voluntarily agreed to make agriculture a priority sector.

The banks on their part have said that it would be more effective to target commercial agriculture as there would be enhanced productivity and it would also be viable.

Financial Institutions Association of Bhutan (FIAB) head and BNB MD Kipchu Tshering said, “Commercial farming will generate more income and employment for the youth.”

The FIAB head said that they have requested the RMA to ask the Ministry of Agriculture to prioritize and come up with projects and entrepreneurs that the banks can finance.

The RMA Governor is already in touch with the Ministry of Agriculture who is already working on identifying priority sectors and projects that can be funded by banks.

The Agriculture Minister Lyonpo Yeshey Dorji said that soon after the National Address the Ministry has started looking at projects and means to enhance credit and financing in the Agriculture sector and the ministry will be working in cooperation with the RMA and other financial institutions (FIs).

As soon as the MoA identifies key activities and projects for financing, the RMA would share it with the FIs and then there would be work to clearly define prioritized lending to the sector.

The Governor said it would be important to define it well to ensure loans or financing in the sector are used productively for those very purposes. He gave the examples of eggs saying how finance could be used to enhance export of eggs.

Since the loans have to do with the largely poor and marginalized groups, and since it would be difficult to get them to produce collateral the RMA will propose to the government a credit guarantee scheme for such lenders backed by the government.

Dasho said that as an example it could be shared 60 percent by the government and 40 percent by FIs and so apart from the advantage of extending credit it would also lower the cost of credit. He said this had been tried in the past but it had not worked well then as it was not well defined but the new scheme should be a well defined one with the obligations of all the stakeholders being made very clear.

The Governor said apart from working with the mainstream FIs the RMA would also be working with Micro Finance Institutes (MFIs) to enhance financial inclusion in the rural areas.

Currently the RMA allows a few Civil Society Organizations like Tarayana, RENEW and BAOWE to extend credit up to Nu 500,000.

The next step according to the Governor would be the framing of rules by the end of December which would allow MFIs to also take deposits in rural communities.

The Governor said that if certain MFIs can do well then they can graduate to becoming a small bank and even open a commercial branch.

Dasho said that another strategy would be the government using institutions like the Bhutan Development Bank (BDB) and REDCL funding agency owned by it to enhance rural credit. He said that the government already has established 198 Gewog banks through BDB. He said these branches in the Gewogs instead of waiting for business to come can actually go out and be more proactive and give financial literacy programs to farmers to make them aware of credit and how to use it effectively.

The Governor said that there would be a large financial literacy campaign in these rural areas along with a digital banking campaign targeting rural youth. He said that the Ministry of Information and Communications is already working on a GoI financed Bhutan Payment System which would compliment online G2C services by allowing payments through phones in an array of services and transactions.

Since Agriculture Financing is a very specialized job the RMA will be getting relevant experts to train people in the FIs.

Already this week the RMA sent a team to Bangladesh to study rural credit, microfinance and financial inclusion in Bangladesh, which among others has a successful and Noble Peace award winning Grameen Bank, which is a micro-finance movement and NGO there.

The Governor said that while such opportunities are being made available the people must also play their part and so they should not misuse the facilities or take it as a privilege. “There should be sound business development projects in various sectors along with good financial literacy,” said Dasho.

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