Imagine a country unlike any you have ever seen – a mountainous land without Starbucks, where pop stars sing praises of the king, and men wear skirts with knee socks. You might be tempted to relegate the country to the category of charming or exotic. But that would be a disservice to Bhutan, which presents itself as kind, intelligent and ready to participate in the modern world.
I attended the Bhutan Economic Forum for Innovative Transformation’s summit on “Equitable Growth through Financial Inclusion” held last month in Thimphu, Bhutan’s capital city, and that provided me with an opportunity to hear in depth about its unique development philosophy – Gross National Happiness (GNH). Before we turn to the connections between GNH and financial health, here is some important context.Bhutan is a Buddhist constitutional monarchy. Each of those three concepts makes an essential contribution to its national character.
Buddhism permeates Bhutan’s cultural identity and shapes the government’s aim of creating a “just and harmonious society.” The Gross National Happiness concept is an attempt to incorporate Buddhist principles into governance.
Bhutan has an unusual monarchy. Unlike the legacy monarchies of other countries, Bhutan’s monarch is modern – just over 100 years old. It was established in 1907 with the First King, and is now led by the Fifth King. Bhutan seems to have been exceedingly lucky in its monarchs, with each king shaping the country in beneficial ways. And unlike the fading monarchies of Europe, the monarchy in Bhutan is central to the society. Our conference began with a tribute to the monarchy and expression of gratitude to the king. And the highlight for the foreign guests was a chance to talk with him.
A decade ago (and thanks to the Fourth King), Bhutan’s monarchy became constitutional, making it a democracy, with lawmaking in the hands of an elected parliament led by a prime minister. That the current prime minister was formerly the leader of the opposition shows that elections are contested. The prime minister is leading a “brand Bhutan” project, which you can hear about in his TED talk on Bhutan’s approach to climate change.
It takes this background to understand why Bhutan originated the concept of Gross National Happiness. GNH combines deep Buddhist principles with today’s emphasis on evidence-based policy. Bhutan is very much in the 21st century. It seeks economic growth through a market economy, and it’s just as focused on metrics as any other government. The Bhutanese leaders recognized that economic growth has its downsides and that if the country’s aim is a just and harmonious society, Gross Domestic Product is at best incomplete and at worst misleading. So it set out to develop a framework to look at all the dimensions of national happiness.
The GNH office within the government surveys the population and screens policy proposals with reference to nine domains: Living Standards, Education, Health, Environment, Community Vitality, Time-Use, Psychological Well-Being, Good Governance, and Cultural Resilience and Promotion. It is certain that when Bhutan develops a draft financial inclusion strategy, it will be subjected to GNH scrutiny. When trade-offs occur between economic growth and other values, growth does not necessarily prevail. Among the consequences of the GNH focus are Bhutan’s approach to tourism (limited and high-end, for maximum revenue with minimal environmental impact and disturbance to culture), environment (60 percent of the land area to remain perpetually forested), and health and education (free for all, funded by exports of hydropower to India).
This brings us to financial health, which I view as a bridge that links financial inclusion to Gross National Happiness. Just as GNH sets the well-being of people and society as the highest value to maximize, so financial health sets consumer well-being as the apex of financial inclusion—above the profits of financial service providers, which exist to promote consumer well-being, and above additional tax revenues made possible by formalization. Financial health, as the Center for Financial Services Innovation originally defined it and as we affirmed in our research in India and Kenya, measures whether financial services are working as intended: supporting consumers’ day-to-day money management, protecting them against shocks and helping them achieve big goals. The financial health framework is exactly what we need to determine whether financial inclusion is contributing to GNH.
A financial health approach to financial inclusion would involve designing products specifically to promote financial health. In this approach, there is no assumption that formal services are a priori preferable to informal services. Among lower income people, especially in a country like Bhutan where so many people live in remote areas, most of their financial lives take place in the informal sector. Additionally, sometimes financial patterns have cultural significance. Bhutan operated as a barter economy well into the 20th century, and barter is still used in many rural areas. Who knows, maybe someone could think up an innovative service built on the existing culture around barter.
The financial health concept recognizes that the financial capability of consumers determines whether they will be able to use their financial services effectively. A financial health approach to financial inclusion therefore would set capability-building interventions alongside service provision as twin goals and would incorporate capacity-building elements directly into financial products. The wide disparities between urban and rural Bhutanese call for different approaches to capability building, in light of lower literacy in rural areas, as well as different financial services for people with agrarian versus urban livelihoods.
The financial health approach also helps solve the difficult challenge of measuring impact. If financial services are to have an impact on ultimate well-being, that impact will be demonstrated through the achievement of financial health, which is to say through using financial services to smooth day-to-day finances, reduce the impact of shocks and reach longer-term goals (especially through productive investments). So, instead of the frustration of trying to directly assess whether financial services are reducing poverty, the financial health framework examines the intermediate steps toward that ultimate goal. I can envision the GNH team in Bhutan incorporating a financial health perspective into their detailed GNH surveys.
Bhutan is just beginning its financial inclusion journey (stay tuned for another post on that). It will be interesting to see whether the Gross National Happiness development philosophy will lead the country toward a strategy that looks different from that of other countries.