The Druk Gyalpo’s Relief Kidu has helped many people cope with the unprecedented challenges caused by the COVID-19 pandemic. One of the relief measures is the support for loan interest payment. It has benefited people from all walks of life. While all remain grateful for the intervention, some recipients of the Soelra are confused about how the interest waiver benefits them.
Upon Royal Command, the loan interest waiver was instituted from April last year after the pandemic disrupted the lives of the people. Loan account holders were granted full interest waiver for six months benefiting nearly 140 thousand account holders. And since October last year, the relief Kidu of 50 per cent interest support was granted. The support will continue until July next year. However, some loan account holders are confused about how the deferment and interest waiver are applied in the current situation.
“Please understand that a loan has two components; the principal and the interest, which is usually paid at the end of every month. So it’s called EMI, Equated Monthly Installment. This contains the principal portion for that period and the interest accrued for that number of days,” said Karma, the President of the Financial Institutions of Bhutan.
The Kidu covers only the interest portion but not the principal. It means 50 per cent of the interest is paid by His Majesty on the borrowers’ behalf but the remaining accrued interest is maintained in a separate account for the borrowers if they choose to defer their payments.
“There is also confusion about deferment. People feel that they don’t have to pay anything because of the soelra. But deferred doesn’t mean you don’t have to pay. It simply means postponing your payment to a future date,” he said.
He added, there is also a misconception about the borrowers ending up paying more because of the accrued interest and extension of repayment time. Since the accumulated interest for those who deferred their payment is maintained in a separate account, it won’t be charged any interest, hence borrowers won’t be paying more than what they are supposed to. The time extension, he says is optional, depending on the capacity of the borrowers to pay back:
“We are going to sit with the borrower and find out how much they can pay. If you can pay more we welcome it but if you can’t, even five years may not be enough, so we have to restructure our plan. The whole idea is to make credit easy for both the borrowers and the lenders and that our borrowers do not face a situation that they cannot handle”.
For people who have continued to pay their normal instalments besides the interest support, the financial institutions will provide a one per cent rebate on the total interest paid at the end of July 2022. Meaning the banks will deduct one per cent of the interest paid for the period from the principal amount.
However, the outstanding arrears before March 2020 and loans that were sanctioned after April 2020 are not eligible for interest support.
Yeshi Dorji
Edited by Sonam
