By most measures Papua New Guinea is under-banked. Branch density is low and has not risen in at least a decade, while the loan-to-GDP ratio is 31%, well below that reported by neighbours and peers. The Philippines is at 41%, Solomon Islands 38%, Thailand 151%, Vietnam 111% and Indonesia 39%. It is estimated that only 20% of people in PNG have a formal financial services account.
PNG’s mountains, rivers and jungles make the establishment of bank branches difficult. The many languages and cultures, as well as poor infrastructure, also inhibit access. Costs are an issue as well. Banking fees are high while incomes are low, with many people living at subsistence levels. According to a World Bank study published in 2015, a family on the poverty line in PNG spends between 3% and 22% of its income on banking services.
Microfinance has developed to meet the needs of people outside the target markets of the main commercial banks. The subsector started in PNG in 2004 with the establishment of Wau Microbank, which now operates as Nationwide Microbank ( MiBank). The country has 12 licensed financial institutions, five of which are microfinance firms (PNG Microfinance, MiBank, Kada Poroman Microfinance, People’s Micro Bank and Women’s Micro Bank).
The central bank has made increasing the number and percentage of those banked a primary goal. It is supporting the Microfinance Expansion Project, introduced in 2012 in cooperation with the Asian Development Bank and the Australian government. The programme provides training for microfinance staff and business mentoring, and is also focused on the development of subsector standards, such as those for credit assessment.
In signing the Maya Declaration in 2013 under the Alliance for Financial Inclusion, the central bank committed to getting 1m people on to the financial grid, helping in the creation of a financially competent generation, supporting innovation, improving consumer protection, getting financial inclusion embedded in government policy, collecting financial data on inclusion and sharing this knowledge. PNG has also committed to the 2020 Money Pacific Goals, under which countries in the region pledged to include financial education in core curricula, provide access to financial education for all adults, implement consumer protection policies and double the number of people with access to basic financial services. In addition, PNG has joined the Better Than Cash Alliance, as electronic and card-based solutions can boost access in remote areas.
According to the central bank, the regulation of microfinance companies can be time-consuming and expensive, requiring a commitment similar to that needed to oversee larger institutions. Nevertheless, the subsector is an important part of the financial system, as it is able to reach parts of the country and customers that the larger banks either cannot or will not. The central bank is aiming to reduce the percentage of unbanked from 80% to 50%.
The private sector is supporting financial inclusion, with all major banks participating in relevant education activities. Bank South Pacific (BSP) is particularly active. In March 2017, 43 BSP staff completed four-day courses in financial literacy covering savings and budgeting, and business development skills. The bank has 120 trainers and provides an estimated 90% of the financial literacy education in PNG. Its programmes reached 32,125 people in 2016, and a total of 57,000 people since 2014. BSP is also committed to the development of small companies, using technology such as ATMs to reach them, and is working with these enterprises to help them develop their businesses. For companies with turnover of under PGK1m ($317,000), the bank offers its BSP Smart Business solution, which includes account, transaction and finance services.
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