RAA’s 6 recommendations on micro-financing

The Royal Audit Authority (RAA) conducted the Performance Audit on Micro-financing with an aim to ascertain whether there are clear strategic focus, adequate regulations and appropriate institutional systems in micro-financing.

There are five licensed MFI’s namely, REDCL, RENEW Microfinance, BAOWE, Tarayana and Bhutan Care Credit Limited of which Bhutan Care Credit and Tarayana was non-operational as on date of audit.

The report states that the significant issues are lack of strategic focus in microfinance development, issues of sustainability of the operations of BDBL and REDCL, weak linkage between microfinance distribution and poverty incidence and high rate of non-performing loans in REDCL and BDBL.

Others are large number of litigation cases in BDBL, loss of land and property due to loan delinquency and inadequate monitoring and inspection of the loan projects. Based on the findings, RAA made six recommendations.

Report states that the main aim of providing loans is to promote economic activity and growth. The securities such as land and other properties are to enable access to bigger credit while securing the risk of the both the client and banks.

However, high instance of NPL and litigations culminate into seizure of land and properties mortgaged.  Through the loan default cases, redistribution of land is taking place. The modus operandi of redistribution defeats the very purpose of granting land by various schemes to the landless. The land and property seizure on account of loan has a disruptive impact on the socioeconomic prospects of the people, report added.

According to the BDBL management these loan clients are untraceable. It was revealed 99 loan accounts with total outstanding of Nu.14,094,258.52. These loans are outstanding for an average of 6,487 days.

To all, RAA recommended that RMA should provide comprehensive policy direction for microfinance development, REDCL and BDBL need to develop strategies for sustainability and REDCL Need to align loan approval with cropping patterns.

While the other recommendations are BDBL and REDCL need to institute robust monitoring of loan projects, REDCL need to review the current MoU between BDBL and REDCL and BDBL need to update the interest rates of loans.

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