When account holders can’t access loans

Only a fourth of account holders have access to loans

A meager 21.79% of the total 76.08% account holders have access to loans. Only about 40% of the total households in Bhutan have loans with bank loans being the most common source of funds, while only 12% of the total eligible populace own shares.

Bhutan has also been performing poorly in terms of financial access among the rural population in international benchmarks compared to other developing countries. The difference between the rural and urban population is evident even from the Bhutan Living Standard Surveys.

Only a lower proportion of the rural households (33%) have bank loans as compared to their urban counterparts at 42%.  About 28 % of the households use debit/credit/ATM cards while one-fifth (21.3%) of the households do not use any banking products.  It is also attributed to a significant difference in the use of banking services between the urban (about 95%) and rural (about 67%) households. There are many factors attributed to this scenario.

First of all, only 76.08% of eligible Bhutanese have savings account. As per the Alliance for Financial Inclusion (AFI) Bhutan report, Bhutan strives to achieve a target of 85% financial inclusion by 2023 from 64% in 2017. However, some of the foreseeable hurdles to achieving the mentioned financial inclusion are the low level of financial literacy, especially in the rural areas, scattered population and lack of infrastructure and enabling regulations that increase the operational cost of financial services.

The latest adult literacy rate according to the National Statistics Bureau (NSB) of Bhutan is 66.6%. Most of  the rural populace is either illiterate or semi-literate so the generic financial products and services cannot be enforced on them. There is a lack of specialized financial institution that could cater to the rural populace as well as people with certain disabilities. As a result, although a savings account could be created with the help of banks or bank officials, the usage or the benefit of such accounts will be very low. Due to such difficulties, the rural population will be either underserved or unserved hampering the financial inclusion goals.

According to the RMA, financial literacy should be a top priority in order to empower all the citizens to be able to use the modern financial services, especially the digital financial products and services. The other challenges such as the scattered population and lack of infrastructure are also difficult to solve because they increase the operational costs of the financial institutions with minimal returns.

Knowing the importance and significance of financial inclusion to the economy of Bhutan, the RMA initiated numerous policy and infrastructure reforms. Some of such initiatives are the establishment of the Financial Inclusion Secretariat, development of National Financial Inclusion Strategy (NFIS), National Financial Literacy Strategy (NFLS), Financial Inclusion National Action Plan (FINAP) 2019-2023, Priority Sector Lending, and many more.

On the infrastructure front, the alternative delivery channels such as ATM, POS and Agents increased in terms of number of access points as well as per 10,000 adults. Pertaining to the financial inclusion, one of the most important steps taken by Bhutan in general and the RMA in particular is the formulation of the NFIS 2018-2023.

The NFIS is expected to promote financial inclusion based on the four pillars: appropriate financial products and services; financial accessibility and proximity; financing for economic growth; and financial literacy and consumer protection. The main objective of the NFIS is to achieve financial inclusion of the mass since financial inclusion has the potential to achieve Bhutan’s national goal of sustainable and inclusive socio-economic growth.

Since 2018, the RMA has also started the publication of “State of Financial Inclusion (SOFI)” with the main objective to inform and provide pertinent information pertaining to financial inclusion in Bhutan highlighting the key areas such as financial access points, financial inclusion value store transaction accounts, regulatory initiatives and financial literacy programs. As per the report, the financial access points in Bhutan have improved over the years with agents and POS growing faster than the traditional bank branches.

The report emphasized on four areas. One of the most important components of financial inclusion is the development of infrastructure to enhance financial accessibility. Access points play pivotal roles in enhancing financial inclusion by facilitating and easing transaction costs, improving accessibility and making financial services more affordable.

According to the SOFI 2020, the overall number of access points have increased from 2018 to 2020, especially the alternative delivery channels such as ATM, POS and Agents. In addition, mobile banking and e-wallet users are also increasing significantly.

One of the main factors behind increasing mobile banking is the Bhutan QR Code that got boosted by the pandemic. Since its launch in July 2020, Bhutan QR Code has taken exponential growth. Similar to the Bhutan QR code, the e-money users have also increased significantly owing to the national lockdowns due to COVID-19.

Knowing the importance of access and usage, the World Bank and other institutions consider having an account as an important indicator of financial inclusion. Having account with formal banking or financial institutions provide a safe way to store money and build savings for the future, and make it easier to pay bills, access credits, make purchases, and send or receive remittances. Compared to 2019, the year 2020 saw an increase in saving account holding, availing credit and subscribing to insurance policies.

One of the pillars of the NFIS is to expand the sources of finance and the RMA has taken various initiatives as the Central Bank of Bhutan. One of such initiatives is the launch of the Priority Sector Lending (PSL) in 2017 to catalyze the cottage and small industry (CSI) sector by providing better access to finance and also to increase youth employment as well as to promote domestic production for import substitution.

533 projects were approved under this scheme and Nu 479.70 million worth of loans were sanctioned to the approved projects as of 2020. To further enhance the sources of finance, the RMA also initiated the JABCHOR platform, which enables entrepreneurs to raise equity financing and grow into successful ventures with the support of legally executed business partnership deeds as per the laws of the country. Every year entrepreneurs are selected to pitch their business ideas to raise equity.

Another avenue to expand the sources of finance is the launch of the Bhutan crowdfunding platform developed by the RSEBL licensed under the crowdfunding Regulations issued by the RMA. The main objective of the Bhutan crowdfunding platform is to provide an alternative financing model to raise funds from the general public for Start-ups, new business ventures and the CSIs in Bhutan. The crowdfunding platform provides a win-win position for both the entrepreneurs and the general public by providing fund raising opportunity to the former and investment avenue to the latter.

As per 2020 FIS report, there are five banks, three insurance companies, one CSI bank, five microfinance institutions, one pension institution, two telecom companies and one stock exchange in Bhutan. These are key players in the financial inclusion of any country’s populace because they directly or indirectly foster financial inclusion. Financial institutions like the banks, insurance companies and stock markets are the primary players while the telecom companies are the enablers of financial inclusion.

Meanwhile, loans from other institutions such as National Pension and Provident Fund (NPPF), Royal Insurance Corporation of Bhutan Limited (RICBL), Bhutan Insurance Limited (BIL) and Rural Enterprise Development Corporation Limited (REDCL) are minimal at 4%, according to the latest Financial Inclusion Status (FIS) report.

Tashi Namgyal from Thimphu