The Royal Monetary Authority’s (RMA) financial inclusion initiative is expected to fuel domestic credit to almost 50 percent of the GDP in the medium term.

According to the RMA’s monetary policy statement, this will be contributed mainly through the enhancement of access to credit transmitted via financial inclusion initiatives.

However, it was also stated that credit growth has a direct impact on the current account deficit because Bhutan is highly import dependent and therefore a large portion of any credit extended by the financial sector translates into imports and subsequent pressures on the current account.

Priority sector lending, micro-financing, agent banking, promotion of cottage and small scale industries and minimum lending rate policy among others are some of the initiatives under the financial inclusion program targeted to improve access to finance.

As per the RMA’s monthly statistical bulletin, the financial institutions have lent about Nu 97B worth of credit as of June this year.

The highest share of domestic credit is in building and construction accounting for more than Nu 21.9B. Service and tourism sector has received more than Nu 20B of the total domestic credit. This is followed by personal loans hitting Nu 13.8B. Loans towards trade and commerce sector account for Nu 13.6B while the manufacturing sector received a credit of Nu 13.1B.

A local economist said that figures of loan disbursement are a clear indication that Bhutan is a consumer society. Sectors like building and construction, trade and commerce and personal loan, which accounts for almost 50 percent of the total domestic credit are fuelling trade deficit. This is because loans in these sectors entail import.

Agriculture, which employees more than 50 percent of the country’s workforce, has a credit share of around Nu 5B.

While the number of vehicles has been growing at an exorbitant rate in the last three years, figures indicate a transport loan to a tune of around Nu 5.2B. This according to a banker is because people avail other loans to buy vehicles as the loan to value ratio for vehicles has been revised primarily to discourage vehicle import.

Loan against share stands at Nu 427M and indicating the size and vitality of the country’s capital market.

It was a lending spree that ignited the rupee crisis few years ago because most of the credit translated into imports, shedding the country’s rupee reserve as well as hurting the trade and current account balance.

However, the local economist said that the story could change if a major chunk of credit is directed to productive sectors, which have the potential to create jobs and boost country’s export. This is what the financial inclusion programme is trying to achieve.

Tshering Dorji