The core banking solution is expected to cut lending rates by at least five percent

With the launch of Druk MicroFin, a core banking solution that will serve as an integrated software for all microfinance institutions (MFI) and CSI banks, a new chapter in financial services is unlocked.

Microfinance, relatively a new phenomenon in the country, is a mechanism to provide microloans to those lacking access to affordable and quality financial products and services, especially the unbanked populace.

The Bhutan Association of Women Entrepreneurs (BAOWE) is the first MFI to adopt the system with complete clients’ data. The Rural Enterprise Development Corporation Limited (REDCL) is also in the process of migrating the data and adopting the software in a phased manner. RENEW and Tarayana are also working on installing the new banking system. Soon the revolving fund I, which is handed over to the Bhutan Development Bank after the closure of Business Opportunity and information Centre (BOiC), will also ride on the Druk MicroFin.

Governor of the Royal Monetary Authority (RMA), Dasho Penjore said that microfinance institutes are commonly known for high interest rates. “It is a global trend because the overhead cost is very high,” he said.

Even in Bhutan, he said the capital requirement to start a microfinance organisation is just Nu 2M. But the cost of core banking solution, which is the requirement prescribed in the RMA guidelines, is five times higher than the capital requirement.

“In this digital age, there is no point of doing traditional banking without the core banking solution,” he said. The RMA absorbed the cost of the software to reduce cost and resource burden on the MFIs and the CSI banks, given their relatively small- and medium-sized businesses.

This move is expected to cut the lending rates of the MFIs by at least five percent.

The system is enabled end-to-end with a handheld micro ATMs and mobile banking delivery channels in real-time to increase access to, and delivery of financial services, particularly in remote areas.

The system, which is developed at a cost of Nu 10.32 million with the Maximus Infoware (India) Pvt. Ltd, is a cloud based service that will enable the central bank to read the MFIs at a back of their hands on real time basis.

The system is also expected to create a level playing field among the MFIs.


Why focus on MFIs?

Having a thriving democracy is not just enough, the finance minister, Namgay Dorji who inaugurated the Druk MicroFin, said. “The way forward is to achieve self-reliance through economic transformation,” he said adding that the MFIs are expected to spur growth of CSIs and agriculture sector.

“If access to finance is an issue for the people in the lower income group, the flood gates are now opened,” Dasho Penjore said.

He said banks have already reached the rural communities, yet certain sections of the community like youth and women are confronted with challenges. “This is why access is more important than cost, at times,” he said.

While the country just kick started the MFIs, the governor also said that, it is leapfrogging because of the state of art technologies.

The central bank, he said will allow more MFIs and CSI banks without duplication and overlapping of roles by identifying target groups.

For instance, RENEW will cater financial services to those from difficult families and women, BAOWE is for the women entrepreneurs while REDCL’s target is the general rural populace.

Dasho Penjore also announced that His Majesty The King has also initiated a project to come up with another MFI to provide financial services to armed forces and their families and for the people involved in resettlement programmes.

“The initiatives like microfinance and priority sector lending scheme are just a means to achieve a bigger goal to spur the CSI growth which would create jobs, promote export and substitute import,” the governor said.

However, he reminded that this cannot be achieved by the central bank alone, which plays an intermediary role and that the support of government agencies and other stakeholders are critical.

Tshering Dorji