Bhutan Economic Forum for Innovative Transformation International Financial Inclusion Summit 24-26 May 2017

“ Equitable growth through financial inclusion”

Keynote Address by His Excellency Dasho Tshering Tobgay, Prime Minister of Bhutan.

 

On 5th February last year, the entire country erupted with collective joy. The source of the joy was the birth of our Royal Heir, our beloved Gyalsey. Our collective prayer as a nation and of the people had been answered with the arrival of His Royal Highness, Gyalsey Jigme Namgyel Wangchuck.

In gratitude, people all over the kingdom offered prayer and thanked our many local deities and Gods for looking over our precious Kingdom. As is our tradition, many sought audiences with His Majesty the King and Her Majesty the Queen to offer their humble gratitude.

On that day, representatives of our financial institutions made a simple offering to His Majesty, the King. Every financial institution contributed some money and offered it to His Majesty the King. His Majesty the King, received the contribution, matched it with an equal amount and returned it to the financial institutions with the command to set up an Endowment Fund for the benefit of our country. So, on the day that our country celebrated the arrival of our crown prince, the birth of the Bhutan Economic Forum for Innovative Transformation (BEFIT) was also realized.

On behalf of the People of Bhutan, I respectfully and humbly offer thanks to His majesty the King for giving Bhutan the Bhutan Economic Forum for Innovative Transformation (BEFIT).

Innovative Transformation- Isn’t this what Gross National Happiness is all about?

Four decades into our journey of Gross National Happiness, I dare say that even in Bhutan, Gross National Happiness is still innovative. And four decades on, it is still transformative in Bhutan and certainly in rest of the world. Gross National Happiness is both innovative and transformative, for Gross National Happiness calls for economic growths, which is essential to be balanced with social progress, cultural preservation, environment protection- all within the framework of good governance.

Gross National Happiness does not mean that the economy is not important. If anything, Gross National Happiness means that the economy is even more important for unlike the pursuit of unravel economic growths, Gross National Happiness requires that the economic growths be planned; be careful and mindful of our environment, culture and be consistent with the principles of good governance.

Above all, Gross National happiness requires that social economic growths be equitable and inclusive. And this is why, as we celebrate BEFIT’s launch today, we celebrate in a fitting manner – the marking of the International Financial Inclusion Summit. Financial inclusion is important for social economic inclusion.

I wish to congratulate the Royal Monetary Authority of Bhutan and the Royal Institute for Governance and Strategic Studies for developing BEFIT to what we see today and for choosing financial inclusion as its inaugural theme.

I wish to thank the International Finance Corporation (IFC) for your support and for your engagement here. And I want to welcome all the participants- Bhutanese and foreigners alike to this inaugural event of BEFIT.

Financial Inclusion is critical for Gross National Happiness, for wellbeing, for prosperity and for freedom.

My first understanding of freedom had to do with acquiring a driver’s license. I suddenly had in my hand the license to drive. It didn’t matter that I did not own a car or that I couldn’t even borrow a car. But the fact that I could drive henceforth, meant that I was included within the legal framework of driving. And that should ever the need arise for me to take over the wheels of a bus because the driver had a heart-attack, I would be empowered to do so. I am glad that I have not been called to drive a bus so far. But the fact is that at a tender age, as a teenager I felt free and included.

Similarly, many years later, when I acquired my first mobile phone, I felt both included and felt an enormous sense of freedom. Earlier, I wished that I had a telephone but couldn’t afford one. And then I wished I could afford a wireless radio enabled telephone. But when cellular phones were introduced in Bhutan, I grabbed one. It made me feel included and free. It empowered me.

But the greatest sense of inclusion, freedom and empowerment I achieved, was when I opened a bank account after I completed class 10. I had earned some money by helping my Uncle Dawa Tenzin sell his home-made butter and cheese. We had walked around Thimphu with baskets on our backs and sold butter and cheese. He gave me some money. I was so excited that I deposited that money in my bank account. Later that year, I participated in a survey and I earned a bit more money. And all the money went into the bank because I wanted to save it for my personal growth. My parents would give me pocket money every once in a while, but the money I received would be used up immediately, all on myself. The money I earned, I wanted to save. And so, this is why I wanted to open a bank account.

About 20 years later, after I opened my bank account, my uncle Dawa Tenzin lost most of his money. He didn’t open a bank account; he carried his money with him and had a big wallet on the back of his pocket. Once, a miscreant had seen that heavy article form on the back of his gho and had slashed it open with a knife and removed his wallet. I remember very vividly wondering why uncle Dawa Tenzin didn’t open a bank account.

Today, in Bhutan, we have too many people like my dear uncle Dawa Tenzin- not included in the financial system.

In 2013, Royal Monetary Authority of Bhutan conducted an Access to Finance Survey. The findings showed that only 48%of our adults engaged in the formal financial system. 79 percent of adults engaged in the informal financial system, which just means one thing- that they were borrowing money from moneylenders, from loan sharks at exorbitant interest rates as high as 5-6% per month. The same survey showed that only 10 percent deposited money in bank accounts with formal saving accounts. The rest would stuff it under the pillows and mattresses, in our ghos and kiras and yes some of them would be the ones lending money at exorbitant rates to other fellow Bhutanese.

This is why the Royal Monetary Authority of Bhutan is going on a financial literacy campaign to educate our people about financial services – importance of saving money, the sources of acquiring loans and micro-financing, and why we must pay money on time and what is available in terms of digital financing today.

The Royal Monetary Authority of Bhutan has rolled out a framework to regulate micro-financed agent banking and also a regulatory framework to regulate the affairs of private money lenders. So now they cannot charge more than 15 percent a year, while just a year ago they could have been charging as much as 60 percent interest per year.

One of the beneficiaries of the regulatory framework is the Rural Enterprise Development Corporation Limited (REDCL); this newly established financial institution, offers small loans to our farmers and makes loans to Cottage and Small Industries (CSIs). No collateral is required and the interest rates are low at 4 percent per annum.

We hope that the Rural Enterprise Development Corporation will become Bhutan’s first Cottage and Small Industries Bank. But it is not just the Rural Enterprise Development Corporation, there are other financial institutions both formal and now informal who are now licensed and regulated to provide micro-financing.

The government is supporting this endeavor. Financial institutions, that provide preferential loans to CSIs are given a 10-year tax holiday. CSIs themselves are also given a 10-year tax holiday. This is being done with the hope of reaching more people and getting more people to participate in our economy and be included in our financial institutions.

The government is also promoting savings culture. So, income earned from fixed deposits is not subject to tax- used to be, no longer is. And the idea is that banks will use this enhanced savings to help promote CSIs. CSIs don’t have to pay income tax and the banks themselves don’t have to pay tax on incomes they earn from preferential loans that they make to CSIs.

Now many would wonder, how much money or income is the government forgoing? The answer to that is none, very little if any at all because that money didn’t exist to begin with. The money that is now saved was not being saved earlier. The money that has now been lent was not being lent earlier. And the profits that the banks are now making and the profits that the CSIs, entrepreneurs are making did not exist earlier.

I am grateful to our financial institutions for doing a great job. But we have to do more to encourage the saving culture.

The Bhutan Development Bank Limited (BDBL) for example has a lovely scheme called ‘Drinchen Ama’ (Dear Mother)- a saving scheme for our beloved mothers. I think they are blackmailing our children to save money for their beloved mothers but it is working. And to encourage more of our children, youth and farmers to save, we need to have banks. This is why the government has established 198 gewogs banks so far.

Within the two years since rolling out gewog banks, we have 12,000 bank accounts but more than that we have Nu. 75 million in savings collectively. More importantly, the total amount of transactions that the gewog banks have realized is Nu. 272 million. I think this is empowering for our villagers. The gewog banks operate on biometric machines and our villagers have welcomed it but this is not enough. We have to allow our citizens to engage electronically and digitally in our financial sectors.

A day before yesterday, we launched an e-payment system which allows citizen to make payments electronically while availing services from the Government to Citizen Services (G2C) system.

So things have been happening since the last survey conducted by the Royal Monetary Authority of Bhutan. Things are happening not just for Bhutanese who are in Bhutan but also for Bhutanese who are working and residing abroad.

The RemitBhutan system, which was launched barely 8 months ago, is already bearing a lot of dividends. Bhutanese working abroad are sending money back home for the first time through the formal banking channel. They send money home and that money if it is deposited in a fix deposit account, they can earn income from it since fix deposits are tax-free. The banks have access to more money they can lend to.

We have a long way to go but we must celebrate our successes. We must also remember that we still have many Bhutanese who are not included in the financial system. Even as of now we have about 6,20,000 bank accounts but most of them represent urban dwellers with multiple saving accounts in different banks. I venture to think that barely 10 percent of the 6,20,000 accounts represents our farmers because in the 198 gewog banks, we only have 12,000 accounts. So, we have a long way to go. We have many farmers to reach. We have many youth and children to include in our financial system. And yes, we have many people like my dear uncle Dawa Tenzin to include into our financial system.

So, this summit is important. What you decide, discuss and recommend today will go a long way in improving the wellbeing and prosperity of our people; in improving the happiness of our people; in operationalizing the high ideals of Gross National happiness. Therefore, I wish you well and a successful summit but as you enjoy the summit please do not forget to immerse and include yourself within our unique culture and our rich environment. Make time to visit our dzongs and monasteries, our villages and go for treks because this is an important part of inclusion when you are in Bhutan.

 

Thank You and Tashi Delek!

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