National Financial Inclusion Strategy

Financial inclusion has been recognized as one of the pillars for achieving Bhutan’s national goal of sustainable and inclusive socio-economic growth. This will require promoting and expanding appropriate financial products and services across the country. Studies have shown that access to basic financial products and services, such as savings, payments, credit and investments, make a substantial positive difference in people’s lives. Financial inclusion, therefore, has the potential to improve the financial well-being of the unserved and underserved segments of the population.

His Majesty’s address to the country at the 109th National Day of Bhutan celebrations on 17 December 2016 clearly articulated the potential of the financial sector to create opportunities and improve access to finance for our youth and rural populace. Consistent with his Majesty’s aspiration, financial inclusion has been acknowledged as an important national tool to ensure access to affordable formal financial services for all citizens. Research has also suggested that access to formal financial services can contribute to inclusive economic growth.

The National Financial Inclusion Strategy (NFIS) 2018-2023 and National Financial Literacy Strategy (NFIS) 2018-2023 were launched during 30th August 2018 to enhance financial inclusion initiatives in Bhutan.  The NFLS 2018-2023 is a subset document to the overarching NFIS 2018-2023. As per the NFIS 2018-2023, 40% of the total adult population remains financially excluded as of December 2017, indicating only 60% of the total adult population have at least one formal regulated account at the existing Financial Service Provider(s). Further, only 15% of the total adult population have access to credit and 15% access to insurance services.

National Financial Inclusion Strategy
National Financial Inclusion Strategy

The overall vision of the NFIS 2018-2023 is to ‘ensure enhanced access to and usage of quality, affordable formal financial services by all Bhutanese through an inclusive financial system.’

Within the context of NFIS 2018–2023, financial inclusion in Bhutan is defined as:

The provision of appropriate financial products and services at an affordable cost by formal financial service providers that meet the needs of the unserved and underserved segments of Bhutan’s population.”

Financial inclusion also includes the following elements:

  1. Provision: Access to and usage of formal financial products and service
  2. Appropriate: The most relevant financial products and services
  3. Affordable: Ability to pay for financial products and services

Within the context of the NFIS:

  1. Savings refers to a basic individual savings account and does not include current and term deposits.
  2. Credit refers to loans secured by individuals and does not include corporate loans. In the NFIS, the focus is on lending to the CSI and agriculture sectors.
  3. Insurance refers to only life insurance policy holders and does not include rural life insurance, which is mandatory, and non-life insurance holders.

The vision and objectives of the NFIS 2018-2023 shall be realized through enabling the four key pillars as follows:

  1. Appropriate financial products and services
    • Currently available financial products and services are not suitable for unserved or underserved segments of the population (the poor or those with low and irregular incomes). Appropriate, convenient and affordable financial products and services are essential to meet the needs of all Bhutanese. Credit, savings and insurance, including digital financial services, will help individuals manage risk, plan for future and meet their financial goals.
  2. Financial accessibility and proximity: I
    • ndividuals and CSIs cannot adopt or use financial products and services effectively if they cannot access them. Physical proximity is therefore the starting point for encouraging the use of financial services. Financial access points in Bhutan are defined as any physical entity where an individual can perform cash-in and cash-out transactions with a regulated financial institution, such as a bank branch, any type of banking office, ATM, agent or POS device that performs cash-in and cash-out transactions. Mobile phones and PCs are not considered access points because they cannot perform physical cash-in and cash-out transactions (Supply Side Survey 2013).
    • The NFIS therefore prioritizes initiatives that increase the accessibility and functionality of delivery channels, including branches, ATMs and POS systems. Closer proximity to financial access points for unserved and underserved adults will increase access to and use of financial services and help to close the financial inclusion gaps.
  3. Financing for economic growth
    • Under this pillar, the NFIS primarily aims to encourage the development and use of financing instruments that would support economic growth related to CSI financing (both agricultural and non-agricultural CSIs). To ensure CSI financing is effective and boosts economic activities and employment, appropriate products and an enabling regulatory environment are required.
    • A review will be necessary to explore public support programs, such as credit guarantee schemes. It is also important to provide technical support to improve the scope of a bankable project. With diverse innovative project portfolios in Bhutan’s rapidly emerging market, enhancing enabling regulations to meet the factoring gap and establishing dynamic financial infrastructure to support venture capital and other sources of financing should also be considered.
  4. Financial capability and protection
    • Low levels of financial knowledge, understanding and awareness are significant barriers to accessing formal financial services. Combined with products that do not meet the needs of the unserved and the underserved, opportunities to engage with the formal financial sector are limited. Improving financial literacy and consumer protection has therefore been identified as one of the pillars of financial inclusion as consumer protection builds and strengthens trust and confidence in formal financial services, particularly among low-income households.