In a move to manage its Non-Performing Loans, the Bhutan Development Bank (BDBL) has set stringent criteria whereby loan applicants have to have at least five acres of land to avail themselves of loan. To this, the Finance Minister said this criteria is discriminatory in nature and defeats the very mandate of the bank.
The Royal Monetary Authority in May last year suspended loans from the Bhutan Development Bank. After almost a year, the first partial lifting of the loan was approved by the central bank in March this year. The bank was allowed to sanction loans in five sectors: Agriculture, Livestock, Forestry Logging, Consumer Loan and Loan against Fixed Deposit to 11 branches out of 35 branches. Gradually, the bank lifted loans to all the branches.
However, after the RMA approved the bank to resume its normal credit flow, the BDBL introduced several checklists, one of which is the eligibility to acquire a loan from the bank.
The criterion mentioned that a person availing for loans from BDBL should hold land above five acres or equivalent in the individual’s name.
To this, the finance ministry wrote an official letter to the bank on Monday this week stating that the bank has made access to financing more difficult. The bank has been directed to immediately recall the criterion.
“BDBL back in the 1980s was started as BDFC. So this is a policy development bank and during the establishment of BDFC, If you go into the genesis, the foundation, why BDBL was established, it is primarily to support rural development through access to financing for the rural communities. Now if you are asking for five acres of land or more to access a loan, then you are going against the core mandate as to what BDBL is supposed to do. So for that matter, I have reminded the management and board to lift that condition,” said Namgay Tshering, the finance minister.
The Finance Minister added that he has also asked the bank to work closely with the central bank and initiate facilitating the new loan applications, ensuring the priorities for new loan to be given to rural farmers, the CSI sector and start-ups.
People in rural areas said this new system of availing loans from the bank is as good as making the loan inaccessible to them.
“People in olden days had land up to 10 acres or more. However, only one or two might have five acres now. But personally, I feel the majority might have only an acre of land or less. If the situation to avail the loan is like that, then we are in a grave problem,” said Jigme Loday, a resident.
“Our farmers do not own five acres of land. There may be family land of five acres but when they divide the land among the family members, each individual will roughly have around one acre. So, I feel that the decision should be reconsidered. Otherwise, it is not going to benefit our farmers. Our people avail themselves of loans only because they do not have financial abilities,” said Beda Moni Chamlagai, Tsirang Dzongkhag Tshogdu Chairperson.
“I do not think this is applicable because people who have less than five acres of land cannot start any business. They will remain poor. Rich ones will become richer and poor ones will remain poor,” said Budhi Man Pradhan, a farmer in Tsirang.
The Bhutan Development Bank said there is no specific conditions on the minimum requirement of land. However, as part of their internal risk management, the bank does review the size of the land as part of the appraisal.
The bank added that it remains vital for banks to continuously adjust their lending methodologies to align with evolving legal and regulatory prerequisites. This adaptation according to the bank is crucial for risk mitigation and upholding responsible lending practices.
However, the bank also said they are in the process of working out on a way forward for introducing new business model.
Samten Dolkar
Edited by Kipchu
