Over Nu 5bn will be available as collateral-free, low-interest loans as part of the first phase of the Economic Stimulus Plan, ESP 2024 Credit Lines. A guideline on the implementation of the concessional credit lines was launched in the capital today. The credit will be available through financial institutions starting today.
At the launch today, the ESP Steering Committee handed over the guidelines to the governor of the central bank.
Unlike in the past where new banks were opened to disburse loans for economic stimulation, the current Economic Stimulus Programme will inject Nu 5.3bn directly into the existing financial institutions. The government will lend this money to the banks, interest-free.
From the banks, credit will be made available to the general public through two funding modalities.
The first, the concessional credit line, is targeted to support new business. Here the interest rates for loans are fixed at four per cent and the loan will be collateral-free.
“From the four per cent, one per cent will be used for banks’ operating expenses, and the other three per cent as their risk premium. The government will give the funds to the banks free of interest, and the banks will charge four per cent for loans due to the risk associated with it,” said Leki Wangmo, Finance Secretary.
The second, the reinvigoration fund, is targeted to help distressed businesses, which has the potential to grow and recover from the COVID-19 pandemic and other setbacks.
In this, businesses will be given subsidised interest of four per cent on their outstanding loans. However, clients have to bear the remaining interest they owe to financial institutions.
“If their interest is 10 per cent, four per cent will be provided by the ESP as a subsidy. The remaining six per cent will have to be borne by the individual. The maximum duration is three years and within that time, if the business fails and goes to NPL because of inefficient assessment or no due diligence in how the subsidy was used, the banks will have to pay back the subsidy to the government,” said Yangchen Tshogyel, Deputy Governor I, Royal Monetary Authority.
Additional loans will also be provided to distressed businesses from the reinvigoration fund at an interest subsidy of four per cent with clients bearing the difference in the subsidised rates and existing rates of financial institutions.
Borrowers can apply for either a concessional credit line or for a reinvigoration fund, but not both.
“Within the project, a maximum of ninety per cent will be given as loan to value. The remaining ten per cent will be an investment from the business/individual. That is because we have to make sure there is skin in the game on the part of the clients. These are some big concessions for the clients through this ESP,” said Yangchen Tshogyel, Deputy Governor I, Royal Monetary Authority.
Meanwhile, Finance Minister, Lekey Dorji said that financial institutions should take prudent measures to ensure past mistakes with the Business Opportunity and Information Centre (BOIC), National Credit Guarantee Scheme, and Rural Enterprise Development Corporation Limited are not repeated.
“In the past, the government made a separate bank and it was not successful. We are avoiding past mistakes and are now collaborating with existing banks. Before, when loans were provided, there was no proper follow-up or monitoring. But now, the RMA and the ESP Steering Committee are going to meet once every three months.”
According to a news release from the Prime Minister’s Office, the second phase, covering additional sectors and priority areas, will be announced in the coming weeks.
Sherub Dorji & Deki Lhazom
