Banking in Bhutan
Encyclopedia
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.
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 loan
s 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 cheque
s, which began in 1974.
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
.
Non-bank financial institution
s 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 share
s 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.
Modernization
In the social sciences, modernization or modernisation refers to a model of an evolutionary transition from a 'pre-modern' or 'traditional' to a 'modern' society. The teleology of modernization is described in social evolutionism theories, existing as a template that has been generally followed by...
. Since its establishment in 1982, the Royal Monetary Authority, headquartered in Thimphu
Thimphu
Thimphu also spelt Thimpu, is the capital and largest city of Bhutan. It is situated in the western central part of Bhutan and the surrounding valley is one of Bhutan's dzongkhags, the Thimphu District. The city became the capital of Bhutan in 1961...
, has served as the central bank
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
of Bhutan
Bhutan
Bhutan , officially the Kingdom of Bhutan, is a landlocked state in South Asia, located at the eastern end of the Himalayas and bordered to the south, east and west by the Republic of India and to the north by the People's Republic of China...
. The authority is responsible for issuing currency
Bhutanese ngultrum
The ngultrum has been the currency of Bhutan since 1974. It is subdivided into 100 chhertum .-History:In 1974, the ngultrum was introduced, replacing the rupee at par...
, implementing monetary policy
Monetary policy
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...
, coordinating financial institution activities, and holding the government's foreign exchange
Foreign exchange market
The foreign exchange market is a global, worldwide decentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends...
earnings. Among its initial duties was the administration of financial assistance for rural
Rural
Rural areas or the country or countryside are areas that are not urbanized, though when large areas are described, country towns and smaller cities will be included. They have a low population density, and typically much of the land is devoted to agriculture...
development, a duty later delegated to the Bhutan Development Finance Corporation when it was founded in 1988.
The Bank of Bhutan, the nation's commercial bank
Commercial bank
After the implementation of the Glass–Steagall Act, the U.S. Congress required that banks engage only in banking activities, whereas investment banks were limited to capital market activities. As the two no longer have to be under separate ownership under U.S...
, was established in 1968 as a joint venture
Joint venture
A joint venture is a business agreement in which parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets...
with the Chartered Bank of India, Australia and China
Chartered Bank of India, Australia and China
The Chartered Bank of India, Australia and China was a bank founded in London in 1851/1853 by Scotsman James Wilson following the grant of a Royal Charter from Queen Victoria. It opened its first branches in 1858 in Calcutta and Bombay and then in 1863 in Karachi and Shanghai...
, which owned 25 percent of the bank. In 1970 this share was transferred to the State Bank of India
State Bank of India
The State Bank of India is the largest Indian banking and financial services company with its headquarters in Mumbai, India. It is state-owned. The bank traces its ancestry to British India, through the Imperial Bank of India, to the founding in 1806 of the Bank of Calcutta, making it the oldest...
. Since its establishment, the Bank of Bhutan's board of directors
Board of directors
A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. Other names include board of governors, board of managers, board of regents, board of trustees, and board of visitors...
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
Retail banking
Retail banking is banking in which banking institutions execute transactions directly with consumers, rather than corporations or other banks. Services offered include: savings and transactional accounts, mortgages, personal loans, debit cards, credit cards, and so forth.-Types of...
agent for the Royal Monetary Authority. The bank's principal office is in Phuntsholing
Phuntsholing
Phuentsholing is a border town in southern Bhutan, and is the administrative seat of Chukha District. The town occupies parts of both Phuentsholing Gewog and Sampheling Gewog. Phuentsholing lies opposite the Indian town of Jaigaon, and cross-border trade has resulted in a thriving local economy...
; in 1991 there were twenty-six branch offices throughout the country. The Bank of Bhutan has been able to give relatively large loan
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
s for capital programs such as irrigation
Irrigation
Irrigation may be defined as the science of artificial application of water to the land or soil. It is used to assist in the growing of agricultural crops, maintenance of landscapes, and revegetation of disturbed soils in dry areas and during periods of inadequate rainfall...
projects in Bhutan's south-central region. Among its retail banking activities is the issuance of rupee
Indian rupee
The Indian rupee is the official currency of the Republic of India. The issuance of the currency is controlled by the Reserve Bank of India....
-denomination traveler's cheque
Traveler's cheque
A traveler's cheque is a preprinted, fixed-amount cheque designed to allow the person signing it to make an unconditional payment to someone else as a result of having paid the issuer for that privilege.- Usage :As traveler's cheques can usually be replaced if lost or stolen A traveler's cheque...
s, which began in 1974.
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
Arable land
In geography and agriculture, arable land is land that can be used for growing crops. It includes all land under temporary crops , temporary meadows for mowing or pasture, land under market and kitchen gardens and land temporarily fallow...
, acquiring livestock
Livestock
Livestock refers to one or more domesticated animals raised in an agricultural setting to produce commodities such as food, fiber and labor. The term "livestock" as used in this article does not include poultry or farmed fish; however the inclusion of these, especially poultry, within the meaning...
, and meeting short-term, seasonal requirements. At least some of the funding for the corporation came from the Asian Development Bank
Asian Development Bank
The Asian Development Bank is a regional development bank established on 22 August 1966 to facilitate economic development of countries in Asia...
, including an initial US$
United States dollar
The United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....
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
Privatization
Privatization is the incidence or process of transferring ownership of a business, enterprise, agency or public service from the public sector to the private sector or to private non-profit organizations...
.
Non-bank financial institution
Financial institution
In financial economics, a financial institution is an institution that provides financial services for its clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries...
s also were set up as part of the economic modernization process. Insurance
Insurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...
was offered by the Royal Insurance Corporation of Bhutan
Royal Insurance Corporation of Bhutan
The Royal Insurance Corporation of Bhutan is an insurance corporation based in Thimphu, Bhutan.It was established on 7 January 1975 under the Charter of the fourth Druk Gyalpo Jigme Singye Wangchuk to assist in the economic development of the nation by providing insurance....
, 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 share
Share (finance)
A joint stock company divides its capital into units of equal denomination. Each unit is called a share. These units are offered for sale to raise capital. This is termed as issuing shares. A person who buys share/shares of the company is called a shareholder, and by acquiring share or shares in...
s 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
Money
Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past,...
in the economy.