Availability of credit is essential for any development effort and particularly so in rural areas. In Bhutan, such credit was provided by the Bhutan Development Finance Corporation (BDFC) through the Rural Credit Programme (RCP), with the funds and other financial assistance provided by various donors and the Government. However, with the gradual withdrawal of their support, BDFC foresaw the need to make alternative arrangements for securing loanable funds.
In 1995, despite the initial problems, the RCP had gained momentum; it was operating satisfactorily after proper streamlining and strengthening of the management system of BDFC, and the volume of operation had drastically increased, forcing the institution to look for additional resources for lending. Unless additional resources were urgently identified and mobilized to allow BDFC to continue providing the increasing volume of credit to the agricultural and rural sector in general, the further development of those sectors could be seriously jeopardized. The introduction of savings mobilization appeared to be the most potential and appropriate alternative in securing the availability of such additional funds.
Savings operations and related services could not be introduced in Bhutan in its current situation with the urgency required, without efficient operational systems and appropriate technology, accompanied by extensive training. The incorporation of savings mobilization into the operations of BDFC could at the same time also further increase the cost- effectiveness and viability of its entire operation.
While introducing automation for savings operations, it was felt that advantage should be taken to expand the range of BDFC's banking services in rural areas through its network of twenty district offices. This would make BDFC a more complete financial institution, providing a full range of financial and banking services for the rural communities. The immediate benefits of automation would include increased cost-effectiveness of existing operations, increased awareness of the essential link between credit and savings and better access to credit. It would facilitate assessment of the clients' creditworthiness and promote better loan recovery. In the longer term, the sustainability of the financial institution would be drastically enhanced and better financial discipline inculcated among clients.
However, appropriate ground work and strategies needed to be established prior to the introduction of these additional services. Although BDFC had a wide network of branch offices in all the District Headquarters and its current operations were also fully computerized, its staff members would have to be trained in the procedures of the new services, including savings mobilization, current accounts, electronic fund transfer and broader credit facilities. Given this situation, the Government of Bhutan requested FAO to provide technical assistance to BDFC to enable it to provide a more complete range of banking services in rural areas.
This assistance was approved by FAO in April 1995 under the Technical Cooperation Programme project TCP/BHU/4552, Broadening the Range of Financial Services in BDFC. The project was estimated to begin in May 1995 and end in January 1996, with a budget contribution of $US 121 000. It was later extended up to October 1996 and the budget was increased accordingly to $US 128 000. The BDFC was designated the government agency responsible for project execution.
The project aimed to:
- establish two branches of BDFC, one of which in Thimphu, carrying the full range of products and services described below:
- savings account facilities for individual and institutional customers;
- current account facilities for individual and institutional customers;
- "real-time" money transfer services between participating BDFC branches, using the new NEC telephone facilities and modems;
- "group" savings facilities whereby all group members would have their own account but the local BDFC office would provide a monthly report to the group with the account balances by the member. Deposits would be accepted "in bulk" from Non-Governmental Organizations (NGOs) or group leaders and posted to individual member accounts by batch;
- credit facilities for housing loans and other productive purposes (in addition to the agricultural and handicraft loans currently provided);
- train the staff to:
- carry out the tasks related to savings mobilization and other services within a computerized system;
- instal the FAO MicroBanking System in all branches with access to the new NEC telephone system (estimated to be about 10), to enable them to carry the products and services described above; and
- provide technical and operational support to the system installed.
The training of staff was undertaken as indicated in the work plan of the Project Agreement as follows:
Four staff members were trained in the Philippines in various banking operations, including liquidity management, credit appraisal of small non-agricultural loans, issues related to transportation of cash between branches and the Head Office, electronic transfer of funds, and rural savings mobilization.
Four staff members underwent basic training on the Standard Run-Time Edition (SRTE) of the FAO MicroBanking System and one of them attended training at the next level, the EXTE course (also called programmer's course). SRTE training courses were organized in Bangkok and the EXTE course in Israel.
This covered user training in branch office operations and basic functions of the FAO MicroBanking System for District Credit Officers, Credit Assistants and staff in the BDFC Head Office. At the time of installation of the communication routines, classroom and hands-on training were given to the operations and support staff of the BDFC in the use of the inter-branch facilities.
A special training course, "Banking with FAO MicroBanking System", was developed as part of project activities and the first course was organized in Bangkok. Four staff members of BDFC attended this course.
Branch office procedures were formulated and documented and compiled in a Branch Office Operations Manual, covering all products and services provided by the BDFC, both the old ones and those developed through the support of this project. It was subsequently used for local training.
Communication routines enabling inter-branch transactions were developed, tested, incorporated into the customized MicroBanking System and installed on three pilot sites, two of them in the Head Office in Thimphu. With the communication routines, inter-branch transactions for deposits, electronic fund transfers, loan repayments, withdrawals and account enquiry are possible using modems and the existing BDFC hardware and office telephone lines. Personal Identification Numbers (PIN) will be introduced to safeguard against unauthorized use of this facility.
Training materials and technical documentation related to this aspect of project activities were handed over to the BDFC as reference material, for use in the replication of installations in remaining branches and in conducting required training.
The objectives of the project were fully achieved and, in some respects, even exceeded, despite some constraints at the final stages of implementation. However, they were all successfully solved and the three pilot sites were running profitably at the end of the project.
In order to make maximum use of the results achieved under this project, it is recommended that the new system be adopted in all the offices of BDFC, that additional training be provided to the operations as well as the MicroBanker support staff, and that further testing be carried out.
The need for further development of other related facilities is also stressed. This includes the improved use of electronic mail for communication between the Head Office and the branches, implementation of financial control of network traffic, and introduction of a variable speed system of data transmission.
The Government is urged to provide a favourable environment and support to BDFC to enable it to get maximum benefit from the new system developed and installed with the support of the project.
Likewise, BDFC is urged to start using the system immediately in order not to lose the momentum of training given to the staff. It should expand the system into all branches within the shortest possible time frame, and send at least one additional staff member (programmer) for EXTE training.
It is recommended that BDFC acquire electronic mail connections as soon as possible and that it make arrangements for a follow-up mission by a qualified MicroBanker specialist within 8 to 10 months of the pilot installations, in order to ensure proper running of the system and to determine the possible changes/enhancements required.
