𝐄𝐀𝐂 𝐇𝐢𝐠𝐡𝐥𝐢𝐠𝐡𝐭𝐬 𝐃𝐢𝐬𝐩𝐚𝐫𝐢𝐭𝐢𝐞𝐬 𝐢𝐧 𝐑𝐮𝐫𝐚𝐥 𝐂𝐫𝐞𝐝𝐢𝐭 𝐀𝐜𝐜𝐞𝐬𝐬

By Lhendup Wangmo

During the seventh sitting of Bhutan’s National Assembly, the Economic Affairs Committee (EAC) presented a crucial review report on Rural Credit Access, focusing on the financial needs of rural communities and the rising prices of goods. The report, delivered by Member of Parliament (MP) Tshewang Rinchen, chairperson of the committee, highlighted the challenges faced by rural sectors in securing credit and proposed several recommendations to improve access to financing.

The report uncovered a significant gap in rural credit access, with the agriculture sector, which employs 44.08 percent of Bhutan’s labour force, receiving less than 5 percent of the country’s total credit portfolio. This stark disparity shows the urgent need for increased financial support to boost rural and agricultural development.

The committee pointed to Bhutan Development Bank Limited (BDBL) as the primary institution for rural credit but emphasized the need for more comprehensive measures to address the barriers hindering rural communities from securing loans.

MP Tshewang Rinchen outlined several key challenges in the current credit landscape. Lending institutions face difficulties in assessing the creditworthiness of rural borrowers, which is compounded by the high risks associated with agricultural loans. Limited insurance coverage for agricultural projects further exacerbates this issue. Additionally, borrowers in rural areas often struggle with high-interest rates, low levels of financial literacy, and complex documentation processes that make credit access even more difficult.

A major concern raised in the report was the role of collateral requirements, which were identified as significant barriers for rural borrowers. The valuation challenges surrounding collateral make it difficult for many farmers and rural residents to secure loans needed for improving their livelihoods and contributing to rural economic growth. The committee stressed the need to revise these practices to ensure that rural borrowers are not excluded from accessing financial support.

The report also addressed the complications arising from the shift of documentation and verification procedures from gewogs (local administrative units) to financial institutions. MP Sonam Tobgyel from Trashigang raised concerns about this transition. He claimed that initially, the documentation and verification procedures in rural areas were handled by the gewog. This solved a lot of problems for the people. “However, after financial institutions started handling the procedures, it created inconveniences for people,” said MP Sonam Tobgyel.

In response to these challenges, the EAC put forward several key recommendations. These included improving market access for rural products, which could help stimulate demand and increase financial opportunities for rural residents.
The committee also suggested diversifying economic activities in rural areas to reduce dependence on agriculture and create alternative income sources. Additionally, enhancing financial literacy among rural communities was highlighted as a crucial step to help individuals navigate the credit system more effectively.

Simplifying the documentation and verification processes was another key recommendation from the committee, aimed at reducing the burden on borrowers and facilitating easier access to loans. The idea of reforming the loan ceiling for personal loans was discussed, with several National Council members expressing support for the proposal, reflecting a growing consensus on the need for reform in this area.

The report was presented on November 25 and the Economic Affairs Committee was tasked with revisiting the report and considering the feedback provided by other members of parliament. This will likely lead to further discussions on how to best address the barriers to credit access in rural Bhutan.