Concerns regarding loan repayment in the agricultural sector

More than 80% of the Bhutanese population is engaged in agriculture and related sectors

The Covid-19 situation in the nation has been causing the clients their own problems though



Loan recipients from the agriculture sectors are concerned about their loan repayments after the Royal Monetary Authority of Bhutan (RMA) released the terms of the fourth phase of monetary measures.

A low-risk area, according to the RMA’s most recent risk assessment, is the agriculture sector.

However, according to Tshering Wangchuk, President of the Horticulture Association of Bhutan (HAB), the agriculture sector is seen as a high-risk area for financial institutions due to the greater risk connected with the industry. Nonetheless, it has taken a completely different turn when after the pandemic.

Even though everyone depends on agriculture sector on a daily basis, he claimed that because it is currently deemed to be low risk, it is believed that those who took out loans will not be able to pay them back because their businesses were negatively impacted by the Covid crisis in the nation.

He claimed that the National Cottage and Small Industries Development Bank Ltd. (NCSIDBL) stepped in as a lifeline for the sector, offering loans without collateral up to Nu 10 million, and that most borrowers took out loans between 2019 and 2020.

The Covid-19 situation in the nation has been causing the clients their own problems though.

Sangay Needup, the vice president of the HAB, claimed that clients in the production field encountered difficulties during the pandemic-related lockdown, making it impossible for them to carry out their planned tasks.

“Due to lockdowns, those engaged in land improvements and machinery procurement was delayed, while those who had already produced were left without markets,” he said.

Further, due to the government fixing prices and putting limits on supply movement, the clients were either unable to market or operate their businesses as usual or a small number of those who did were unable to make as much as they would have in normal circumstances, he claimed.

Regarding customer processing, he added that because of the lockout and lack of supply flow most of their firms remained closed.

The farm industry benefited greatly from the introduction of NCSIDNL because, unlike other FIs, there were no collateral requirements. According to Sangay Needup, young people were urged to work in the field to increase the nation’s food security and self-sufficiency while also creating self-employment, but the situation in the agricultural sector is different.

He cited several shortcomings in the agriculture industry, including irrigation problems, conflicts between people and wildlife, a lack of timely access to necessary fertilizers, insecticides, or pesticides, the inaccessibility of preferred seeds, improper post-harvest handling procedures, and a lack of market information systems, among others.

There is a lot that must be done to strengthen the agricultural sector and, according to him, this can only be done with appropriate coordination amongst all pertinent governmental entities.

FIs like Bhutan Development Bank and NCSIDBL have aided the agriculture industry financially, but according to him, FIs need to understand why the sector is not improving.

He also said that insurance schemes must be provided by the insurance companies to agriculture and livestock-sector.

“The rate of interest must be taken into consideration together with the need for sufficient gestation period of at least to two years. In addition, loan disbursement time period should be taken care of as farming is all about timing which would otherwise cause delay in sowing time or procurement of required machineries,” he said.

He further said that phase-wise release of loan should be taken care of given the client’s requirement to complete work on time, and the process for loan application should be sped up.

“Agri entrepreneurs should be provided rooms to share their difficulties and accordingly plan with policy makers,” added Sangay Needup.

And rather than fostering competition by launching more State-owned Enterprises (SOEs) and other government projects, Sangay Needup said the government should instead facilitate and support the private sector whenever appropriate by intervening with policies to strengthen it.

In the meantime, the association claims that official export links, government subsidies for agricultural export products, and subsidies for power in the service sector will not only lower production costs but also encourage customers to choose local products due to competitive prices.

The paper was unable to get a comment from the Ministry of Finance on the matter.