Tucked between the giant economies of China and India, the Kingdom of Bhutan has traditionally kept itself isolated, relying heavily on rural agriculture and local industries. Yet, as the country opens its doors to the world with a commitment to sustainability, it is also embracing digital innovation to reshape its financial sector.
The Kingdom of Bhutan, with a population of over 780,000, is a Buddhist democratic constitutional monarchy. King Jigme Khesar Namgyel Wangchuck serves as the head of state, while Prime Minister Lotay Tshering leads the government.
Isolated from much of the world until the 1950s, Bhutan’s primarily rural population relied on subsistence agriculture. Economic development began with the First Five Year Plan in 1961. Now in its twelfth iteration (2018-2023), Bhutan’s development approach remains shaped by its unique Gross National Happiness philosophy.
For those unfamiliar with Bhutan, two things may come to mind: its famed happiness index – by which Bhutan claims to be the happiest nation globally – and its sustainable development tax. This tourist tax, set at a minimum of $100 per day, aims to promote mindful tourism.
Bhutan’s distinctiveness is evident in its measured approach to modernity. With a GDP per capita exceeding $3,100, higher than that of many South Asian neighbours, the country has resisted rapid technological adoption.
For example, regular broadcast television only arrived in 1999. Thimphu, the capital city of approximately 114,000 people, remains one of the few capitals globally without traffic lights, and nearly all businesses are locally owned and operated.
Financial services, digital and fintech
An account from the Asian Development Bank (ADB) illustrates the state of Bhutan’s financial services sector around 2010. A handicrafts shop manager in Thimphu described the challenges posed by the lack of ATMs, credit card authorisation systems, and other financial infrastructure catering to international customers.
To process Visa transactions, the shopkeeper had to email customers’ credit card details to a bank in neighbouring Nepal, waiting two to three days for approval. Mastercard clearance, meanwhile, was unavailable at the time.
The financial limitations in Bhutan stemmed from a small number of banks, which primarily served a select group of customers. For the majority, cash also remained the primary form of transaction.
Over the past decade, with ADB’s support, Bhutan has taken steps to modernise its financial services sector. Key initiatives have included:
Issuing new bank licences to expand financial services access
Four ADB loans totalling $21million to support financial sector improvements
Developing a finance sector strategy, incorporated into Bhutan’s Ninth Five-Year Plan, to enhance the country’s capacity for project financing and risk management
Strengthening the Royal Monetary Authority (RMA) – Bhutan’s central bank – to improve bank license evaluations, legal compliance and consumer protection.
Banks
By 2020, Bhutan’s financial sector included five banks, three insurance companies, one CSI bank, five microfinance institutions, one pension institution, two telecom companies as well as a single stock exchange. In terms of financial inclusion, 76 per cent of the population had a savings bank account, and just over one-fifth had access to loans.
Despite its historical lag in technology adoption, recent years have seen significant government efforts to expand ICT and telecommunications infrastructure. According to the 2022 Bhutan Living Standards Survey Report, 95 per cent of households own a smartphone, 99.6 per cent of which have mobile internet access, and 96 per cent have a mobile connection.
A key catalyst in Bhutan’s fintech growth is FintechBhutan, an initiative launched by the RMA in 2020 to foster innovations that improve financial services’ quality, efficiency and accessibility. FintechBhutan, a cross-functional group within the RMA, develops and enhances regulatory policies to support fintech adoption in Bhutan’s financial sector.
Its second cohort accepted applications from both domestic and international applicants until the end of October this year, allowing selected fintech solutions to undergo a six-month testing period in the sandbox environment, according to the initiative’s website.
The sandbox
The first application window for FintechBhutan’s sandbox opened in 2020, receiving 16 applications, of which three were selected for testing:
Yang Khor Pvt. Ltd: Developed an ‘e-KYC’ solution to digitally onboard customers, using advanced technologies like artificial intelligence, machine learning, thumbprint and facial recognition for a streamlined digital KYC platform
Soft Net Technology: Proposed a centralised loan application platform in response to pre- and post-Covid challenges. The platform automates loan origination processes with added services such as big-data analytics, loan advisory and credit risk assessment
Bhutanbuy.com: Created a mobile application designed for visually impaired users to identify and read currency, including foreign currency, through various accessibility features
Recent fintech developments in Bhutan include the launch of ORO Bank, a new cloud-first financial institution with a mission to promote sustainable personal, corporate, and financial growth. The bank has also partnered with global financial software provider Finastra, utilizing its Essence solution to power cloud-based operations.
Additionally, Bhutan’s fintech collaboration with India is strengthening, with UPI and RuPay cards gaining traction as preferred payment options.
As Bhutan gradually opens up to the world, its commitment to sustainable development has led to increased financial inclusion and growing opportunities in fintech. These advancements offer the potential to boost economic development and prosperity across the Kingdom.
The post Tradition and Technology: Bhutan’s Journey into Fintech and Financial Inclusion appeared first on The Fintech Times.
