Banking in Bhutan

Banking in Bhutan is a fledgling industry that has grown slowly as the country has pursued modernization. Since its establishment in 1982, the Royal Monetary Authority, headquartered in Thimphu, has served as the central bank of Bhutan. The authority is responsible for issuing currency, implementing monetary policy, coordinating financial institution activities, and holding the government's foreign exchange earnings. Among its initial duties was the administration of financial assistance for rural development, a duty later delegated to the Bhutan Development Finance Corporation when it was founded in 1988.^[1]

The Bank of Bhutan, the nation's commercial bank, was established in 1968 as a joint venture with the Chartered Bank of India, Australia and China, which owned 25 percent of the bank. In 1970 this share was transferred to the State Bank of India. Since its establishment, the Bank of Bhutan's board of directors has been composed of key officials from the economic ministries and departments and two officials from the Indian banks. The bank was restructured in 1971. To ensure that it would have sufficient funds at its disposal, government departments were required to deposit all of their accounts with the government-run bank until 1982, when the Royal Monetary Authority was established. Since 1982 the Bank of Bhutan has served as the retail banking agent for the Royal Monetary Authority. The bank's principal office is in Phuntsholing; in 1991 there were twenty-six branch offices throughout the country. The Bank of Bhutan has been able to give relatively large loans for capital programs such as irrigation projects in Bhutan's south-central region. Among its retail banking activities is the issuance of rupee-denomination traveler's cheques, which began in 1974.^[1]

The Bhutan Development Finance Corporation, upon its establishment in 1988, took over the administration of rural financial assistance from the Royal Monetary Authority. Loans were granted for improving farmland, acquiring livestock, and meeting short-term, seasonal requirements. At least some of the funding for the corporation came from the Asian Development Bank, including an initial US$2.5 million loan in 1988 for the expansion of small- and medium-sized, private-sector industrial development. By 1991 the corporation had been privatized.^[1]

Non-bank financial institutions also were set up as part of the economic modernization process. Insurance was offered by the Royal Insurance Corporation of Bhutan, which was established in 1975 with its headquarters in Phuntsholing. Starting in 1980, individuals could invest their savings in the newly established Unit Trust of Bhutan. The trust, with its main office in Phuntsholing, channels invested funds, for which it issues shares called units, into industrial and commercial development. The Government Employees' Provident Fund, established in 1986, the Bhutan Development Finance Corporation, and other non-bank institutions are small and constrained by the rudimentary use of money in the economy.^[1]

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