Kuensel carried a story of BFF funding Zimdra Food Pvt. Ltd. to the tune of Nu: 30 million @ 10% interest per annum. A conflict of interests theory sprouted because the President of BFF is also associated with Zimdra Food. The Kuensel story has been followed up with clarifications from the President of BFF Dasho Ugen Tsechup who is also the Promoter and probably major share holder of Zimdra Food. He expressed his unhappiness with Kuensel 's part coverage of details and goes on to provide the whole story. His side of the story was published today the 18th January,2016 in Kuensel Issue under ' My Say ' column.
One may wonder as to what product does Zimdra Food produce? Ngultrums ! The declared financial deals with BFF, the Central Dratsang and Gantey Shedra are more like Fixed Deposit Schemes that Banks offer or Public Bonds sold by Security Firms on behalf of Corporations who obtain RMA approval.
Dungsum Cement Corporation and Royal Insurance Corporation of Bhutan have sold bonds in the open market to raise cheaper funds, upon approval from Royal Monetary Authority. Unlike shares, bonds fetch a fixed return and some provide for encashment option if required. Banks could also readily accept bonds as mortgage instruments for loans.
Is Zimdra Foods also a Financial Company? Or has it been authorised to float Public Bonds? The main question here is legal propriety not the issue of conflict of interests as made out to be. When a deed is deemed to benefit all participating parties, there cannot be conflicts of interests except maybe in the eyes of the law. And laws can choose to be blindly ignorant in almost all nations. However, it is also very possible that its all done legitimately. So why the controversy?
What Dasho Ugen Tsechup has described is a very traditional business style. Money lending against fixed return is a common age old Bhutanese social and economic character. The Courts in Bhutan are infested with Cases related to such loans. These loans happen generally between individuals. Under the Revenue rules on PIT or BIT or CIT , expenses to meet interest payments for loans from outside the Financial Institutions are not deductible operating expenses. Thus Companies do not generally borrow money from outside circles.
However, if you are starting a new company without much capital in hand, gaining large capital in form of Fixed Deposits with just 10% annual interests liability is simply an irresistible temptation. It is manna from Heaven. And its all the more attractive if the lender or depositors does not seek tangible guarantee other than verbal or written assurance. However,it is quite impossible for just any average businessman or industrialist to successfully raise capital in such traditional manner. You have to have the name and clout and bit of luck and favourable circumstances.
Under licensed trade, industry and commerce practice, an enterprise should not be infringing upon the rights of other enterprise. Thus generally, Zimdra Food is not expected to takeover banking activities. However, in Bhutan the legislations are very unfriendly to Savings culture. Bank interests on Savings are low and then interests on one year Fixed Deposits are just about 6% and again it is taxable income. . Therefore, many NGOs and retired people get a raw deal for their bank deposits. First Banks are not in position to give respectable interests rates and second the interest accrued is taxed by the Government. At one time, the DPT Government had talked of doing away with PIT on Fixed Deposits. It just remained a talk. Now with PDP Cabinet, the proposal seems to have been shelved or simply put on the back burner.
What Zimdra has done in the cases of the idle Funds of NGOs is to provide a window to earn 10% interests per annum. Provided the quantum of idle fund is large ( in Bhutanese context ) like the 3 crores of BFF, such opportunity present huge financial relief to individuals or organisation. Otherwise yearly inflations and expenses rapidly dwindle the Savings. Thus Zimdra financial scheme benefits both parties and fills a void in financial service. However, Zimdra is not engaged in piety works.
It is also very lucrative for a Company like Zimdra to avail such Funding because borrowings from Financial Institutions is far more expensive and repayment of interests and capital on monthly or quarterly basis creates extra financial pressure on Companies. Banks are quite strict in terms and conditions before sanctioning loans. And Bank loans are far more costly than the loans availed by Zimdra from NGOs.
Dungsum Cement financial woes were eased by floating Public Bonds @ 10% interest per annum. The money raised through bonds issued was used to pay off high interests loans taken by the Company. RICB also seeks capital fund for its investment in similar manner.
The Zimdra Food Pvt. Ltd Financial Scheme type is a welcome widow of investment opportunity for idle funds plus those old and retired individuals who depend on little savings they are able to hold on to. Like DCCL, Zimdra Food or any other Company can legitimately engage in such investment channels with RMA blessings.
It would make a world of positive economic impact if the Finance Ministry and RMA could liberalise Public Bond Issues backed by guaranteed Securities. Yes, in the bond market, guaranteed financial security of fund invested in the bond is most important. Otherwise the bond market will turn out to be a official Ponzi Scheme that will ultimately tumble down. For example Dungsum Bonds are guaranteed by DHI.
There is a pool of Savings fund within the Country that if permitted to utilise beneficially can make huge difference to both commercial enterprises and Savings culture in Bhutan. Under prevailing rules, interests earned from Company bonds are tax free whilst Fixed Deposit interests earned from Banks are taxed. Thus it makes good investment sense to opt for guaranteed income of 10% per annum on idle fund as so offered by Zimdra Food Pvt. Limited.