MCGS Review Final Report.pdf

8/11/2019 MCGS Review Final Report.pdf

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REVIEW REPORT

REDP -MICRO CAPITAL GRANT SCHEME

UNDP/SNV/MINISTRY OF AGRICULTURE

Submitted by:Tshar Gyam Consultants,September 2006


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Review of Micro Capital Grant Scheme

REDP, Ministr y of Agriculture Tshar Gyam Consul tants2

Table of Contents

LIST OF TABLES........................................................................................................................................ 3

LIST OF CHARTS....................................................................................................................................... 3

ABBREVIATIONS ...................................................................................................................................... 4

ACKNOWLEDGEMENT ........................................................................................................................... 5

REDP- MICRO CAPITAL GRANT SCHEME AGRIBUSINESS ENTERPRISES..........................6

1. EXECUTIVE SUMMARY ................................................................................................................. 7

2. INTRODUCTION ............................................................................................................................. 12

3. PROJECT OBJECTIVES AND ASSIGNMENT SCOPE.............................................................12

3.1REDP-MICRO CAPITAL GRANT OBJECTIVES ...................................................................................... 12

3.2 ASSIGNMENT SCOPE.......................................................................................................................... 13

4. METHODOLOGY & APPROACH................................................................................................ 13

5. EXISTING SITUATION.................................................................................................................. 14

5.1 MICRO CAPITAL GRANT SCHEME ..................................................................................................... 14

5.2 DESK REVIEW.................................................................................................................................... 17

5.3 FIELD FINDINGS................................................................................................................................. 18

5.3.1 The role and support of DAO/ADAO/EA in Micro Capital Grant Programme..........................18

5.3.2Overall assessment of DAO/ADAO/EA role in Micro Capital Grant Programme effectiveness . 19

5.4 MICRO CAPITAL GRANT PROJECTS.............................................................................................. 20

5.4.1 Overall Assessment of Micro Capital Grant Projects ............................................................ 38

5.4.2 Grant Disbursement by Sub-sector......................................................................................... 38

5.4.3 NUMBER OF GRANT PROJECTS BY DZONGKHAGS .................................................................... 40

5.5 MCGS Management and Administration............................................................................................ 41

5.6 MICRO CAPITAL GRANT PROJECT CYCLE.................................................................................... 42

5.7 OVERALL ASSESSMENT OF INDIVIDUAL MICRO CAPITAL GRANT PROJECTS EFFECTIVENESS ....... 43

6. PROJECT BENEFITS, IMPACTS AND RISKS....................................................................... 45

6.2 Project Risks ................................................................................................................................ 46

7. KEY ISSUES AND WEAKNESSES IN MICRO CAPITAL GRANT SCHEME

IMPLEMENTATIONS.............................................................................................................................. 47

7.1 ISSUES AND WEAKNESS CONCERNING HEAD OFFICE .................................................................... 47

7.2 ISSUES AND WEAKNESS CONCERNING DAOS ............................................................................... 47

7.3 ISSUES AND WEAKNESSGRANT RECIPIENTS/PROJECTS .............................................................. 48

8. OPPORTUNITIES................................................................................................................................ 48

9. CONSTRAINTS .................................................................................................................................... 48

10. LESSONS LEARNED .................................................................................................................. 49


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11. OVERALL RECOMMENDATIONS.......................................................................................... 50

APPENDICES ............................................................................................................................................ 55

Appendix 1 Review QuestionnaireAppendix 2 Desk review of project filesAppendix 3 Proposed Appraisal Guideline

Appendix 4 (a, b, c) IRR of 3 projectsAppendix 5 Proposed Production & Income Statement FormAppendix 6 List of People Met

List o f Tables

1. Sub-sector wise grant delivery2. Year wise grant disbursement3. Sub-sector and amount wise project distribution4. Distribution of projects by Dzongkhags5. Micro Capital Grant Project Status

6. Proposed Project Implementation Schedule7. Proposed Project Cost Estimates and Fund Drawdown Schedule8. A. Proposed M&E format for implementation phase

B. Proposed M&E format for operational phase

List of Charts

1. Sub-sector wise grant release2. No. of enterprises and the %ages of share3. Disbursement of grant projects4. Administration and Management

5. Project Cycle


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Abbreviations

ADAO Assistant Dzongkhag Agricul ture Officer

AMC Agriculture Machinery CentreAMU Agricultural Marketing UnitARIP Annual Roll ing Implementation PlanBDFCL Bhutan Development Finance Corporation LimitedBPS Business Promotion ServicesDAO Dzongkhag Agricu lture OfficerDoA Department of Agricu ltureEA Extension AgentEDP Entrepreneurship Development ProgrammeEPC Entrepreneurship Promot ion CentreMCG Micro Capital GrantMCGS Micro Capital Grant Scheme

M&E Monitoring and EvaluationMoA Ministry of Agricul tureMSME Micro Small Medium EnterpriseMTI Ministry of Trade and IndustryMTR Mid-Term ReviewNMC National Mushroom CentreNPHC National Post Harvest CentreNu Ngultrum(National Currency of Bhutan)RED Rural Enterprise DevelopmentREDP Rural Enterprise Development ProgrammeRGoB Royal Government of BhutanRNR Renewable Natural Resources

RTIO Regional Trade and Industry OfficeRNRRC Renewable Natural Resources Research CentreSNV Netherlands Development OrganizationUNDP United Nations Development ProgrammeDzongkhag DistrictGup Elected Leader of the GeogTshogpa Elected leader of group of villages/Association of people


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Acknowledgement

Tshar Gyam Consultants is extremely grateful to RED Programme Coordinator,REDP Agriculture Enterprise Advisor, all DAOs, Extension Agents, grant

recipients for the kind assistance, cooperation and for providing meaningfulinsights and understanding of the Micro Capital Grant Scheme executed byREDP-Minist ry of Agriculture.

This review and study of MCGS would not have been possible without theassistance and cooperation from all stakeholders.

Tshar Gyam ConsultantsSimtokhaP.O Box 1070Thimphu


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REDP- Micro Capital Grant Scheme Agribusiness Enterprises

Potato Chips Log &Straw Mushroom

Med. Plant Cultivation Potato & banana chips unit

Potato chips production

MAP Cultivation Med. Plant culti vation &

Processing

Orchid Farm Vegetable Seed Prodn. Comml. Straw Mushroom Log Mushroom cultivation Jachukap Mushroom Potato Chips

Cornflakes Production

Log Mushroom Cultivation

Fruit & Nut Nursery

Log Mushroom

Potato Chips

Oyster MushroomLarge ambient cold storeYe-ong mushroom farmRural Produce Mktg. outletTashi Phelwar NurseryPotato Chips


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1. Executive Summary

Objective & Purpose of Micro Capital Grant Scheme:

The objective of Micro Capital Grant Scheme is rural enterprise development and thepurpose is to support micro, small, and medium replicable and sustainable ruralagricultural enterprises.

Purpose of consulting assignment:

The purpose of the assignment was to review and evaluate the existing micro-capitalgrant delivery process and understand the constraints faced by grant recipients. Duringthe course of review and evaluation the consulting team conducted field visits tointerview and discuss with DAOs/Extension Agents on programme awareness, proposalselection & preparation, involvement in the grant delivery, implementation andmonitoring, difference the projects have made in terms of replicable & sustainability,creation of employment and marketing opportunities. With regard to the recipients ofgrants, financial details of project such as equity contribution and mobilization, efficiencyand timeliness of grant delivery, technical aspects of the project, marketing of products,financial performance, and the constraints faced by them were discussed.

This review provides an overview of REDP-Micro Capital Grant Scheme implementationprocess. The report also contains information on the role of agriculture officials atdifferent levels in the MoA and the Dzongkhag in grant execution and implementation;gaps and opportunities identification in the current processes; and status of theenterprises supported by REDP-Micro Capital Grant Scheme, with lessons learned andrecommendations.

Project Cycle

The typical project cycle generally involves steps such as project identification,preparation of proposal, critical appraisal, assessment, documentation, approval, andsupervision. However, in case of micro capital grant scheme, entrepreneurs come upwith an idea to start an enterprise, and then complete the grant application form withassistance from agriculture officials and submit to the RED Programme Office. MCGSguidelines are followed in processing applications received from entrepreneurs. TheDAOs are involved in processing and appraising the proposals. NPHC, NMC, andRNRC provide technical expertise depending on the nature of proposals.

Micro Capital Grant Scheme

As of May 2006, Micro Capital Grant Scheme has provided assistance to 24 enterprisesequal to Nu. 3,578,370 under rural enterprise development objectives.

As the overall project objective is to promote rural enterprises, entrepreneurial skills ofgrantees are vital to project implementation and success. In case of award of grant to agroup or Tshogpa, information on project management/book keeping is not contained inthe form.


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The grant is approved based on application form. The information on nature of project,and promoters background, project location in terms of accessibility to raw materials,marketing of finished products, engineers estimates on shed construction and quotationfor procurement of equipment are not clearly scrutinized. In the absence of suchinformation, often, project implementation is delayed.

Overall assessment Micro Capital Grant Programme effectiveness

In each Dzongkhag, the DAO has identified focal extension agent to monitor projectsassisted under the Micro Capital Grant Scheme. The extension officials can beinstrumental in assisting promoters in project implementation, equity mobilization andproblem identification and reporting that can minimize the project risk largely.

Most Dzongkhag agriculture officials are capable of conducting quick project appraisal.Although DAO expected to monitor Micro Capital Grant projects in their Dzongkhags,proper monitoring tools are not in place. For proper project implementation, ensuringequity contribution by the promoter and reducing the risk of project failure, projectimplementation schedule need to be developed for every project based on the cost

components.

This is the first time MoA is executing programme to develop rural enterprises in thecountry. The assessment highlight that most of the projects are individual projects basedon rural enterprise development strategy. Most grants for given for upgrading theexisting facilities. Distribution of grant is high in a few sub-sectors such as mushroomcultivation and potato chips production. The target beneficiary of the scheme, as per theobjective of REDP Micro Capital Grant Scheme, is rural farmers but the objectives insome cases are overlooked. Out of the total 24 projects, 9 are in commercial operations,9 under implementation, 5 facing implementation problems, and 1 to be implemented.

Some grant assistance delivered for up-gradation of existing enterprise show poor fund

utilization without much change in project status. As the grant scheme is notinstitutionalised, it disregards sustainability & accountability issues. Further, the linkagesamongst the stakeholders are poor resulting in project implementation delay. In absenceof proper appraisal report ensuring actual equity, participation by the grantee based oninbuilt project funding mechanism is difficult as there are no cost and activity details inthe project proposal. Marketing is critical aspect to any enterprise development. Somegrantees lack knowledge on product demand, supply, and market.

Most grantees lack entrepreneurial skills being first generation entrepreneurs and hencehave poor record keeping. Most of the grants delivered to individuals so the grantdocuments do not contain provision on the roles & responsibilities of community basedprojects. Though the project contract agreement mandates submission of progress

reports by the recipients of grants, most operational projects have failed to abide by thiscondition.

In case of delay in project implementation, the grantee does not inform the REDP or theDAO this is non-compliance of the Terms and Conditions of the Contract Agreement.

Project benefits

The tangible benefit of the project is establishment of enterprises in the rural areas. Thescheme has created awareness in terms of project identification, development, &promotion. Dealing in rural enterprise has enhanced the knowledge and experiences of


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DAO and extension agents. With capital input to some of the existing mushroom units,production has increased and supply of mushroom in the market has increased. Thishas resulted in directly benefiting the grantees income earning capacity. Enterprisesdevelopments in rural areas initiated ideas to other farmers to replicate some successfulprojects. The trainings on small business management imparted to some extensionagents & grantees have enhanced their business management skills.

Key issues and weaknesses in Micro Capital Grant Scheme implementation

Some of the key issues and weaknesses in implementing Micro Capital Grant Schemeto develop rural enterprises in the country are:

I. Lack of project skills and experience in developing and dealing in micro enterprises.II. The grantees lack entrepreneurial skills.

III. Target project beneficiary not defined in the document.IV. Grants mostly given for up-gradation of existing units so only few new enterprises

have developed.V. Projects not analysed for making sound investment decision. Thus, some of the

critical aspect to successful enterprise development overlooked.

VI. Monitoring of projects, though stressed by the programme is difficult for the lack ofM&E framework.

VII. Roles and responsibilities of DAOs/EAs, in the implementation of REDP MicroCapital Grant Scheme projects/enterprises, are not defined clearly andinstitutionalized.

VIII. Most of the grant recipients lack entrepreneurial skills and do not maintain properrecords, so accessing information is difficult.

IX. The grants provided for up gradation of existing units are poor since there is notmuch change with assistance.

Opportunities

Can conduct case study in sub-sector where, many projects have received grantassistance.

Capacity development programme for rural entrepreneurs & extension agents canbe linked to MTI's, BPS unit established under the REDP programme

The knowledge & experience gained out of implementing grant programme by DAOand extension agents can be an asset in future for executing similar programme.

Constraints

i) The grant definition is not clearly outlined in the contract document in order topromote rural projects.

ii) The grant target beneficiary not specifically defined in respect to eligibilitycriteria thus screening undeserving applicants is difficult.iii) Grant scheme not institutionalized for focusing on objective of sustainability.iv) Lack of skilled manpower to implement grant programme and analyse project

is risk to wise investment decision.v) Limited grant capital and availability constrains big community projects

especially for processing & manufacturing units.vi) Lack of project implementation timetable and fund drawdown schedule is a

constraint to timely project implementation and success.vii) Weak procurement policy for obtaining equipment.


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viii) Lack of project appraisal and record keeping is a problem in terms ofassessing the financial viability.

ix) Cost of programme operation not considered in project design.

Lessons learned

Cost for grant implementation is not provided in the project design since;operating cost of micro level finance is high.

The Micro Capital Grant definition not clarified as per the project objectives. The grant eligibility criteria not specified clearly, so some undeserving applicants

benefited. Project appraisal not conducted to establish project viability for making sound

investment decision. Therefore, the projects are suffering from implementationdelay.

Scale of funding is limited especially for under taking higher investment projects. Institutionalisation of grant scheme is critical for drawing out comparative

advantages and for project sustainability.

Recommendations

i) The grant guidelinesand contract document should contain clear definitionof Micro Capital Grant, target beneficiary and eligibility criteria.

ii) Grant distribution-follow regional balanced development approach.

iii) Stakeholders coordination-implementation of Micro Capital grant scheme-involves relevant stakeholders.

iv) Strategic partnership-.MoA lack desired skills to implement rural enterprisedevelopment programme on sustainable basis. As the grant is limited in sizeand availability, the strategic partnership with existing financial institutionsdrawing out comparative advantages of each other would support theobjective of rural enterprise sustainability issue.

v) Sound investment decision- In order to minimize the investment risks, itwould be prudent to analyse the proposal irrespective of grant size.

vi) Procurement Procedure-The grant document should mandate requirementof competitive equipment quotation to avoid implementation delay.

vii) Project implementation and fund draw down schedule-Project proposalshould be sufficiently developed to allow immediate and straightforward

project implementation without causing undue delay,

viii) The roles & responsibilitiesof community projects need to be developedand understood prior to approving grant for the community projects.

ix) Record keepingshould be mandatory terms in grant contract document.

x) Strengthening the capacity for rural enterprise development. To ensureobjective of rural enterprise development in-house expertise in terms ofproject identification, project appraisal and monitoring needs to be developed.


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xi) Project management unit-In order to address accountability & sustainability

issues, the grant programme should be managed by a separate unit. This willnot only facilitate the programme impact but also build credibility of the grant-implementing agency.

xii) Base line data-collect base line date at proposal preparation stage tomeasure the benefit of the project after the grant input.

xiii) Accounting-for convenience of accounting purpose the grant amount shouldbe rounded to the nearest figure.

xiv) Monitoring & evaluation-A follow up and monitoring system be set up tobackstop the new enterprises. M&E should be conducted duringimplementation, and commercial phases of the projects. This will help intimely identification of problems as well as help the concerned officials to planthe work to enable them to conduct M&E functions on regular basis.

xv) Outsourcing: would be an innovative approach to overcome the constraintof limited manpower and in house capacity in terms of project appraisal andmonitoring & evaluation. The approach would create opportunities simulatinglinkages between public and private sector

xvi) Operational cost: may be built-in in the grant programme.


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2. Introduction

The objective of the review is to assess REDP- Micro Capital Grant procedures,guidelines, implementation strategy through extensions and performance of individualprojects and to derive lessons learned and recommendations to improve grant

implementation strategy.

The Micro Capital Grant scheme became operational since 2004. The project isimplemented through REDP unit at Ministry of Agriculture. The grant operation wasinitiated with strategic objective in response to countrys objective of rural enterprisedevelopment. The main objective of Micro Capital Grant is to encourage rural enterprisedevelopment for income enhancement, employment creation for sustainable livelihood ofrural people. The aim is to encourage small model agri-businesses in rural areas. Thegrant assistance is meant for establishment of small agribusiness enterprises in ruralcontext. The assistance is delivered to establish new enterprises, to expand existingenterprises and for pilot projects to establish the viability of a proposed enterprise. Thegrant is mainly given for capital investment in the project. The grant is implemented

through, Micro Capital Grant Management & Operational Guidelines.

Since its operation from 2004, the REDP Micro Capital Grant Scheme has delivered 24grants to individuals engaged in agribusiness enterprises. The assistance have beenprovided for micro enterprises such as potato & banana chips unit, apple storage facility,mushroom production, orchid nursery, vegetable seed production, medicinal/culinaryherb production, plant nursery, rural market out let etc. The total REDP budget for MicroCapital Budget is $ 150,000 out of which $ 79,500 equivalent to Nu.3.578 million (Table2 gives Grant Disbursement details) is utilized as of date.

The review considers the performance to that of programme office, extension services,and individual project levels and assesses Micro Capital Grant Schemes strategy

including guidelines & documents, role of DAOs/extension agents and major constraints.The existing grant delivery process includes potential entrepreneur identification,submission of application, justification, approval, & disbursement. Although the currentprocedures are comprehensive, gaps exist in the documents for focusing the grant to thebeneficiary. Current procedure bypasses critical evaluation of proposal for making wiseinvestment decision. Due to poor entrepreneurial capabilities, the project management ispoor and implementation is delayed. In terms of project appraisal and evaluation,capacity enhancement is needed for realizing the objectives. As the scheme is notinstitutionalized fund disbursement & monitoring is critical and grant schemesustainability is questionable. These findings point to the need to improve the processand delivery mechanism for affective results.

3. Project objectives and assignment scope

3.1 REDP-Micro Capital Grant Objectives

The objective of Micro-Capital Grants scheme is to encourage local initiatives forestablishment of small agribusiness enterprises, in rural context by providing capital. Theaim of the project is to establish viable small rural enterprises targeting rural people forsustainable livelihood practice. The core objectives are:


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Rural enterprise development. Income enhancement of rural people for poverty reduction. To create opportunities in rural areas in terms of project development,

employment generation thus ultimately addressing the issue of rural urbanmigration.

The purpose of the grant scheme is to encourage development of small modelagribusiness enterprises in rural areas by providing assistance for capital investment.The REDP-Micro Grant assistance is to establish new enterprises, to expand existingenterprises and for pilot projects to establish the viability of a proposed enterprise. Someof the areas of investment for the grant include high value niche organic products, valueaddition through semi processing and processing of fruits and vegetables, and highvalue horticulture development and marketing.

3.2 Assignment scope

The objective of this assignment is to review the ongoing Micro Capital Grant Schemeexecuted under the REDP project. This assignment is considered in line with therecommendation set forth in Mid Term Review of REDP held in 2005, to critically assessthe Micro Capital Grant procedures for improving delivery mechanisms. The objective ofreview is to identify opportunities, constrains, and provides suggestions for improvementof grant delivery process.

The assignment purpose is to:

i) Review and evaluate the existing Micro-Capital Grant Scheme (MCGS)guidelines; application procedures, and documents;

ii) Assess the role of extension officials in grant programme implementation.

iii) Review and Evaluate the existing micro-capital grant delivery process.(capital investment, profitability & IRR);

iv) Understand constraints faced by recipients of grant;

v) Suggest ways to improve enterprise success and sustainability; and

vi) Study differences made by the project in terms of meeting the ultimateobjective;

4. Methodology & Approach

The overall conceptual approach to the work is based on the following:

Desk Review of existing documents on the project, individual files of 24grantees, MCGS guidelines, agreement documents;

Discussions with Project Coordinator during and after desk and field review hasbeen completed;

Prepare Inception Report; Conduct field visit -interview and discuss in detail with DAOs/Extension Agents

on their role in Micro Capital Grant programme awareness, proposal selection,and involvement in the grant delivery mechanisms, and monitoring, and project


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impact and benefit after grant delivery, opportunities, and constraints, views onrural enterprise development initiatives;

Interview the grantees on project implementation, profitability, project constraints,and project impact after receiving grant;

Assimilation and analysis of data and information; Prepare Draft Report; Present findings and recommendations of review; and Incorporated changes and submit Final Report.

5. Existing Situation

5.1 Micro Capital Grant Scheme

Micro Capital Grant scheme operations started in 2004 with budgetary provision ofUS $ 150,000 under RED Programme assisted through RGoB/UNDP/SNV. TheREDP activities are implemented through annual rolling implementation plan. Themaximum limit of grant assistance to any enterprise is Nu.200, 000 based on

financing ratio of 0.7:0.3.

As of May 2006, Micro Capital Grant Scheme has provided assistance to 24 projectsunder rural enterprise development objectives. The total fund disbursed as of dateamounts to US $ 79,500 equivalent to local currency of Nu 3,578,370.13. Thebalance fund of US $ 70,500 remaining under the Micro Capital Grant is to be utilizedby 30thJune 2007.

This is the first time the MoA is executing Micro Capital Grant scheme to developrural enterprises in the country. The grant is provided for up gradation of existingfacilities, establishment of new units and initiation of research model enterprises inrural context. The programme is implemented through operational & management

outline, executed by Management Committee with extensive involvement of DAOand Extension agents.

The grant is processed through Dzongkhag Agriculture Office. The applicant isrequired to fill up grant application form. The DAOs are fully involved in assisting thepotential entrepreneurs in completing the forms and justifying the proposal to thecommittee. The grant is effective within a months period after the approval ofapplication. The Committee releases the fund from Programme Office, uponapproval of the proposal. The REDP-Micro Capital Grant Scheme guidelinesstresses on monitoring the projects on quarterly basis by the extension officials andannually by the head office.

The grant assistance delivered to 24 projects includes support to individuals andrural community for setting up new enterprises, to upgrade existing facility and forachieving the objective of developing model replicable enterprises. The sub-sectorwise grant delivery and disbursement details provided in Table 1& 2 below.


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Table1: Sub-sector wise Grant Delivery

Enterprise Type Existing for upgradation New

Total

Mushroom cultivation 4 4 8

Potato Chips production 3 3 6Medicinal Plant Cultivation 3 0 3

Marketing Outlet 0 1 1

Cornflake Production 0 1 1

Orchid farm 0 1 1

Fruit and Nut Nursery 0 1 1

Plants & Flowers 0 1 1

Vegetable Seed Production 0 1 1

Cold Storage 1 0 1

TOTAL 11 13 24

% age to total 46% 54% 100%

Table 2:Year wise Grant Disbursement, Assistance type and Project status

SlNo Name Project

Ass istancetype Location

GrantApp roval date Amount

ProjectStatus

1 Mr.Jamtsho Medicinal Plant Up-gradation Ura, Bumthang 11/8/04 200,000underImplem.

2 Mr.Khashap Orchid Farm new unit Dogar, Paro 12/8/04 199,821.39 Problem

3 Mrs.LhadonVegetable SeedProduction Up-gradation Lungyni, Paro 12/8/04 107,800

Commercialoper.

4 Mr.KarchungPotato & BananaChips Up-gradation

Kheri Gonpa,Pemagatshel 11/8/04 200,000

Commercialoper.

5 Mr.Pasang Cold Storage Up-gradationNamseling,Thimphu 11/8/04 157,500

Commercialoper.

6 Mr.DegangStraw MushroomProduction Up-gradation

wangchang,Paro 18/8/04 197,396.62

Commercialoper.

Sub Total 1,062,518.01

1 Mr.SangayLog MushroomProduction Up-gradation Damji, Gasa 16/3/05 129,500

Commercialoper.

2 Mrs.Pem Lhaden

OysterMushroomProduction new unit Hejo, Thimphu 21/3/05 200,000

Commercialoper.

3Mrs.PemaChoden

Conflakeproduction new unit

Balegang,Dagana 4/5/05 ,90,000

Commercialoper.

4 Ms.DupthoZangmo Potato chips Up-gradation Khaling,Trashigang 18/4/05 142,120 Problem

5 Mr.Minjure Dorji Medicinal Plant Up-gradation Ura, Bumthang 31/10/05 126,000underimplem.

6 Ms.BidhaFruit & Nutnursery new unit Katsho, Haa 5/12/05 197,582.7

underimplem.

7 Ms.Kinley Bidha Potato Chips new unit Wangdue 9/1205 115,836underimplem.

8 Mr.Karma LodayLog MushroomProduction new unit Bjena, Wangdue 22/12/05 142,390.5 Problem

9Mrs.KuenzangLhadon

Log MushroomProduction new unit Bondey, Paro 13/12/05 142,390.5

underimplem.


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10 Mr.Karsang DorjiLog MushroomProduction Up-gradation Bjabcho, Chukha 16/12/05 142,390.5

underimplem.

11 Mr.PasangPotato ChipsProduction Up-gradation Chapcha 15/3/05 141,120 Problem

Sub Total 1,569,330.2

1LungtenGyamtsho Medicinal Plant Up-gradation

Chimmong,Pemagatshel 6/3/06 95,238.13

commercialoper.

2Mr.SangayChozang

Ye-ongMushroom Farm new unit

Kabesa,Thimphu 2/3/06 142,390.5 problem

3 Ms.ChimmiTashi PhelwarNursery new unit

Lungtenphu,Thimphu 20/1/06 100,000

underimplem.

4 Mr.Kesang DorjiJachukapMushroom new unit Dopsari, Paro 21/2/06 126,653.5

underimplem.

5Mr.RinzingWangchuk Potato chips new unit

SachamChorten,Paro 3/3/06 141,120

underimplem.

6Mr.TashiTshering

Rural Produceoutlet new unit Thimphu 10/3/06 200,000

commercialoper.

7Mewang SonamChoethuen Potato chips

Jemina,Thimphu 17/5/06 141,120

to beimplem.

Sub Total 946,522.1324 Grand Total 3,578,370.34


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5.2 Desk Review

The assessment is based on review of existing documents 1 for implementing MicroCapital Grant Scheme in the country.

The Micro Capital Grant Scheme is implemented through Guidelines based on theoverall objectives of supporting rural enterprises development in the country. Theproposal is processed through an application form with the support of DAO/ADAO. Thegrant assessment is based on followings MCG Guidelines criteria:

Project viability-entrepreneurs experience, project time frame for commercialoperation, sustainability in terms of location.

Project impact-relevance of enterprise to REDP, number of people benefiting,potential to encourage other entrepreneurs.

Others-degree of commitment of entrepreneurs, entrepreneurial qualities interms of leadership receptiveness to new ideas and recommendation of DAO.

The programme has revised the Grant Application Form in early 2006, in order toincorporate broader prospects to project assessment. The new application form takesinto consideration- Project outline, source of equity contribution, human resource,marketing, guarantors, income statement, and construction estimates

During the review, it became clear that existing Micro Capital Grant guidelines lack clearoutline for making right investment decision to meet the planned objectives.

The desk review findings:

a) The existing Micro Capital Grant documents such as MCG Guidelines andContract do not clarify grant outline, the purpose of the grant and activities to beundertaken as per the overall project objectives.

b) The target beneficiary of the Micro Capital Grant Scheme not clearly explainedin the document.

c) The grant eligibility criteria for focusing the product to the target beneficiary notdefined based on the objective of rural enterprise development.

d) The information on entrepreneurial skills is overlooked in the application from.As the overall project objective is to promote rural enterprises therefore, theentrepreneurial skill of the grantee is crucial to project implementation andsuccess. The existing documents seem to contain limited information on the

grantees background for assessing the worthiness or reliability of the applicant.

1These documents includeREDP Operation & management of Micro Capital Grants Programme

outline, REDP Micro Capital Grant Application Form, Micro Capital Grants Contract, REDP MicroCapital Grants-Reports (Format)


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e) Application form lacks details on project cost break-up and implementationschedule.

f) In case of Grant to a group or Tshogpa, the information on project managementand bookkeeping is not reflected in the application form. In addition to this,qualifying norms for Tshogpa members is limited especially, in case of the

members, having access to formal financing facilities and whether the membersqualify to access grant on individual capacity too.

g) As grant application form is considered as project proposal for making theinvestment decision, it lacks critical assessment of the project from the point offinancial, technical, marketing and management aspects.

h) Uniform approval system required. The Grant Guidelines state that thecommittee can execute power to waive off rules under special circumstancehowever, as the documents do not specify what these special conditions are itprovides room for project not being implemented as desired or delivery of grantsto undeserving candidates that might result in ultimate project failure.

i) Grant amount is limited, which is a constraint for community rural projects withhigher capital requirement.

The assessments from desk review indicate that grant application form is considered asproject report for considering the investment decision. Thus, information on nature ofproject, and promoters background, project location in terms of accessibility to rawmaterials, marketing of finished products, engineers estimates for civil construction andquotation for procurement of equipment are not clearly indicated in the application form.In such cases, often, project implementation period is prolonged. The supplementarydocuments such as land ownership, civil construction estimates, and competitive

quotations for procurement of equipment are essential part of project investment. Theproject cost details are not considered resulting in promoters with vague knowledge onproject cost even, after the release of grant fund. This is one way of building in-houseentrepreneurial skills. The project appraisal could be conducted by either DAO orRNRC/relevant agency drawing out on knowledge to minimize the investment risk.

5.3 Field Findings

The field review includes information collected from interviews and discussions withDAO/ADAO and promoter of the project

5.3.1 The role and support of DAO/ADAO/EA in Micro Capital Grant Programme

The field analysis indicates broad programme awareness among the DAO andExtension agents. Generally, the proposal process is based on the existing guidelines ofMicro Capital Grant Scheme. The primary objectives of rural enterprise development interms of enhancing rural income, and creating employment through promotion of ruralmicro enterprises is clear to the DAO and Extension agents especially, to the onedirectly engaged in grant delivery process. In terms of potential entrepreneuridentification, promotion of viable enterprises within the Dzongkhag, and assisting the


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applicant in application preparation, the DAO and Extension Agents have soundknowledge and information and are actively involved in assisting the entrepreneurs. Insome Dzongkhags, application is accepted only if, the Gup recommends it. Although, theprocess seems cumbersome, when trying to do away with bureaucratic procedures, theobjective is to create project awareness within the locality and for monitoring benefits.Specialized agencies of the Ministry provide technical support to the projects. Example-

proposal on mushroom or medicinal plant cultivation are technically backed-up by NMC,Simtokha or RNRC, Yusipang in preparing project feasibility report. Most DAO/EA relieson technical expertise of NPHC, NMC, and RNRC for project technical informationdepending upon the nature of the project. The DAO/EA also organize field Dayprogramme to create awareness of REDP-Micro Capital Grant Scheme and deliver itsobjective on replicating successful project through information sharing amongst thepotential farmers. Generally, application process from district to the final approval stagetakes about 30 days. On approval and release of the grant from the REDP-Office atThimphu, the grantee makes no effort to inform the DAO about the process. The REDProgramme Coordinator informs the DAO of project approval however, they do notreceive any information about the release of grant fund to the grantees. As they lackinformation on release of grant, DAO often, face problems in monitoring the project. The

information drawbacks in fund release, at times create misunderstandings between theDAO/ADAO/EA and the grantees especially during the project monitoring. In absence ofmonitoring tools, some of DAOs have been using the MoAs general monitoring formatfor reporting on projects. Some share the view that the grant disbursement bechannelled through Dzongkhag for the convenience and accountability, which would bean added advantage for project implementation & monitoring. Further, some DAOs havestrong reservation on the project sustainability issues under the current implementationprocess.

5.3.2 Overall assessment of DAO/ADAO/EA role in Micro Capital GrantProgramme effectiveness

i) The overall assessment of the project indicates good awareness in terms ofprogramme objectives and achievements amongst Dzongkhag officials. In termsof potential entrepreneurs identification, project assessment, and monitoring theextension officials are actively involved as they have comparative advantage inthis field. Each Dzongkhag has identified focal extension agents to monitorprojects assisted under the Micro Capital Grant Scheme. The extension officialscan be instrumental in ensuring promoters capabilities, project implementation,equity mobilization, and problem identification that can minimize the project riskto great extent.

ii) Extension officials are conducting the activities beyond their job responsibilities.As activities are project tied, regular monitoring is required besides handling day-

to-day activities. This stretches individuals work time and as well as operationalinput to execute the programme. Current Micro Capital Grant Scheme has notcharted out any job responsibilities and is carried out on an ad hoc basis. Soaccountability aspect is overlooked.

iii) Enterprise management and promotion is entirely separate issue compared toregular agricultural activities however, most Dzongkhag officials are making effortand are capable of conducting quick project appraisal. Currently, DAO are fullyinvolved in filling up the grant application form instead of the applicant. This


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indicates applicants have very little knowledge about their project in detail. Oneshould be thoroughly clear about the project prior to implementing it. This will notonly upgrade the knowledge base but also inculcate entrepreneurial capabilitiesin an individual.

iv) The grant guidelines mandate monitoring of projects by Dzongkhag agriculture

officials, however, in absence proper monitoring tools, the officials are usingmonitoring form of the Ministry for reporting. As rural enterprise developmentprogramme is a new development approach, so monitoring the activities iscrucial starting from implementation, trial run to commercial operational phasesof the project. This will not only help to keep the project on track but assist inbringing problems to the attention of the project management.

v) Micro enterprises require constant follow-ups and monitoring which is expensive.The Ministry is already spending substantial amount in implementing theprogramme at Dzongkhag level. The Micro Capital Grant Scheme does not covercost input necessary to access extension activities including travellingallowances, per diem etc.

vi) The need for institutionalisation funding mechanism is strongly expressed by theDzongkhag officials. The current centralized funding mechanism bypassesDzongkhag involvement in actual implementation of the project. Channelling fundthrough established institutions or government channel will create accountabilityand reduce project risk.

5.4 Micro Capital Grant Projects

1. Cultivation of organic medicinal plants, Somthrang, Ura: Mr.Jamtsho

Date of grant approval 11/08/04

Grant amount Nu.200, 000Equity contribution Nu.244, 000

Mr Jamtsho applied for the grant through the DAO, Bumthang to start the venturecommercially. The application was also recommended by RNRC, Yusipang.

Medicinal and Aromatic Plant (MAP) cultivationproject initiated by Mr Jamtsho has an objectiveto produce high altitude medicinal plants forpotential local & export market. His project islocated in Somthrang, Ura. The grant of Nu.200,000 were approved on 11th August 04 to

Mr.Jamtsho for fencing 3 acres of land forcultivation of organic medicinal plants. The grantapproval process took about 3 months. Totalproject cost was estimated at Nu. 444,000.The project site is fenced but yet to be developedfor plantation. A small patch of land is developed

as nursery for cultivation of medicinal plants and herbs but currently, potato is planted onthe land, as herb seedlings are not available in this season. The herb cultivation isscattered over few patches of land. The project appears to be in its initial stage and is


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yet to become commercially operational. The entrepreneur intends to produce Rutaseeds and dried Aru roots as the main products.

Considering the grant approval time the project is much behind expected implementationschedule. Although, the site has been fenced herb plantation as proposed is notundertaken. Thus, the project status is doubtful and investment risk is high.

2. Medicinal Plant Cultivation & Processing, Ura: Mr. Minjur Dorji,

Date of grant approval 31/10/05Grant amount Nu.126, 000Equity contribution Nu. 54,000

The entrepreneur owns Arya Zamlha Hotel and Bar located at Tashicholing, Urbhey inUra. The entrepreneur applied for and received the grant after 3 years to supply driedmedicinal plant parts. The estimated total cost of the project was Nu. 503,000. Theproject has started with development of nursery. The equipments such as dryer andwasher is not yet procured.

The entrepreneur started the project onexperimental basis to grow medicinal plantsand this experiment turned out quitesuccessful. The information on Micro CapitalGrant was received from RNR Extension

Agent of Ura and the grant application wasprocessed through Gup and DAO to theREDP. Along with the application from, hewas required to submit citizenship ID cardcopy and Sathram. The grant application formwas completed with assistance from the DAO

and Extension office.

Equity mobilisation includes cost of land, labour charges for nursery and fieldpreparation and transplantation of seedlings.

The promoter and his son jointly manage the project. The current plan is to increase thecultivable land to 5 acres. As per the information the unit produces about 150-300 kgs ofdried medicinal plants annually. The entire production is sold to incense manufacturersin Phuentsholing, Bartsham and to ITMS, besides small quantity from own shop.However, the unit maintains no record of accounts. In case of product demand, the unitdoes not face any problems.

The main problem faced is in process, as the unit does not have any washing facilitiesfor cleaning the harvested products. The promoter has constructed a small green housemade of transparent plastic for drying the roots after they are washed. It is proposed toconstruct a permanent green house with transparent sheets for drying the produce andto serve as nursery for the plants. From the grant he has received, he plans to construct30*25m green house, procure a dryer and a washer.


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Although, the project is operating soundly, however the grant assistance is not yetutilized as planned. Since the promoter is planning to make the investment as proposed,the project needs to be closely monitored.

3. Bhutan Alpine Seed, Paro: Ms. Lhadon,

Date of grant approval 12/08/04Grant amount Nu.107, 800Equity contribution Nu. 46,200

The project was granted Nu. 107,800 to construct two green houses to its alreadyexisting one at Paro. The additional activities include construction of green houses andinstalling drip irrigation and water pump system to facilitate the seed production.

Mrs. Lhadon acquired the project idea from her husband. M/s Bhutan Alpine Seed hasbeen in the business for the last five years. The firm is mainly engaged in producing,packaging and marketing quality vegetable seeds. The unit is set up with financialassistance from Bhutan Development Finance Corporation Limited. The unit Produces

and collects quality seeds from farmers all over the Dzongkhag. They have also taken25 acres of land on lease from the Department of Civil Aviation for developing plantnursery. The seeds are vacuum packed at Paro packing plant and distributed in the localmarket. The products are marketed through agents and they pay 15% sales commissionon the volume. It also exports seeds to Japan. The information on grant was receivedthrough the Ministry. The objective of the grant is to produce high value vegetable &flower seeds for domestic and export market. The client submitted the proposal to DAO.On verification of the proposal, the application was forwarded to the REDP Coordinator.The grant applied to add two green houses for high value vegetable seed production.The two green sheds are constructed on grantees personal land adjacent to thepackaging plant. About Nu170, 000 has been spent on the construction of green houses.The land development cost, labour charges, and operational expenses are borne by the

promoter as a part of equity contribution. Mr. Pema Wangchuk, a retired employee ofDruk Seed Corporation manages the project. The manager has practical knowledge onthe project and record keeping. He has also attended course on basic record keepingthrough REDP at Simtokha. The Alpine green house project started in 33/5/05commercially. In the first season, they cultivated tomato and harvested 6.5 kg of seed,which was sold at Nu 3,000 per kg in the market. In the beginning, the unit did not faceany implementation problems. Presently the shed contains cauliflower plant, which willbe harvested in July-August. The expected yield is around 20/25 kg, which would besold at Nu. 2,000 per kg. The seed production for cauliflower at this altitude isconsidered very difficult. In order to experiment the difference they have also plantedcauliflower in the open garden. However, the plants in open field are very unhealthy.

The project is being implemented soundly and is successful in producing quality seeds.It has earned income out of its first seed production. The project is managed well andhas possibility in being considered as rural model enterprise. However, the scheme hasoverlooked the eligibility criteria of the beneficiary since the applicant is in position toassess formal lending facilities.


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4. Mushroom Farm, Luni , Paro: Kuenzang Lhadon

Date of grant approval 13/12/05Grant amount Nu.142, 390.50Equity contribution Nu. 61,024.50

A grant of Nu. 142,390.50 awarded on 13thDecember 2005 to Mrs. Kuenzang Lhadonfor starting commercial mushroom cultivation. Project Objectives are to produce organicmushroom as a model enterprises in the locality. The activities to be implementedinclude: Construction of cropping house Dipping water tank construction Procuring technical accessories Procuring 5000 billets

The project was implemented in the month of February 2006. The project report wasdeveloped with assistance from NMC based upon the sample report. The applicationwas processed through DAO in July 2005 and the grant was approved in December 05.

The proposal was based on constructing two temporary shed and procuring 5,000 billetsfor log mushroom cultivation. Under the project two permanent sheds of mud brick withcement flooring and CGI roofing is constructed. The shed is completed and billets areplaced. Due to the site terrain, they claim to have spent substantial amount on sitedevelopment cost.

About 2,000 billets are procured and it is inoculated with technical assistance from NMC.The billets were acquired at cost of Nu.15 each including transportation & labourcharges. The plan is to increase the billets up to 5000 depending upon the marketsituation. The first harvest is expected in August/September 06. Due to long approvaltime, interest to develop the project was lost, however when it was finally approved inDec 05 activities had to be rushed to meet up the log-felling season. The dipping tank

constructed to soak logs is too small so the promoter intends to construct a new one.The main raw materials required such as seed, wax resin were supplied by NMC. Theequity contribution is met through personal savings. In case of the market, problems arenot expected, as the produce will be sold locally. The promoter plans to use betterpackaging method in order to avoid handling damages once the product is ready formarketing. The expected selling price is Nu 150 per kg, which is the current ongoing ratein the market. It is indicated that if the grant scheme were not available, the projectwould have been implemented in smaller scale.

The site development cost was not critically assessed prior to making investmentdecision. Further, in case of phase-wise development the expected net return from theproject will be affected. Wherever the project is to be developed in stages financial

analysis should be prepared based on capacity utilization. The promoter lacks technical& managerial skills however; her husband who has the experience is assisting her tomanage the project.

5. Potato Chips product ion, Paro: Mr.Rinzin Wangchuk

Date of grant approval 3/3/06Grant amount Nu.141, 120


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Equity contribution Nu. 60,480

Mr Rinzin Wangchuk was awarded Micro Capital grant of Nu, 142,390.50 in March 2006.The project objective is to increase income through implementing micro rural project.

According to application, the project cost includes followings: Potato peeler Deep fryer Potato slicing Dehydrator Shed construction

The project idea was developed through attending a demonstration production at NPHC,Paro. The promoter received information on micro capital grant scheme through theextension office. As he has a small plot of land with apple trees at Shasam chorten, hewished to start potato chips manufacturing unit with the help of grant assistance. Theapplication was processed through the DAO. On approval of the grant, he visited Kolkotato obtain equipment. With the lack of information on equipment supplier, the promoterexperienced numerous problems on procuring the required equipment. However, withassistance of some local people, he was able to meet a supplier and accordingly heplaced the order for the equipment by paying Nu.10, 000 as advance. The equipment isquoted at a cost of Nu.95, 000. At the time of our visit, grantee was in the process ofmaking the balance through Demand Draft. The equipments were expected to arrivewithin two weeks period. It was informed that the supplier is sending technicians todemonstrate the equipment for trial run. The technical expertise charges areincorporated in the equipment cost. The promoter has constructed shed out of localmaterial by spending Nu. 55,000. The shed flooring and roofing work is in progress.

Once the unit starts, its commercial operation the local potato will be procured. Thecurrent potato price ranges between Nu.12-15 per kilogram in the local market. Theprice of imported potato is considered expensive, so in the initial period the unit expects

to operate at lower capacity until, the supply of local potato is available in the localmarket.

The promoter lacks managerial and book keeping knowledge. In case of record keeping,his wife will assist him in maintaining the accounts.

Through discussion, it is apparent that the promoter did not seek any advice from NPHCfor equipment selection & information on suppliers. As 100% money is released to theequipment supplier, the risk in not receiving the equipment is very high. The selection ofequipment is not based on competitive quotation so the deal may not be the best onetoo. Promoter is advised to get all the technical support and information on operationand availability of frequently needed spare parts from the technician when they visit for

equipment installation.

The promoter is ignorant on equipment deal and has very limited knowledge onenterprise management. However, despite poor knowledge and lack of information hehas implemented the project timely on receiving the grant. The insurance of equipmentis also critical to avoid serious financial loss in case of any accident, as he may not be inposition to absorb losses. Further, critical monitoring is necessary to keep the project on


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track. If the installed equipment is suitable and easy to maintain, it would be advisable toconsider the quotation for similar projects.

6. Orchid Farm, Paro, Dogar: Mr.Khasapa

Date of grant approval 12/08/04Grant amount Nu.199, 821.39Equity contribution Nu. 84,460

Mr Khasapa, Jomda Wogma, Pang Bom Ho, Dogar, Paro received a grant of 199,821 inAugust 2004 for orchid farm. The costcomponents include site development andfencing, green house construction, procuringequipment, farm inputs and salary & wages,water & sanitation. The proposal was submittedto all the relevant stakeholders who haveassessed and recommended it. The total

estimated project cost was Nu. 220,000.

The project is in incomplete stage. The shed is half constructed with a few pots oforchids placed in it. The shed has 2 large rooms and currently only one room with roof is

being partially used to keep a few orchidplants. The reason for incomplete shed isdue to lack of fund as expressed by thepromoter. Orchids collected andmultiplication is poor The shed constructeddo not have adequate structures to retainmoisture within it. The promoter has notmaintained any accounting records.

The problem with this project is that the shedconstructed is bigger than what is actually required thus; the fund was insufficient tocomplete the structure. The grant delivery duration indicate that project is seriouslyunder implementation problem. Further, it proves that promoter is not serious aboutimplementing the project as proposed. This is high-risk investment. It would be prudentto take immediate action.

7. Mushroom cult ivation, Wangchag, Paro: Mr.Degang,

Date of grant approval 18/8/04

Grant amount Nu.197, 396.62Equity contribution Nu. 215,452

The promoter was awarded grant of Nu.197,396.62 for upgrading the existing mushroomproduction unit at Paro. The cost components include construction of production shed,and procurement of small tools, etc. The project commercially started in November 05after up gradation of the existing unit through grant assistance. For the last season, theunit produced approximately 120 kg of oyster mushroom and earned gross income of Nu,22,000. As project income inflow is just started, the IRR computation is based on first


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income inflow, which is considered as consistent flow. However, considering the capitalinvestment of the project the return based on fixed regular inflow is poor.

With one and half season of commercial operation, the promoter has identified someproblems in using wooden racks in the cropping house. Due to high moisture, absorptionby wooden racks straw bundles are damaged easily. In order to avoid this problem he

intends to replace the wooden racks by aluminium racks. The replacement cost isestimated at approximately Nu70, 000.

The grantee informed that the existing capacity of the boiler is found low and needs tobe replaced by higher capacity vessels. The plan is to procure the boiler through agro-mechanical workshop in Bumthang. The boiler replacement cost is estimated at Nu.15,000.

Further, the promoter would like to improve on packaging in order to avoid handlingwastages.

The project operating successfully and is managed efficiently by the promoter himself.

The training on bookkeeping attended by the promoter has helped him in improving hisrecord keeping skills. The capital investment on the project is substantial which hasnegative impact on net return of the project. Further, is too early for the project toconsider additional capital replacement cost since, the initial capital cost is already highto pay back the investment.

8. Jachukap Mushroom, Jangsa, Paro: Kesang Dorji

Date of grant approval 12/02/06Grant amount Nu. 126,653.50Equity contribution Nu. 53,851.50

A grant of Nu. 126,653.50 were awarded to Mr.Kesang for starting a shitaki mushroomproduction on 21stFebruary 06. The cost components include construction of croppinghouse, procurement of 5,000 billets and accessories for mushroom production.

The project is not implemented as it missed last log harvesting season in early spring.The proposed project land has been replaced with the land located near the road access.The new site belongs to the promoters relative and is on replacement terms. Currently,the proposed site is under chilli plantation and once the crop is harvested, the promoterintends to start the shed construction. For the shed construction, timber and mud bricksare collected at the project site. The promoter has attended EDP training conducted byEPC-MTI and has gained knowledge in project proposal development and managementaspect. This is an advantage for rural enterprise management however; he is young and

needs guidance. The implementation delay is the result of poor project planning. Thegrant fund is released on approval of the proposal however; it is yet to be utilized. Thedelay in implementation is additional cost to the project. Strict project monitoring isrequired to minimize investment risk.

9. Medicinal Plant Cultivation, Pemagatshel: Mr. Lungten Jamtsho

Date of grant approval 6/3/06Grant amount Nu. 95,238.13


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Equity contribution Nu. 40,773.48

The unit is an existing unit. A grant of Nu.95, 238.13 was provided for cultivation ofmedicinal plant at Chimmong village under Pemagatshel Dzongkhag to Mr.LungtenJamtsho. As per the original project proposal the project activities included fencingproject land, land clearing & preparation, construction of irrigation chamber, purchase of

seeds, farm inputs and packaging materials.

The primary project objective is to enhance income and promote micro enterprise in ruralcontext. The main medicinal herbs cultivation includes Somoraza and Gurum. The firstproduction from the unit expected in next season. The project is to be developed in 3.83acre of land belonging to the applicant.

The Micro Grant Programme awareness created from attending a meeting organized bythe extension agents. Grant application was processed through district office and DAOassisted in preparing the grant application form.

The herb production and sale is seasonal. The product sold through agents. The

operational cost of the unit is very minimum pertaining to purchase of saplings, whichare bought through agriculture. The project self-managed by the promoter. He isinvolved in daily work and as well as selling the produce in the market personally.However, there is very small demand for the product. The grant helped him in startingthe project, as he would not have been able implement the project without the scheme.The main problem in operating the project is due to lack of proper road infrastructureconnecting his village. Therefore, marketing the product is extremely difficult, as one hasto travel 1-2 days to reach nearest road access. Although, he lacks book keepingknowledge he still maintains simple records. For the first operating season, he earnedgross sales of Nu.11, 000 by selling 15,000 saplings. In 2005, the gross sales of Nu.10,000-15,000 achieved. However, he is not sure of the actual figure since the record bookwas misplaced.

The client is enterprising. Project location is crucial from the point of market accessibilityand project viability issues. While justifying the proposal selected project site should beproperly analysed.

10. Potato and Banana Chips, Kheri Gonpa, Pemagatshel: Mr.Karchung

Date of grant approval 18/12/04Grant amount Nu. 200,000Equity contribution Nu. 221,000

A grant of Nu.200, 000 awarded to Mr.Karchung on 18 thDecember 04 for upgrading the

existing potato & banana chips production unit at Pemagatshel.

The project objective is to increase income through small agribusiness and benefit thefarmers in terms of using local materials. The project cost components includesfollowings: Site development & shed construction Water supply work Equipment


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Working capital

The project started commercial operation from July 2005. Out of the grant assistance,production shed has been construction as proposed and client has procured cookingstove, potato peeler & cutter and other small tools required for the production.

The promoter is also planning to introduce new products such as maize and Soya binKabchhey for the local market. The new products will require investment on equipmentand the applicant is planning to seek for financial assistance from the Banks to meetthese costs.

The project, although operational is poorly managed as most of the time client is awayfor other errands. Further, proposed product diversification and obtaining additionalfinancial assistance for the same unit might have some negative implication on theproject since the project management is critical issue.

11. Potato Chips product ion, Khaling: Mrs. Dupto Zangmo


The promoter was awarded grant of Nu.142, 120 for expanding the existing potato chipsunit at Khaling. The cost components include equipment and shed constructionexpenses. This is an existing unit. The grant was availed for upgrading the existingfacility.

The main project objective is to generate income and if successful upgrade theproduction capacity. The project was initially implemented in the year 2001. Theinformation on grant was availed through attending a meeting at Dzongkhag. The

application was processed through Dzongkhag office. The project is self-managed bythe promoter who is very enterprising.

However, some factors were overlooked during project formulation stage, as it appearsthat the project did not seek for required construction approval. The construction activityis halted for the last one year by Dzongkhag authority. In addition to this, the promoterhas not procured any equipment from the grant assistance. She is waiting for technicaladvice from NPHC to procure the equipment.

The existing capital cost of project is Nu172,900 which includes shed constructionNu.120,000, machinery Nu19,500, tools & equipment Nu,1,900, and seed potatoNu.20,000. After availing, the grant project commercially started in September 2005.

However, the unit is still operating with existing equipments. The project employees 3persons including 2 female and one male on seasonal basis for its day-to-day operations.The product is sold through agents in Trashigang. For marketing the products, it facesserious transportation problem. The total annual production of the unit ranges between2000-3000 packets of chips earning gross income of Nu.15, 000-10,000. The totalproduction cost is Nu. 4,000 per annum. Due to unauthorized construction, andequipment procurement process the project is delayed considerably.


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The client is enterprising and has good entrepreneurial skills to manage the project. Theproject suffers from issues in terms of civil construction approval and procurement ofequipments. Besides, the improvement on production shed the actual production has notimproved since, the equipment under the grant assistance is yet to be procured. Theproject technical tie-up for supply of equipment is critical aspect besides the issue ofconstruction. The project has been in this status for quit some time and these issues

needs to be resolved for the project to be implemented as proposed.

12. Cornflakes product ion, Dagana: Ms.Pema Chophel


The proponent was granted NU.90, 000 for production of cornflakes at Goshi, underDagana Dzongkhag. The project cost components include shed construction, machine,multi-purpose shaft, frying pans, and operating expenses.

On knowing about the grant scheme through Dzongkhag agriculture office, she appliedfor grant to start a mini cornflake unit at Dagana. The application processed throughdistrict with assistance from DAO.

The main objective of starting such enterprise is mainly to save the crop from postharvest loss. NPHC provided the technical assistance in equipment selection and forsetting up the project. Due to the poor road infrastructure, transportation of equipmentwas very difficult.

The project was set up at total investment cost of Nu. 120,000. The cost break downdetailed below

Shed Construction Nu 45,000Machinery Cost Nu.30, 000Tools & equipment Nu.10, 670Seedlings Nu. 4,800

The project commercially went into production since last year. The project is self-managed. The grantee runs a small shop and produces potato & banana chips. This hashelped her in gaining business skills. However, she lacks knowledge in properbookkeeping.

The product sold locally. For the operational period of 2005, the unit produced 180 kg ofcornflakes and earned an income of Nu. 13,300. The unit employees in total 11 workers

for running the enterprise including 9 female and 2 male on temporary basis.

The project is successfully implemented however, as the production is seasonal, it wouldbe advisable to undertake other activities to capitalize on the investment. Training onbookkeeping is crucial to sound project management and it would be an addedadvantage to entrepreneurial capacity enhancement.


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13. Log Mushroom cultivation, Damji Gasa: Mr.Sangay


A grant of Nu 129,500 awarded to Mr.Sangay of Damji for cultivation of log mushroom atDamji, under Gasa Dzongkhag.

The main project objective is to enhance income, which may contribute towards meetingthe education allowances for the children.

The project was an ongoing enterprise. As the production was irregular due to lack ofcapital, grant assistance was applied for up grading the unit. The grant application wasprocessed through district with the assistance of DAO in preparing the projectinformation.

Up gradation of the unit was implemented with the technical support from NMC and

district agriculture officials, in 2005. Out of the equity contribution, 5000 billets arebought. The grant money is utilized in shed construction. For soaking the logs small wellis made next to the water source. The promoter manages the project himself. In 2005,the unit was able to harvest 85 Kg of mushroom that was sold for Nu.150 per kg in thelocal market. The gross sale amounted to Nu.10, 500 for the same period. The project isoperating soundly.

The project is operating successfully however; the record keeping is poor so to assessinformation is difficult.

14. Fruit & Nuts Nursery, Katsho, Haa: Ms.Bidha


Micro Capital Grant of Nu.197, 582.70 was granted to Mrs. Bidha for setting up atemperate fruit & nut nursery at Katsho under Haa Dzongkhag. As per the projectproposal, -acre land is to be used for the proposed project for setting up the nursery.The proposed project implementation activities under fixed investment includes sitedevelopment, construction of plastic shed, procurement of tools & implements, irrigationpipes, construct of water tank, packaging materials, farm input and operating expenses.The project gestation is estimated to 2009-2015 that includes nursery development,sapling raising, development of scion wood mother block, collection of seed, stratification

and sowing, harvesting, grading, packaging and land rental and marketing.

The main objective of the project is to establish nursery for supply of temperate fruit &nuts saplings and ultimately, enhance the family income. The project is self-managedand has no other employees. The project is under implementation since, January 2006.The project will be developed in phase wise. The land is developed, prepared forplantation, and fenced with barbed wire. The grant fund is used for procuring poly housefrom NHPC, irrigation channel developed, and for purchasing tools & equipment. For thenursery, mother saplings are bought from Druk seed and Bhutan Alpine Seeds, Paro.


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Depending upon the project gestation period, the commercial activity is expected tobegin by 2008 only.

The project is under implementation as proposed. The commercial operation is expectedfrom 2008 only so, it could be difficult to asses the project impact at the end of REDP-Micro Capital Grant Programme, which is ending on 30 June 2007.

15. Potato Chips production, Chukha: Mr Pasang


Mr. Pasang was granted Nu.141, 120 on 5 th March 2005 for upgrading his existingpotato chips factory at Chapcha, under Chukha Dzongkhag. The unit was initially set upin 2001. The cost of up- gradation includes procurement of potato chips fryer, potatopeeling & cutter, and dewatering machine and shed construction. The total capital costof the project is estimated by NPHC is Nu.129, 000 and shed cost is estimated at Nu.72,

000.

The project is an existing unit. The initial project idea was developed based on theavailability of potato in the locality. The information of Micro Capital Grant Scheme wasobtained from DAO during their visit to the project.

The project is still operating with existing equipment despite, the release of grant inMarch 2005. The proprietor has repaired the existing factory shed and has made enquiryon equipment supply.

Being an existing unit the product market is well established however, the there is notmuch change as proposed after the grant is availed in terms of production augmentation

and income enhancement. The procurement of machinery for up-gradation of project isquestionable issue. Originally, it was proposed that NHPC, would provide the technicalback up in terms of equipment selection and client to mobilize capital for the project.Now, this understanding between the project and NHPC seems non-existent. Further,the proponent does not seem to have much interest to implement the project asproposed judging by existing time gap, which has widened considerably between thegrant delivery period and implementation phase.

The project implementation is delayed considerably raising doubts on interest of thegrantee. The programme has overlooked the issue of target beneficiary since; thegrantee is financial sound to access formal credit facilities. The project benefit cannot beassessed, as it is not implemented as proposed. Therefore, in this case the grant

utilization is very poor.

16. Shitake Mushroom Production, Tobjikha, Chukha: Mr.Karsang Dorji



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Mr. Karsang Dorji was awarded Micro capital Grant of Nu. 142,390.50 in 16 thDecember2005. The project activities included construction of cropping house made of transparentroof, cement flooring and bamboo mating, dipping water tank, procurement of 5000billets with injector with other accessories and one transformer.

The project is an existing enterprise established in 2004. On knowing about the Micro

Capital Gant scheme through DAO, the promoter applied for grant to upgrade theenterprise. On approval of grant, the activities were implemented in March 06. For theinitial phase, 2000 billets are procured and a small shed is constructed. The shed istemporary with cement flooring and plastic wall & roofing. The tools & equipment formycelium injection is yet to be acquired. The project received technical assistance fromNMC and district agriculture office for preparing the billets and setting up the project. Thefirst harvest of mushroom is expected in the month of August-September 06.

It is hoped that the project will be implemented as envisaged by next year. The projectneeds close monitoring and advice on record keeping. The grant benefit can beassessed only after project becomes commercially operational.

17. Retail Marketing outlet for rural p roduction, Thimphu: Mr.Tashi Tshering


Mr. Tashi Tshering is awarded a grant ofNu.200, 000 to set-up marketing outlet for ruralproduce in Thimphu. The project activitiesinclude conducting local product survey,procuring packing machine, packaging stock,

and refrigerator for storage of dairy products.

The project commercially became operationalfrom 16th April 06. He became aware of thegrant scheme on knowing about the similarscheme known as REGS implemented by MTIunder REDP programme. The application was

processed through the Dzongkhag. The DAO and the promoter conducted a study toestablish the project viability. In order to establish the product supply, survey wasconducted in the entire country. The grant and equity mobilization is provided below:

Activities Amount spent

Product survey : 42,000Packaging design & materials : 155,000Stock : 150,000Furnishing for outlet : 34,000Rent : 29,000

Currently, the sale is on trial basis to established product demand. The products sold areall agricultural produce and semi processed products from all the regions of the country.The idea behind the project is to sell products preferred by the local consumers for which


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the supply is limited or irregular in the market. As the unit is new, the sale is rather slow.In order to create awareness on availability of local produce promotional activities wereundertaken with support form marketing unit of the Ministry of Agriculture. Through theproduct survey, contacts have been established in each Dzongkhag to obtain localproducts on regular basis. From the short experience of operating the enterprise, thepromoter has gained knowledge on product life and consumer preference.

The project is an avenue for marketing rural products on regular basis. The project isprovided grant assistance for meeting the operating expenses, such as procuringpackaging materials and tools. The assistance provided conflicts with the objective ofsupporting capital investment activities for rural enterprise development. Further, the unithas procured packaging stock worth Nu150, 000 that blocks the operating capital.Besides, the packaging materials are made of plastic, which raises strong environmentalconcern. The alternative packaging material may be considered once the current stock isexhausted.

18. Tashi Phelwar Ornamental Nursery, Thimphu: Mrs.Chimmi


The promoter is awarded a grant of Nu.100, 000 on 20thJanuary 06 to start a plant &flower nursery at Lungtenphu, under Thimphu Dzongkhag. The project was supported asa new initiative under horticulture development objectives. The project cost componentsinclude construction of two green houses, procurement of small tools and farm inputs.The application for the grant was processed through the DAO, Thimphu that was dulyrecommended by the DAO being first of its kind under flower culture promotion.

The project is just being implemented. The grantee has purchased some flowerpots. The

construction of green house is yet to be undertaken.

It is noted that the objective of project target beneficiary is overlooked since, the granteeseems financially sound to take up the enterprise on her own initiatives. Regular projectmonitoring is required.

19. Mushroom Cultivation, Kabesa, Thimphu: Mr.Sangay Choxang


The project objective is to supply organically produced mushroom in the market and todevelop project into rural enterprise model.

The project activity includes: Construction of cropping house. Procurement of 5500 billets. Drilling & injecting accessories, transformer etc.


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Mr Sangay Choxang received Nu. 142,390 in March 2006 tostart an enterprise at Kabesa, under Thimphu Dzongkhag, toproduce mushrooms. He applied for the grant after learningabout it from REDP in April 2005. His application was routedthrough the DAO, Thimphu. He was unable to start hisenterprise in Kabesa since the land did not belong to him

and thus decided to set up the project on a 4-5 decimal ofleased land. When his enterprise site was visited, only a few

rolls of bamboo mats could be seen. He informed that he would soon be startingconstruction of the shed in June 2006.

The total estimated cost of the enterprise is Nu. 367,400 against the proposed cost Nu.241,415 of the NMC. The project is not yet implemented as it is seriously suffering formthe land issue since the promoter does not have land to set up the project.

The promoter is from Pema Gatshel but resides in Thimphu. When he applied for thegrant, he intended to set up the enterprise in Kabesa. He could not establish at Kabesaas the landowner wished to construct house on the proposed site. The current site

selected is close to NPPF colony in Thimphu.

Due to lack of appraisal the land issue is overlooked, which now is a risk to the soundproject implementation. As the grant fund is released already, project should be strictlymonitored for proper implementation since; the investment is partially at risk.

20. Oyster Mushroom Production, Hejo, Thimphu: Ms.Pem Lhaden


Ms Pema Lhaden of Hejo, Thimphu was approved a grant for Nu. 200,000 to startOyster Mushroom cultivation but received only Nu. 140,000 in March 2005. The totalcost of the project was Nu. 542,000. The commercial production of mushrooms startedfrom April 2006. The entrepreneur got the idea to start this enterprise from the familymembers. The proposal was recommended by NMC to the REDP. Project costcomponent as per the proposal include followings: Construction of culture lab Common processing room Sterilization room Inoculators chamber Spawn running room ( with racks & heating system) Cropping chamber(with racks, lighting & heating system) Sterilization unit Straw chopper with motor Paper shredder Weighing balance Wheel barrows Mist sprayer & watering system Misc. tools Laminar for tools


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The enterprise produces oyster and shitake mushroomfor local market. Bulk of the produce is oyster mushroom.The enterprise currently produces about 300 kgs ofmushroom monthly. A kilogramme of mushroom fetchesNu 100 in Thimphu. Presently oyster mushroom is

produced from three different cropping houses. Theentire produce is sold locally. Customers for the produce

are mostly hotels and expatriates in Thimphu. Husband manages the project since hehas the experience in mushroom farming. The grant greatly helped in meeting the initialcost of raw materials and procurement of straw chopper.

The project is operating successfully and the market is established for the product. Themain problem foreseen could be the employees. Currently the unit employs 3 personsand if the workers leav

Documents

MCGS Review Final Report.pdf