Access to finance among rural populations and the underprivileged in Bhutan is low compared to other developing countries, according to the National Financial Inclusion Strategy (NFIS) 2018-2023 framed by the Royal Monetary Authority (RMA).

As of December 2017, 64.47 percent of adults in Bhutan had a savings account with a bank while only 16.08 percent had access to credit and 17.79 percent held a life insurance policy.

Of the 64.47 percent of adults in Bhutan with a savings account, 56 percent are male and 44 percent are female. Similarly, of the 16 percent of adults who have access to credit, 54 percent are male and 36 percent are female. Of the 17 percent of adults who have insurance, 59 percent are male and 41 percent are female.

The RMA’S NFIS stated that only 62 percent of adults globally had an account at a formal financial institution in 2014.  But Bhutan was rated lower than other developing economies in terms of access to finance. Compared to other developing economies, where adults have account penetration of 54 percent, Bhutan has only 34 percent. For women, account penetration is even lower with 28 percent compared with 50 percent in developing economies.

“Significant disparities in financial inclusion persist between rural and urban areas, youth and adults, the poor and the rich, and cottage and small industries (CSIs) and large firms,” the report stated,   The country, according to NFIS, is yet to fully leverage the potential of digital technologies and expand the reach of the formal financial sector.

Low financial literacy, fewer consumer protection mechanisms and a lack of appropriate financial products and services are identified as barriers to financial inclusion.

The NFIS stated that financial sector has grown significantly over the last few years and made substantial progress in terms of financial viability, profitability and competitiveness.  However, it also states that a large segment of the population, especially the poor in rural areas, has been overlooked.

Despite various initiatives to promote financial inclusion in Bhutan, regulatory barriers, such as low literacy, lack of consumer protection frameworks, infrastructure and cumbersome know your customer (KYC) requirements are impeding the financial inclusion plans.

On the demand side, irregular income, lack of employment, and low literacy levels and financial capability hinders financial inclusiveness. On the supply-side, long distances to financial access points has led to higher transaction costs, and lesser economic activity in rural areas made it difficult to offer financial products and services.

The access to finance demand-side survey report 2013 also revealed that only about 48 percent of adults in Bhutan use formal financial services, while 79 percent use informal financial services. The survey found that the use of formal financial services was higher in urban areas (74 percent) than rural areas (37 percent).

It also found that eight out of ten Bhutanese adults tend to save money, and the majority has informal savings with family or friends, in their homes or through employee groups. Only 18 percent of adults currently have a loan or line of credit.

“Current financial products and services cater to the general population and may not serve the unique needs of rural customers,” it stated.

For instance, Bhutan’s CSI sector represent more than 96 percent of all industries with 16,548 businesses in operation employing over 66,000 as of April 2016. The sector was recognised as one of the five jewels of the economy by the government.

However,when it comes to access to finance, the CSI sector accounted for only about 14 percent of total loans and advances for the period ending December 2017. Other than bank financing, access to alternative sources of financing for CSIs is limited.

The NFIS suggested alternative sources of finance, such as crowd funding, venture capital, leasing and factoring.

The agriculture sector contributes about 16.52 percent of GDP and more than half of Bhutan’s population lives in rural areas.

The NFIS revealed that financial services in rural areas, especially for lower income households and small-scale farmers and entrepreneurs, is becoming a bottleneck for generating economic activity and improving the livelihoods of the rural population. Loans to the agriculture sector accounted for only 5.33 percent (Nu 5.07 billion) of loans as of December 2017. This is the scenario despite being the sector that most people in Bhutan depend on economically.

The NFIS is a road map and action plan to promote financial inclusion effective from July 1, 2018 to 2023, with immediate plans of re-structuring the financial inclusion and literacy division, setting up an NFIS development budget and governance groups, strategy sensitisation and development of the NFIS Action Plan Framework.

“Bhutan’s NFIS will therefore serve as a road map to achieve various financial inclusion objectives. It will set a clear agenda at the national level to improve access to financial products and services through a coordinated approach,” a press release from RMA stated.

Tshering Dorji