Tshering Palden

A performance audit of microfinancing in the country between 2014 and 2018 revealed that only about five percent of total loans were devoted to agricultural development.

The audit report, released yesterday, stated that there was no clear linkage between microcredit distribution and poverty incidences.

Dzongkhags like Dagana and Zhemgang have higher poverty rates but availed a relatively lower proportion of loans from MFIs. On the other hand, Paro, Punakha, Thimphu, and Wangdue have a lower incidence of poverty but availed a higher proportion of loans.

“The figure may not necessarily indicate the reasons as to why there is no congruence between the microfinance distribution and poverty incidence. However, it is a strong indication of  microfinance not availed by the poor populace.”

This, the auditors said, was an apparent result of the lack of focus on poverty alleviation through the provision of microfinancing services. “If the policy environment remains as it is, microfinancing may not be able to contribute to the alleviation of poverty,” the audit report stated.

It pointed out the absence of policy objectives although there are rules and regulations governing operations of microfinancing institutions (MFI).

The audit was carried out in the Royal Monetary Authority, Bhutan Development Bank (BDBL), Rural Enterprise Development Corporation Ltd (REDCL), Respect, Educate, Nurture, and Empower Women (RENEW), and Bhutan Association of Women Entrepreneurs (BAOWE).

“The non-performing loans (NPL) of the microfinance is higher than the overall NPL in the banking industry.”

The auditors noted that BDBL and REDCL had issues pertaining to sustainable operations. “BDBL sustained overall losses in the past five years and REDCL absorbed much greater losses,” the report stated.  The NPL of BDBL was 22.72 percent and REDCL was 18.70 percent was higher than the industry average of 11.5 percent as of 2018.

Auditors also found issues of inadequate appraisal of loan projects leading to failure of projects. There were cases of project failures due to the non-monitoring of the projects.

“In fact project monitoring was not undertaken for most of the loan projects. Non-monitoring is one of the main reasons for the failure of loan projects.”

It also revealed that there are undesirable socio-economic impacts of microfinancing on rural people. For instance, BDBL had a large number of litigation issues across the country.

“There were instances of loss of land and property due to loan delinquency in BDBL.”

RAA observed issues of incorrect application of interest rates on loans.

It was also observed that the REDCL loans were focused on agricultural projects and the disbursements were inconsistent with the cropping patterns and seasonal requirements.

The performance audit of the microfinance with the main objective to ascertain the efficiency and effectiveness of microfinancing services in terms of agricultural development, poverty alleviation, women empowerment and entrepreneurship.

In part, the audit also aimed to ascertain if there were a clear strategic focus, appropriate systems of appraisal, approval and follow-up mechanisms for microcredit.

During the course of the audit, the report stated that auditors observed some notable initiatives and positive developments which included providing microcredit services and reaching the remote pockets of the country.


The auditors stated that RMA should provide comprehensive policy direction for microfinance development. “There is no policy objective at the national level as to what outcome microfinance intends to achieve except for rules and regulations for deposit-taking and non-deposit taking MFIs.

“There is a need for the BDBL and REDCL to come up with strategies to optimize the performance through cost-effective operations and innovative methods of revenue generation.” The two banks also need to institute a robust mechanism of monitoring of loan projects.

Auditors said that REDCL to ensure that the loans are disbursed at the time of need and especially as per cropping patterns for agricultural projects.

REDCL needs to review the current MoU between BDBL and the BDBL BDBL needs to update the interest rates of loans, the performance audit report stated.