BDFCL means business
From Kuensel online.
17 October, 2009 - Its gleaming glass entrance leads straight to eight spacious business counters.
This provision in the Bhutan development finance corporation limited’s (BDFCL) brand new Nu 60 million head office complex on Norzin Lam in Thimphu has been built with an eye on the very near future.
The 21-year-old government- owned development bank with a special focus on agriculture development, the country’s only one, is hoping to expand into providing domestic banking services in the larger urban centres of Thimphu and Phuentsholing. The basic idea is to mobilise funds through savings and deposits to fund its rural credit operations.
It applied for a special license to the royal monetary authority (RMA) in December last year and was given the “in principle approval,” together with two other proposals from the private sector to set up commercial banks.
The “in principle approval” is valid for 12 months, a period in which the license holders must get things ready to start operations.
One of the conditions for BDFCL to get the specialised license was to double up its paid up capital to Nu 200m. This was done promptly earlier this year with the government pumping in the additional funds.
“We’re ready to start operations,” said the BDFCL’s managing director, Nawang Gyetse, the smell of new furnishings still lingering in upper floors of the four-storied office complex.
But RMA officials said that it is yet to see compliance in one more area: bringing down non-performing loans (NPL) from 12 percent to eight percent. “As the regulator, we can’t compromise because BDFCL now wants to get into a commercial aspect,” said the head of the financial institution supervision head, Eden Dema.
“That’s not fair,” said Nawang Gyetse. “If our NPL is high, it’s because of our social lending and high operation cost to take rural credit to the people.”
According to him, the NPL from rural credit is as high as 30 percent, which means for every Nu 100 given as credit, Nu 30 does not come back. “We can bring down the NPL but rural credit could suffer,” he said.
The bank has 23 branches throughout the country and field staff on motorcycles to disburse credit, collect repayment and savings. Its operation cost is extremely high, so much so that the cost of paying a field staff is much higher than the loan disbursed.
The bank has a commercial lending portfolio to subsidise its rural operations, but this aspect has also drawn criticism that the bank might be giving more weightage to making money than disbursing credit to the poor.
The management refutes such allegations, saying that its commercial operations are essential to keep rural credit alive. The bank has also been dependent for many years on the government and donors for grants and low cost funds.
But these sources were now drying up and the bank was compelled to borrow from the market at market rates. “If we’re allowed to provide banking services in the larger urban centres, it’s one way of getting funds without the middleman,” said the managing director. The bank already has the license to do rural banking in the smaller towns and deposits have reached around Nu 200m.
Since it was established, the bank has disbursed around Nu 460m as rural credit and Nu 466m as commercial credit as of last year. Its penetration rate, based on Bhutan living standard survey 2007, which put the number of rural households at 84,867, was 20 percent, according to the Karma Choden, the general manager for credit operations.
“We still have a lot of people to reach. We’re trying to move from collateral-based lending to cash-flow-based lending,” she said.
She said that a few parliament members had come to the bank to ask about its credit schemes and say that more awareness was needed in the rural areas.
According to the RMA, the bank is healthy and has also improved its profitability in recent years, but whether it can start banking operations in Thimphu and Phuentsholing will be determined after a special on-site inspection next month.
Bank officials said that it was even more crucial nowadays for the bank to become sustainable because, if it depended solely on the government for funds, it could become a political tool.
By PHUNTSHO WANGDI
