fbpx 53307-001: Rural Finance Development Project | Asian Development Bank

Bhutan: Rural Finance Development Project

Sovereign (Public) Project | 53307-001 Status: Active

The project will enhance access to finance for rural cottage and small industries (CSIs), thereby increasing rural employment and promoting economic development. The project focuses on (i) expanding collateral-based rural CSI financing through Bhutan Development Bank (BDB), Bhutan's key rural finance intermediary; (ii) extending, through BDB, non-collateral-based group loans to rural CSIs that lack assets; (iii) strengthening BDB's institutional capacity, including enhancement for rural CSI financing operations; and (iv) providing financial literacy training and business development support to rural CSIs, in particular CSIs owned by small and marginal farmers and women.

Project Details

Project Officer
Ozaki, Mayumi South Asia Department Request for information
Country
  • Bhutan
Sector
  • Finance
 
Project Name Rural Finance Development Project
Project Number 53307-001
Country Bhutan
Project Status Active
Project Type / Modality of Assistance Loan
Technical Assistance
Source of Funding / Amount
Loan 4042-BHU: Rural Finance Development Project
concessional ordinary capital resources lending / Asian Development Fund US$ 20.00 million
TA 6677-BHU: Capacity Building for Rural Finance Development
Technical Assistance Special Fund US$ 750,000.00
Financial Sector Development Partnership Special Fund US$ 250,000.00
Strategic Agendas Inclusive economic growth
Drivers of Change Gender Equity and Mainstreaming
Governance and capacity development
Knowledge solutions
Partnerships
Private sector development
Sector / Subsector

Finance / Banking systems and nonbank financial institutions - Inclusive finance - Small and medium enterprise finance and leasing

Gender Equity and Mainstreaming Gender equity
Description The project will enhance access to finance for rural cottage and small industries (CSIs), thereby increasing rural employment and promoting economic development. The project focuses on (i) expanding collateral-based rural CSI financing through Bhutan Development Bank (BDB), Bhutan's key rural finance intermediary; (ii) extending, through BDB, non-collateral-based group loans to rural CSIs that lack assets; (iii) strengthening BDB's institutional capacity, including enhancement for rural CSI financing operations; and (iv) providing financial literacy training and business development support to rural CSIs, in particular CSIs owned by small and marginal farmers and women.
Project Rationale and Linkage to Country/Regional Strategy Out of a total population of about 807,600, 62.2% live in rural areas where agriculture is the primary source of livelihood. In rural areas, opportunities for both on-farm and off-farm employment are extremely limited and farmers mostly depend on subsistence production of crops and livestock for their living. In Bhutan, cottage and small industries (CSIs) constitute more than 90% of total enterprises and employ about 99,288 people, with 22,064 registered CSIs in 2019. In addition to registered CSIs, there are many informal CSIs. CSIs face various constraints, including poor access to finance and bureaucratic hurdles related to labor regulation, taxation, and registration. Among these, access to finance is the largest constraint. Men- and women-owned CSIs face similar challenges; however, these challenges are often greater for women, who suffer from low literacy, low self-confidence, and a lack of education, training, and entrepreneurial and technical skills. Other key constraints for women-owned CSIs include labor shortages and inadequate business premises. As a result of these constraints, most women-owned CSIs are unable to scale up their businesses, and therefore remain at a subsistence level. Rural CSIs lack access to finance because rural CSI financing requires a different set of expertise and methodology from regular commercial banking. Many CSI owners are illiterate or semiliterate and have limited financial literacy, therefore lack the capacity to develop business proposals, which are needed for financing from formal financial institutions. Commercial banks lack business expertise in CSI financing and impose stringent collateral requirements, as per standard commercial banking risk management practices. This generally excludes them from lending to CSIs, most of which do not own sufficient physical collateral. BDB, the key formal financial intermediary with a CSI financing mandate, offers collateral-based loans to CSIs by mostly accepting rural land; however, the value of rural land is difficult to assess. As a result, it does not facilitate an effective CSI credit risk management. The project will provide financing support to BDB to expand its rural CSI financing outreach under ADB's financial intermediation loan modality.
Impact Productive and gainful rural employment opportunities generated. (12th Five Year Plan, FY2018-FY2023)
Project Outcome
Description of Outcome Finance sector's rural financing capacity enhanced
Progress Toward Outcome
Implementation Progress
Description of Project Outputs

Collateral-based rural CSI financing expanded

Non-collateral-based rural CSI financing expanded

BDB's institutional capacity strengthened

Financial literacy training and business development support extended to rural CSIs

Status of Implementation Progress (Outputs, Activities, and Issues)
Geographical Location Nation-wide
Safeguard Categories
Environment FI
Involuntary Resettlement FI-C
Indigenous Peoples FI-C
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design
During Project Implementation
Business Opportunities
Consulting Services not applicable.
Procurement no procurement
Responsible ADB Officer Ozaki, Mayumi
Responsible ADB Department South Asia Department
Responsible ADB Division Public Management, Financial Sector and Trade Division, SARD
Executing Agencies
Department of Macroeconomic Affairs, Ministry of Finance
Tashichho Dzong, Post Box No. 117
Timetable
Concept Clearance 30 Jun 2020
Fact Finding 24 Jun 2020 to 29 Jun 2020
MRM 09 Oct 2020
Approval 11 Dec 2020
Last Review Mission -
Last PDS Update 14 Dec 2020

Loan 4042-BHU

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
11 Dec 2020 14 Dec 2020 18 Dec 2020 30 Jun 2025 - -
Financing Plan Loan Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 20.00 Cumulative Contract Awards
ADB 20.00 11 Dec 2020 0.00 0.00 0%
Counterpart 0.00 Cumulative Disbursements
Cofinancing 0.00 11 Dec 2020 0.00 0.00 0%

TA 6677-BHU

Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
1,000,000.00 0.00 0.00 0.00 0.00 0.00 1,000,000.00 - 0.00

Project Data Sheets (PDS) contain summary information on the project or program. Because the PDS is a work in progress, some information may not be included in its initial version but will be added as it becomes available. Information about proposed projects is tentative and indicative.

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Safeguard Documents See also: Safeguards

Safeguard documents provided at the time of project/facility approval may also be found in the list of linked documents provided with the Report and Recommendation of the President.

Title Document Type Document Date
Rural Finance Sector Development Program: Environmental and Social Management System Arrangement Environment and Social Management System Arrangements Sep 2020

Evaluation Documents See also: Independent Evaluation

None currently available.

Related Publications

None currently available.


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Tenders

Tender Title Type Status Posting Date Deadline
Environmental and Social Safeguards Specialist Individual - Consulting Closed 09 Jan 2021 15 Jan 2021
Technical Advisor to BDBL Individual - Consulting Closed 07 Jan 2021 13 Jan 2021
Bank Restructuring Specialist Individual - Consulting Closed 07 Jan 2021 13 Jan 2021

Contracts Awarded

No contracts awarded for this project were found

Procurement Plan

None currently available.