Bhutan Policy Notes
In recent years, the government of Bhutan has been placing increasing emphasis on cottage and small industry (CSI) development. It has been revising the 2012 CSI policy to provide strong support for the growing sector. The envisioned reforms focus on six key areas to develop entrepreneurship ecosystems: the policy and legislative framework, the entrepreneurship culture and human capital, business development support and infrastructure, access to finance and incentives, innovation and technology adoption, and access to markets. The CSI sector has several characteristics. First, the sector accounts for 90 percent of industry in Bhutan. Second, as of 2018, there were more than 30,000 registered CSIs in the country, although only a third of these are considered active and operational. Third, according to the 2011 World Bank Enterprise Survey, the average number of people employed by CSIs in Bhutan was 1.9 per cottage enterprise and 6.8 per small enterprise. Fourth, the CSI sector is dominated by men. Women are more active in service-oriented industries, where they represent more than 41 percent of firm owners. Fifth, partly because of a lack of collateral, the CSI sector has not received strong skills and financial support, especially in agribusiness. Except for the Bhutan Development Bank Limited, the exposure of financial institutions in the agricultural sector in 2017 was below 1 percent. As part of the reform process, there have been multiple CSI interventions by several agencies in key sectors. The policy implementation is still ongoing, but there are several preliminary considerations. First, the financial viability of CSI banks (especially REDCL) must be maintained, and the RMA should exercise strong oversight to ensure that nonperforming loan ratios are adequately monitored at banks. Second, trends in priority sector lending among CSIs will need to be monitored because they are encouraging banks to shift away from traditional lending norms whereby collateral and loan guarantors are prerequisites. In this context, removing disincentives (e.g. financial infrastructure, reverse factoring platform) or providing incentives (e.g. partial credit risk guarantees) rather than lending targets on financial intermediaries may serve the CSI segment best. The analysis suggests that the implementation of new priority sector lending policy for CSI banking reflects a degree of shift in RGoB approach to foster access to finance for CSI from one mainly focused on strengthening market functions through supporting the development of the financial infrastructure or ecosystem and institutional capacity to one of a higher degree of dirigiste intervention in the allocation process of loans by the banking system.
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| Format: | Policy Note biblioteca |
| Language: | English |
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World Bank, Washington, DC
2019-06-01
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| Subjects: | SMALL AND MEDIUM ENTERPRISES, COTTAGE INDUSTRY, BUSINESS ENVIRONMENT, MICROENTERPRISES, |
| Online Access: | http://documents.worldbank.org/curated/en/287611564663384651/Bhutan-Developing-CSI-Firms-Policy-Notes https://hdl.handle.net/10986/32293 |
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