Thank you

A couple of late meetings prevented me from watching TV last night. So I watched BBS TV’s rebroadcast this morning. In particular, I watched Lyonpo Yeshey Zimba, the officiating prime minister, and Lyonpo Wangdi Norbu, the finance minister, talk about the current economic situation.

I thank the government for going on national TV to explain the ongoing currency situation to the public at large. The two ministers are our most experienced financial experts. The two of them have served as finance ministers for a combined total of 14 years, and as finance secretaries for more than 10 years. So they are very qualified to speak on the rupee crunch, and to allay the public’s growing fears on the state of our economy.

I also thank the prime minister, who is in New York attending to other pressing matters, for deputing the officiating prime minister and the finance minister to address the nation on his behalf. The fact that the government has eventually addressed the nation at a time when our people’s confidence has been shaken is welcome and appreciated.

So, on behalf of the people, and without getting into the specifics of what was said on TV, I offer a sincere thank you to the government.

About financial crisis

If you, like me, want to know more about the global financial crisis, here’s a quick two-step process.

First, get hold of Justin Cartwright’s novel Other People’s Money. Okay, it’s fiction. But it’s very readable. And you’ll find that the story, which revolves around a failing London bank, provides an enjoyable introduction to why financial institutions collapse, and how rich bankers, powerful politicians and influential journalists conspire to prevent the bank from crashing.

Justin Cartwright’s story also mentions Bhutan – not as the land of gross national happiness, or as an up and coming financial centre, but, interestingly, as a refuge for the mysterious yeti!

Second, download Getting up to Speed on the Financial Crisis: A One-Weekend-Reader’s Guide by Gary Gorton and Andrew Matrick. This paper, also quite readable, is a summary of 16 other documents, and explains what happened during the financial crisis 2007 – 2009.

The one-weekend guide also has a Bhutan connection. The paper was recommended by Dorji Wangchuk on one of his many informative tweets. Dorji Wangchuk is an economist and financial expert working in the UK.


Banking on vouchers

Happy banker

Happy banker

B-mobile’s strategy to market their cellular phone services in rural Bhutan is aggressive. In Sombaykha, for instance, where they introduced their services recently, B-mobile had a representative traveling from village to village dishing out free SIM cards and offering recharge vouchers at initial discounted rates.

Our farmers were delighted. Everywhere the B-mobile representative went, farmers rushed to welcome him. In addition to giving free SIM cards, B-mobile automatically doubled the value of each farmer’s initial purchase of recharge vouchers, subject to a maximum purchase of Nu 500. This meant that if a farmer was willing spend Nu 500, she’d walk away with a free SIM and vouchers valued at Nu 1000.

Obviously, astute farmers wanted to double the value of their money by buying as many recharge vouchers as possible. And they did. How? By simply getting hold of people – friends and relatives – who weren’t otherwise going to subscribe to the cell phone service, and requesting them to purchase the maximum Nu 500 worth of vouchers.

Take my cousin, Sangay Dorji. He got 7 people, including himself, to get SIM cards. For each card, he purchased Nu 500 in vouchers. B-mobile matched every Nu 500 with an equal amount of free recharge vouchers. So, he ended up getting a total of Nu 7000 worth of recharge vouchers.

“Wai, Sangay!” I chided him, “Do you really need so much talk-time?”

“I’ll need to buy vouchers anyway,” he replied, “so I might as well get them now at half the price.”

“Besides, I won’t use up all the vouchers for talking,” he continued, “or for sending text messages. I’ll use most of it as money.”

“Money?” I enquired, “What do you mean?”

“You see, if I want someone who is in Samtse – say, my neighbour Aum Kunza – to buy me Nu 200 worth of tea leaves, I can just transfer that amount of talk time to her phone, instead of sending her cash. It’s simpler. It’s quicker. And it’s much safer.”

“Similarly, I can transfer my talk time to Ap Nado when he ploughs my fields, or to Ani Gaki for a bottle of her ara, or to Zow Samdrup for husking my paddy. And naturally, they could use their talk time to pay me for using my mules.”

Voucher banking. The possibilities are endless. And for our village folk, who still don’t have farmers’ banks, this unintended service might become essential.

It’s good thing that B-mobile is aggressive.

Our debt

Yesterday, the Finance Minister reported that Bhutan’s total debt outstanding is Nu 35,109.3 million. That’s about 56.7% of our GDP.

In other words, every citizen owes Nu 64,000 of that debt. Or, assuming the average family has five members, every family would owe Nu 320,000.

The good news is that most of that debt – about 61 per cent – consists of hydropower construction loans. These loans, we are told, will pay for themselves, and generate huge revenues for the government. Good.

But, let’s not completely ignore the risks. An overdependence on one source of revenue – in this case, hydropower – is not good for our economy. And, the almost complete dependence on one buyer, India, for the electricity that’s produced should be cause for concern. And, there’s the risk of an unforeseen natural calamity.

I’m not advocating for a halt to the investments in hydropower projects. But, I’m calling for a better awareness of the risks. And for measures to address these risks, however unlikely they may appear today.

What should we do to insure ourselves properly? Diversity our economy. And, strengthen the private sector.

In the meantime, prepare for more loans. According to the Finance Minister’s report, by next year, our collective debt will have ballooned to Nu 44,718.71 million.

Poor planning

Yesterday, the National Assembly approved the revised budget estimates for the financial year 2008-09. Like the previous year (see earlier entry), the last financial year also saw a huge difference between the approved budget and the most recent revised estimates. This time, however, the difference was completely on the other side of the spectrum – the government expects to spend much, much more than what had been approved.

How much more? The total outlay for 2008-09 approved by the National Assembly last year was Nu 21,096.281 million. The government’s revised estimate for 2008-09 is a whopping Nu 25,519.695. That’s an upward revision of Nu 4423.414 million. And, that amounts to a difference of 21%.

Again, poor planning. Or, poor implementation. Or both.

Some have argued that the upward revision is good; that that indicates that our government has done more than what was approved. And, that may be so. But, at 21%, the difference is big, too big to be conveniently ignored. Especially if changes to the original plan are not well considered, but are ad hoc.

This is how the upward revision was sanction. During the winter session of the Parliament, a supplementary budget of Nu 488.439 million was approved. During this session, a request to approve another supplementary budget of Nu 4,238.447 million was submitted.

But, the government also reported to the National Assembly that about 10% of the original budget has still not been used. That would work out to Nu 2,158 million!

Confusing? Yes. Why? Poor planning. And poor implementation.

Lazy banks

My last entry provoked Zekom to exclaim: “…calling Bhutanese Banks conservative is a praise they don’t deserve. I’d call them lazy!”

She is correct.

Because our banks our lazy, money lenders are doing a thriving business throughout rural Bhutan, where our farmers are compelled to take loans at exorbitant rates. It’s common for money lenders to charge farmers interest rates of 5% per month, which works out to 60% per year!

This, of course, is illegal. The Moveable and Immoveable Property Act (1999) stipulates that “… no lender other than a registered financial institution which has been duly licensed to engage in the extension of credit, may charge interest greater than 15 percent per annum expressed as a simple annual rate.” But the complete absence of meaningful banking services in rural Bhutan means that desperate farmers are willing to accept extremely high rates, even though they are illegal. It also means that our farmers find it very difficult to repay loans. And those that can’t lose their land and, sometimes, even their houses.

But that’s not all. I’ve learnt that money lenders do brisk business even in Thimphu. And how much do they charge? Get ready for this: as much as 20 percent a month! That works out to 240% a year.

This is ridiculous. And illegal. And heartbreaking.

Banking on our banks

Our banks continue to make generous profits. Last year, BNB made Nu 310 million, a whopping 124% over the previous year, and BOB made Nu 168 (see Kuensel article). Not bad, considering the size of our economy. And, considering that they’ve been consistently declaring very attractive dividends.

How do banks make money? Primarily by paying depositors a certain interest rate, and charging borrowers a higher interest rate. And obviously, the larger the spread between the two rates, the bigger the profit that banks earn. But what about bad loans, loans that banks cannot recover? That’s the risk that banks take, a risk that’s minimized by lending only to reliable borrowers.

So how do our banks consistently make so much money? By paying depositors low interest rates and charging borrowers interest rates that are much higher. And by requiring that all loans are secured by full collateral.

This is very good for our banks. But not so good for our economy. And definitely not good for people who want to do business.

That’s why doing business is difficult in Bhutan (see “Doing business isn’t easy anywhere”).

And that’s why the Doing Business Report ranks Bhutan a miserable 172 out of 181 countries in terms credit access. (see ranking)

Our banks need to be less conservative and a lot more active. They need to lower interest rates so that businesses have a better chance. Access to capital is limited to a few people who have collateral – and this is what deprives the vast majority of Bhutanese of business opportunities. The financial institutions must be more proactive in making it easier for farmers and small businesses to avail of loans – on the merit of their proposals and not collateral alone. The risk factor can be minimized if loan officers not only study and analyze the proposals, but also offer guidance and other support to the borrowers.

Improving access to credit will be good for businesses. And good for our economy. And that would be good for our banks: they’ll be able to make even more profits.

Mobile banking

Wouldn’t you be happy if you could get your bank balance on your cell phone instead of having to go all the way to the bank?

Wouldn’t it be good if you could instruct your bank not to honour a cheque that you’d issued mistakenly?

Wouldn’t you like it if your bank informed you every time money was withdrawn from or deposited to your account?

And wouldn’t it be convenient if your bank reminded you when loan repayments were due?

All this, and more, are available with the BNB’s mobile banking service which was launched yesterday. I’m excited about this new service, so I went there yesterday afternoon to congratulate BNB staff and register for their service.

The concept seems to be quite simple: you send instructions by SMS to the bank, and they respond with the required information by return SMS. Regular rates for outgoing SMS’s apply, but incoming SMS’s from the bank are free. Plus the bank sends SMS’s to alert you when money is withdrawn from your account, deposited to your account, or when loan repayments become due.

The beauty of this service is that it is free and easy. BNB has tied up with both Tashi Cell and B-Mobile to provide this convenient service free of cost. And while I will certainly find this service very useful, it could be even more beneficial to our farmers. Almost half our population, and most farmers, now carry cell phones. So mobile banking should now be possible throughout the country. And our farmers should finally find it worthwhile to open bank accounts.

But I’m already excited about the next level of mobile banking: fund transfer. Now wouldn’t you like that? Wouldn’t you be delighted if you could transfer money to your daughter’s account just by sending an SMS? Or if you could shop, buy petrol for instance, simply by using your cell phone?

I congratulate BNB for improving their financial services. And, more importantly, I thank them for making banking that much more possible for our farmers. Go ahead. Make your services even more accessible. And empower us, your customers.