Bhutan : Rural Finance Development Project

Sovereign Project | 53307-001

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

Related Projects

Project Name Rural Finance Development Project
Project Number 53307-001
Country / Economy 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 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
Operational Priorities OP1: Addressing remaining poverty and reducing inequalities
OP2: Accelerating progress in gender equality
OP6: Strengthening governance and institutional capacity
Sector / Subsector

Finance / Banking systems and nonbank financial institutions - Inclusive finance - Small and medium enterprise finance and leasing
Gender Gender equity theme
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)

Ongoing implementation

Ongoing implementation

Ongoing implementation

Ongoing implementation
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 Gunawardhena, Manohari
Responsible ADB Department Sectors Group
Responsible ADB Division Finance Sector Office (SG-FIN)
Executing Agencies
Department of Macroeconomic Affairs, Ministry of Finance
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 13 Dec 2022

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 20 Sep 2023 17.00 0.00 85%
Counterpart 0.00 Cumulative Disbursements
Cofinancing 0.00 20 Sep 2023 17.00 0.00 85%
Status of Covenants
Category Sector Safeguards Social Financial Economic Others
Rating - Satisfactory Satisfactory - - Satisfactory

TA 6677-BHU

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
11 Dec 2020 15 Dec 2020 15 Dec 2020 31 Dec 2024 - -
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 20 Sep 2023 518,979.29
Status of Covenants
Category Sector Safeguards Social Financial Economic Others
Rating - Satisfactory Satisfactory - - Satisfactory

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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Title Document Type Document Date
Rural Finance Development Project: Audited Project Financial Statements (January-December 2022) Audited Project Financial Statements Jul 2023
Rural Finance Development Project: Audited Project Financial Statements (18 December 2020-31 December 2021) Audited Project Financial Statements Sep 2022
Rural Finance Development Project: Capacity Building for Rural Finance Development Consultant’s Report Consultants' Reports Sep 2021
Project Agreement for Loan 4042-BHU: Rural Finance Development Project Project/Program Agreements Dec 2020
Loan Agreement (Ordinary Operations [Concessional]) for Loan 4042-BHU: Rural Finance Development Project Loan Agreement (Ordinary Resources) Dec 2020
Rural Finance Development Project: Report and Recommendation of the President Reports and Recommendations of the President Nov 2020
Rural Finance Development Project: Project Administration Manual Project/Program Administration Manual Nov 2020
Rural Finance Development Project: Gender Action Plan Gender Action Plans Nov 2020
Capacity Building for Rural Finance Development: Technical Assistance Report Technical Assistance Reports Nov 2020
Rural Finance Sector Development Program: Initial Poverty and Social Analysis Initial Poverty and Social Analysis Jul 2020
Rural Finance Sector Development Program: Concept Paper Concept Papers Jul 2020

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.

The Access to Information Policy (AIP) establishes the disclosure requirements for documents and information ADB produces or requires to be produced in its operations to facilitate stakeholder participation in ADB's decision-making. For more information, refer to the Safeguard Policy Statement, Operations Manual F1, and Operations Manual L3.

Requests for information may also be directed to the InfoUnit.

Tenders

Tender Title Type Status Posting Date Deadline
TA6677-BHU Capacity Building for Rural Finance Development - Rural Finance Specialist Individual - Consulting Closed
Core Banking System Specialist Individual - Consulting Closed
Financial Sector Specialist Individual - Consulting Closed
Bank Capacity Development Specialist Individual - Consulting Closed
Rural Finance Specialist Individual - Consulting Closed
Core Banking System Specialist Individual - Consulting Closed
Risk Management Specialist Individual - Consulting Closed
Environmental and Social Safeguards Specialist Individual - Consulting Closed
Technical Advisor to BDBL Individual - Consulting Closed
Bank Restructuring Specialist Individual - Consulting Closed

Contracts Awarded

No contracts awarded for this project were found

Procurement Plan

None currently available.