Access to credit was found to be disproportionate among dzongkhags

The formal financial system may have penetrated every nook and corner of the country, but figures from the Royal Monetary Authority (RMA) reveal that 54 percent of financial service networks are concentrated in five dzongkhags while 53 percent of credit allocation is concentrated in four dzongkhags.

At the first international financial inclusion summit, Bhutan Economic Forum for Innovative Transformation (BEFIT) held in the capital yesterday, the Central Bank’s governor, Dasho Penjore said that this fact calls for financial inclusion.

Thimphu and Chhukha topped on both the parameters of credit allocation and penetration rate. “But this is debatable because politicians and members of the financial sector might claim that financial penetration in the country is very high,” Dasho Penjore said.

He said the fastest mode of spreading financial services followed by inclusion is digitisation.

The current status of credit allocation, he said is also contradictory. For instance, small and cottage industries have the highest potential to generate jobs and boost productivity but received the lowest credit.

On the flipside, non-enterprising loan, which gives businesses but no employment and productivity, is the highest. This, the governor said can be attributed to housing loan. “We have unemployment problem because of this phenomena of credit allocation,” he said. “This reflects that our concentration of credit is ignored in potential areas where we can excel.”

While it is important to provide roof over every citizen, the governor agreed that the credit in this sector has been abused creating an asset-liability mismatch in the financial institutions.

For example, banks relied on short-term corporate deposits to finance long-term housing loans. “All Financial Institutions are deep and thick into housing loan and they almost reach the full exposure limit of 25 percent,” he said.

Despite this, the governor said the country has not succeeded in putting a roof over even five percent of urban households. To address this, the governor said that a new housing scheme is being studied with support from Asian Development Bank.

For the agriculture sector, he said efforts are being made to move from subsistence farming to enterprise farming. A policy for lending towards priority sector would be endorsed by the end of June, largely targeting the agriculture sector.

To support this effort, he said few micro-financial institutions are registered. NGO’s like Respect, Educate, Nurture and Empower Women (RENEW) and Bhutan Association of Women Entrepreneurs (BAOWE) are now registered as micro-financing institution to make access to finance easier to the unreached sections of the society. The Rural Enterprise Development Corporation (REDCL) is also such an institution rolled out under the economic stimulus package of the government.

Prime Minister Tshering Tobgay, in his keynote address stated that financial inclusion is critical to materialize GNH.

Citing the 2013 survey finding on financial inclusion, he said only 48 percent of Bhutanese adults engaged in formal financial system while 78 percent engaged in informal financial system.

“This meant that they were borrowing money from loan sharks at exorbitant interest rates,” Lyonchhen said. He said this also indicated that many have been stuffing their money under their pillows and mattresses. “Some of them would be the one lending money,” he said.

To encourage more farmers, youth and children to save money, Lyonchhen said that the society needs banks and this is why the government has established banks in 198 gewogs.

Two years since the gewog banks were rolled out through the community centres of the Bhutan Development Bank, 12,000 accounts have been created bringing about a saving of Nu 75 M in one and a half years. The total amount of transaction realised since the establishment of gewog banks is Nu 272M.

“I think it is empowering our villagers,” Lyonchhen said. “But this is not enough; we need to allow our citizens to engage electronically in the financial sector.”

Lyonchhen also cited the examples of e-payment of G2C services and the success of Remit Bhutan.

He also said that Bhutan has about 620,000 bank accounts but most are representative of urban dwellers with multiple accounts in different banks.

“Barely 10 percent of the account represent our farmers because of the 198 gewog banks only 12,000 have accounts,” he said.

The REDCL, Lyonchhen said is one of the beneficiaries of new regulatory framework of micro-finance institution. The government, he said is supporting the endeavor to promote cottage and small industries (CSI) as the new fiscal incentive policy grants 10-year tax holiday to them in addition to tax waiver to the banks for the income earned from such lendings.

To propagate the saving culture, Lyonchhen said that income from fixed deposit is no more subjected to taxation.

“What you decide, discuss and recommend today will go a long way in improving the wellbeing, prosperity and operationalising the high ideals of GNH in the country.”

Meanwhile the summit has brought together 30 international participants to share their experiences and invited dzongdags, thrizins and business representatives from all across the country.

The conference organised by RMA, Royal Institute of Governance and Strategic Studies (RIGSS) with support from IFC, also had representatives and governors from the five SAARC nations share their perspectives on regulatory aspects of financial inclusion.

Tshering Dorji