As Bhutan graduates from the least developing to developed nations and aims to become wealthy, the financial rights of citizens will grow at an unprecedented rate. Work Bank states that “Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way. But how many Bhutanese have access to affordable financial products and services?
The government aims to lift rural and low-income people out of poverty, reduce rural-urban migration, and curb unemployment. However, current financial services undermine these policies. Financial accessibility in Bhutan is limited to the wealthy and asset holders in urban areas to even secure loans. For example, the Bhutan Development Bank requires loan applicants to own at least five acres of land to qualify, ostensibly to manage non-performing loans. But this stringent criterion is discriminatory and non-inclusive since land ownership on such a scale is rare even in rural areas. Financial institutions lack adequate risk assessment mechanisms and resort to blanket requirements that exclude the very populations the government seeks to uplift.
News reports reveal a double standard in lending practices: wealthy borrowers secure huge loans with minimal due diligence, while poorer applicants face stringent scrutiny and lengthy time to avail financial services. For example, Phajo Nidup obtained multiple loans on a single collateral. Further, there are reports where banks have allegedly issued loans in people’s names without their knowledge, hinting at larger institutional accountability issues. While a few low-ranking bank officials were seen punished in such cases, the banks themselves evade institutional responsibility thus far.
Financial institutions tout seamless digital services like mobile and internet banking. Yet, ordinary citizens are required to surrender personal phone numbers to countless businesses due to a lack of confidence in the financial system. This compromises privacy and exposes people to theft and fraud. Criminals can exploit recorded numbers for various cybercrimes, including identity theft and unauthorized transactions. If such crimes result from a business recording a customer’s number, who bears liability? The inability of banks to provide efficient, reliable, and trustworthy services forces violations of privacy that run counter to constitutional rights.
Loan interest rates in Bhutan are often exorbitant compared to any other country. Financial institutions frequently cite non-performing loans (NPLs) as justification for the stringent requirement. However, they fail to recognize that the sky-high interest itself triggers and exacerbates NPLs. With excessive interest rates, the principal loan amount can quickly snowball beyond borrowers’ ability to repay with limited returns. This sets up many clients to repay on time.
Therefore, financial institutions must reinforce their risk assessment and underwriting policies to screen all applicants equally. Fair yet prudent lending practices are needed to uphold the integrity of the financial system and ensure access to credit does not unduly favor the wealthy and connected. Strengthening checks and balances is key to achieving more equitable lending. More nuanced, personalized approaches to lending are needed to align financial services with anti-poverty, anti-migration, and anti-unemployment goals while reducing institutional risks. Measures like personalized risk assessment, flexible repayment options, and strategic write-offs of unproductive loans could help.
As Bhutan undergoes a major transformation at all levels and sectors, it is important that RMA and financial institutions must realign their policies with Bhutan’s transformational visions, ensuring an inclusive economy centred on GNH and stopping predatory lending practices.
Sonam Tshering
Lawyer, Thimphu
Disclaimer: The views expressed in this article are author’s own.