Informal lending widely practiced

Informal-LEndingInformal lending is widely practiced in Bhutan, covering a variety of needs, that formal financing does not meet says a report-“connecting the disconnected”-coping strategies of the financially excluded in Bhutan which was launched, today. This joint publication of the Royal Monetary Authority and the World Bank expects to provide qualitative evidence in informing the Financial Inclusion Policy.

Sangay Rinchen, the founder of Happy Green Cooperatives started his business in 2010 with the help of a moneylender. This was because not a single institution agreed to finance his business.

“In a place where there is no option, any option is the best thing. That time we that it was the best option to go with and it has helped us. Now we realized something we have done is quite worth because we have managed to start something that time which otherwise we couldn’t have been started anything.”

Informal lending continues to be the preferred choice of funding for many. With the banking process being rigid, especially when it comes to collateral, informal lending, in spite of high interest rates appear attractive due to its flexibility and minimum procedures.

A Senior Economist with the World Bank, Cecile Thioro Niang, says cooperatives and saving groups need to be supported in Bhutan, as well as micro financing to provide better access to financial services.

“The other form of informal sector which is critical with the fact that you already have saving group and cooperatives which are very good way for people to get together as group and borrow money against group based collateral.”

She recommends that financial institutions should learn from the informal sector and then try to provide a range of services to people at affordable rates.

The report shows that the largest informal borrowing in rural Bhutan was Nu.1.5 million, while the largest urban borrowing was Nu.3 million.

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