Micro-finance striving to reach the unreached

While micro-financial institutions are key in catering to the financial needs of the low-income populace, in Bhutan’s context the cost of funds could lead to issues that could result in even higher interest rates.
From the experience of other countries shared during the second day of the summit, the cost of financing increased with sparseness of the population. Micro-financial institutions usually borrow from bigger commercial banks and finance the needs of the unreached populace to help income generation. 
In the process, to cover financial and operating costs, the interest rate is often high. Subsidies and incentives help keep interest low. The cost is generally low if the population density is high.
While the Royal Monetary Authority has recently come up with rules and regulations for deposit-taking micro-finance institutions and regulations for microloan institutions, the country has other non-governmental organisations (NGO) functioning as micro-finance institutions.
But, with the new rules and regulations, NGOs functioning as micro-finance institutions must be registered with the central bank and comply with the rules. The story of Bandhan Bank in India is an example of how an NGO evolved from a non-banking financial institution to a deposit-taking micro-financial institution. 
It now has become a commercial bank catering to the low-income populace.
The chief executive officer of Bandhan Bank of Kolkata, Chandra Shekar Ghosh, said people in the low-income group bear their emergency financial needs from the capital financed by institutions.
For instance, education of their child and health expenditure become issues later when borrowers cannot pay back loans. 
But since the bank introduced education and health loans with no interest, social needs are taken care of and the non-performing loans declined manifold.
Given the population density in Bhutan, Chandra Shekar Ghosh said the cost would be on the higher side and a comparison should not be made with other countries as long as commercial banks support the micro-financial institutions with a viable model.
Good supervision and a monitoring framework would support the sustainability of micro-financial institutions. 
“For a micro-financial institution, it is advisable to have one or two simple products covering maximum clients, because multiple products not only confuse clients but also employees.” The chairwoman of Sanasa Development Bank of Sri Lanka, Muditha Samadanie Kiriwandeniya, said the proliferation of micro-financial institutions has created a myth that micro-financing alone can eradicate poverty.
It is nice to make people happy but it will not make a community grow and compete in the global market when everyone wants to be an entrepreneur, she said.
It is imperative to get the package right from the beginning and that before looking at the external model it is important to look at the country’s own model. 
The country should be mindful of which industries to promote and think comprehensively rather than look at the segmented piece and make people happy, she said.