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Additional policy directives to improve PSL

The Royal Monetary Authority (RMA) has issued additional policy directives on the Priority Sector Lending (PSL) based on the experience of the past one year in implementing the PSL.

According to the additional policy directives, PSL proposals on automobile workshops will be determined by the dzongkhag.

This directive was issued considering that the local government is the most appropriate agency to determine if an automobile workshop is needed in the locality.

The RMA issued the additional directives with the PSL report for the second quarter of 2019 last week. They are expected to improve the PSL system.

The additional policy directives states that the financial institutions must assess the proposals approved by the dzongkhag within a turn around time of 30 working days after the receipt of the proposal.

The RNR sector has been entrusted to recommend proposals that are not in the priority list to the Ministry of Agriculture and Forests. The ministry will then assess the proposal in consultation with respective dzongkhags.

The directives state that the project assets will qualify as equity. But the proponent must produce 30 percent equity for purchase of machineries and other assets for the projects and the loan will be directly disbursed to the vendor of the asset by the bank.

The Royal Insurance Corporation of Bhutan and Bhutan Insurance Corporation Limited are not required to lend under the PSL as they are providing affordable insurance schemes, especially crop insurance. However, the two insurance companies will be required to review the pricing of their insurance products often.

According to the second quarter report issued last week, the majority (79 percent) of the PSL projects to be approved continue to be based on agriculture. The projects are clustered around similar ideas while proponents were all individuals with only a handful of groups.

A total of 1,486 PSL applications were received as of the second quarter of 2019, of which 1,197 projects were approved.

Thimphu received 268 project applications, which was the highest among dzongkhags. The financial institutions collectively assessed 1,002 projects as of second quarter 2019 and approved 450 projects.

More than half the projects that were rejected were on account of poor credit history of the clients. The financial institutions collectively sanctioned Nu 413.62 million (M).

A total of Nu 289.63M were disbursed as of the second quarter of 2019.

The PSL initiative was launched on December 13, 2017 for implementation with effect from January 1, 2018.

MB Subba

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