A robust cottage and small industry (CSI) sector can offer the dual fulfillment of contributing to the national growth and equitable distribution of national income. Building a strong CSI sector can result in significant macroeconomic benefits, namely, creation of employment, diversification of economy, and development of an entrepreneurial base.
In Bhutan, few of the recent five-year plans focused on developing the CSI sector. Simultaneously, the CSI policy was in place since 2012 and further revised in 2019. The Economic Development Policy 2016 recognizes CSI as one of the five jewels of the economy. A dedicated government agency, the Department of Cottage and Small Industry (DCSI) was established with the intention to promote CSI sector. These are evidences which establish that the Government has always been endeavoring to promote the CSI sector. For instance, as per recent data, Bhutan’s CSI sector represent more than 95% of the total industries with 22,064 businesses licensed and in operation employing over 99,200 as of 15th June 2019. However, when it comes to access to finance, the CSI sector accounted for only over 15% of total loans and advances as of March 2019.
Therefore, it is timely that Bhutan has a dedicated entity, focusing on enhancing access to finance for the growth of CSI sector. The Government recognizing such a need, established the Business Opportunity & Information Centre (BOiC) in 2013 with the primary objectives to (i) facilitate access to credit; (ii) stimulate economic activities; (iii) promote import substitution; and (iv) generate employment. A Revolving Fund (RF) was institutionalized under the then BOiC with Nu.1.900 billion committed from Economic Stimulus Plan (ESP) Fund mainly to finance cottage and small industries and non-formal rural activities at highly concessional terms. From the fund, Nu.1.500 billion was allocated under RF-I to finance new business start-ups primarily cottage and small industries and Nu. 400 million under RF-II to support non-formal rural activities.
With the closure of BOiC in May 2016, there was a need for an institution to carry out the activities of RF-I and RF-II since huge amount has been disbursed over the period of two years. Therefore, in 2016, the Government vide letter No. C-2/101/303 dated 18 May, 2016 established Rural Enterprise Development Corporation Limited (REDCL) as a wholly owned State-Owned Enterprise (SOE) under the Companies Act of Kingdom of Bhutan and licensed as a Micro Finance Institution. The operation of RF-II was transferred from the erstwhile BOiC to the new SOE. Similarly, the activities of RF-I were transferred to Cottage and Small Industry Financing Department (CSIFD), BDBL under the Special Window.
In 2019, with the new Rules and Regulations for CSI Banks 2018 in place, the REDCL was issued “In-principle Approval” to operate as the non-deposit taking CSI Bank.
CSI sector is recognized as one of the potential sectors to promote access to finance, enhance domestic production, bring innovation and diversification, generate income for rural people and create employment opportunities.
An enabling and conducive industrial climate is essential for business expansion and growth and a well-functioning and specialized financial institution is one of the important factors for creation of conducive business environment. Therefore, upgradation of REDCL into a CSI Bank is expected to enhance access to finance and promote growth in cottage and small industries in the country.
The Bank is a government undertaking non-deposit taking CSI Bank, established as a dedicated State-Owned Enterprise (SOE) to promote the growth of Cottage and small industries in the country. The core mandate of the Bank will be to enhance access to financing and diversify the economic growth through promotion of cottage and small enterprises. The Bank will also have the provisions to support the export and overseas employment financing. The Bank is expected to narrow the gap in availing financial support for start-ups and entrepreneurs, which otherwise faces difficulty in availing loans from other commercial Banks in lieu of collaterals.
“To diversify the economic growth through promotion of Cottage and Small Industries, and improve access to financing.”
The mission of the Bank will be:
1. Enhance access to financing for the small start-ups and entrepreneurs;
2. Promote small and medium enterprises and;
3. Support in developing entrepreneur skills.
The mandates of the new Bank will be;
1. To operate as a CSI Bank;
2. To extend credit to the CSI sector (agriculture and non-agriculture CSI) and small retail businesses engaged in trading domestically produced goods;
3. To provide various financial services;
4. To provide technical assistance services complementary to CSI loans;
5. To make equity investment; and
6. To provide any other activities with the approval of the RMA/RGOB.