Rural Savings
BDFCL recognizes that savings is vital for the country's investment and economic growth.In this regard, BDFCL shall promote savings to all qualified citizens of Bhutan consistent with its mission of supporting the development of the commercial, agricultural and industrial sectors of Bhutan. BDFCL likewise recognizes that savings provides a strong capital base for BDFCL's long-term financial viability. BDFCL shall therefore mobilize savings to expand the Corporation's pool of lending funds to lessen dependence on foreign donors, borrowings and government grants. BDFCL further recognizes that savings can be used to reduce the financial risk. BDFCL shall: a) use savings as partial collateral coverage for loans, b) to offset arrears payments and default cases and c) as a basis to judge earning and savings capacity and financial discipline of a potential borrower. BDFCL recognizes that savings mobilization requires greater sense of responsibility and accountability from the staff and the organization as a whole. BDFCL shall ensure that public funds ( especially from the poor) are managed and kept with full competence and accountability on the part of the Corporation. Rural Savings Scheme of BDFCL launched on April 05,2005 In most societies people are highly conscious of money and assets and continually strive to maximize them in one way or the other. A means to retain money or to accumulate wealth is through savings. Domestic savings are common around the world. They constitute an important mechanism for basic survival of poor people since it provides security for the family. Savings also provide an important source for a country’s future investment, which is essential for its economic development and growth. Domestic savings can be considered as whatever people can put away after meeting their basic living expenses. Abstaining from consumption or deferring consumption is one way of saving. Savings may be kept in cash or in kind. Another form of holding a stock of savings is by acquiring and accumulating assets. Such assets can take the form of e.g. livestock, as grain stores or jewellery. It is not always easy to classify a certain expenditure or non-expenditure as savings, consumption or investment. Gold earrings for instance can be considered simultaneously as savings and consumption. A marginal farmer may save to buy an oxen and a plough, but these savings can be at the same time considered as an investment if he is then in a position to sharecrop more land. These examples demonstrate that the concept of savings cannot be defined unequivocally and can as such be interpreted in different ways. BDFCL (Bhutan Development Finance Corporation Limited), like other financial institutions providing "credit only" services, has always been dependent on international donors and government for its capital funding. In the last few years, these grants and subsidies have decreased significantly forcing BDFCL to borrow funds from commercial sources to meet the increasing loan demand. Commercial borrowings, however, is seen only a short-term solution. BDFCL requires a funding option to guarantee the long-term survival and sustainability of the Corporation. Saving mobilization offers BDFCL with an immediate and economical source of capital. Savings deposit taking is not new to BDFCL. Since 1998, BDFC has been offering voluntary savings on a limited basis - only for loan clients doing business with the corporation. In addition, the Group Guarantee Lending Scheme (GGLS) provides compulsory and voluntary savings services to the rural poor. As of December 2004, BDFCL’s savings collection has reached Nu. 22.476 million from 3,419 savers which translates to an average savings of Nu. 6,574 per saver. Building on the initial success, BDFCL seeks to expand its savings program to focus mainly on the rural population. The goal of the expansion is two-fold: 1.First, to provide secure, convenient and accessible deposit services that meet the demand of the rural low-income groups. 2.Second, to mobilize local capital to support BDFCL's District Branches to become self-sustaining units. Target expansion areas are rural households located outside the main town centers. Studies show that these rural households can save and will save with formal financial institutions if appropriate and secure savings facilities are available. The lack of such facilities forces these households to continue to rely on in-kind savings. Since rural savers are not homogenous and require different products to meet diverse savings needs. BDFCL will offers two (2) savings products namely: -Demand Deposit -Term Deposit The Corporation will offer products priced competitively with other commercial banking institutions. BDFCL has a major edge over other potential entrants in the market because of the Corporation’s extensive branch network. A fledging mobile banking operation allows BDFCL to reach almost all the Geogs nationwide. Since lucky games are popular among the Bhutanese, a lucky dip draw had been introduced as one of the main promotional tool to attract rural savers. Clients maintaining the required average monthly balance automatically qualified to participate in the draw. Lucky dip draws are scheduled to be held every 6 month in every districts and prizes popular among the rural folks will be awarded. Staff skills and motivation will need to be continuously enhanced through an effective human resource development program. Staff training will emphasize on effective salesmanship and fund management. An incentive scheme incorporating, savings as key performance indicators will be devised. Default risk is seen as the major risk. Loan portfolio quality will need to be improved to make sure that the rural clients meager savings are not put to waste. Efforts to improve portfolio quality will continue. Borrower selection will need to be tightened with more emphasis on client’s character and capacity to pay than on the usual basis of collateral. Fraud risk is also a major risk. The lack of conventional control mechanisms in mobile banking operations presents a huge potential for fraud. Regional Managers and Internal Auditors will need to be extra vigilant and conduct constant spot checks and visits to deter mishandling of cash. BDFCL modestly expects to collect Nu.37,456,376 from 12,052 savers by the end of 2007.
