Papua New Guinea banks on inclusion

August 11, 2016

Access to improved communications technology and greater awareness of banking services is helping to boost financial inclusion in Papua New Guinea while providing opportunities to service providers looking to tap into a broader market.

According to data from the central bank, up to 80% of the population do not have access to any form of financial services. Similarly, more than 80% of the population live in rural areas, with distance to cities or towns that are served by financial institutions a key factor in the low level of financial inclusion, according to Loi Bakani, governor of the central bank, Bank PNG.

“In PNG, [the] majority of our population lives in rural areas, and are involved in subsistence farming, producing for [their] own consumption and also for cash income. But if financial services are not available, then that cash income cannot be held in secured places such as in banks. So they are not financially included,” Bakani said in early July at a financial inclusion summit in Mt. Hagen.

Reaching out, building bridges

While increased investment in transport infrastructure has made it easier for rural-based Papua New Guineans to access financial institutions in urban centres, it is the expanded telecoms services that are set to provide the backbone for deeper financial penetration, with growing access to online fiscal services expected to have the greatest impact on inclusion.

In its strategic plan for 2016-20, Bank PNG said that advances in technology have made decentralised economic development and wider financial engagement more feasible. One of the core objectives of the bank’s strategy is to facilitate financial services development and inclusion through increased accessibility, largely via electronic platforms.

With mobile phone penetration rates at 49% earlier this year and telecoms service providers Telekom PNG and Digicel stepping up investments in 4G LTE services and expanded mobile internet coverage, wireless financial access is increasingly becoming an option for most Papua New Guineans.

“We are already making headways because of modern telecommunication and technology like mobile phones and internet, so we are taking advantage of these infrastructures to develop products [so] that people can access financial services where they are and also overcome the high costs of travel,” Bakani said at the summit.

The increasing appetite for financial products and services in rural regions is encouraging mainstream lenders to target the market beyond PNG’s urban areas.

For example, Bank South Pacific (BSP), a sponsor of the recent financial inclusion seminar and PNG’s largest lender, operates a financial literacy programme, that covers a range of topics from budgeting to mobile money. In 2015 the programme reached 122 rural communities, with women making up 49% of participants. Since the programme’s launch in 2014, BSP has provided training to more than 37,000 individuals.

BSP has also rolled out an agency banking model, whereby third parties – in this case local trade owners and business owners – provide financial services to customers on behalf of the bank. As of early 2016 BSP had 291 agents trained in conducting basic transactions such as deposits and withdrawals, thereby increasing access to financial services in PNG’s remote areas.

Micro growing big

The push to increase access to financial services and lift penetration rates has also seen a growing trend of small-scale providers entering the market.

Among these are PNG Microfinance, the country’s first micro-finance institution established in 2004, which offers credit and financial services to micro- and small-scale enterprises. Currently, the institution has 90,000 depositors and some 3000 loan clients.

More recently in 2014 BIMA, a mobile micro-insurance provider, entered the market in partnership with Capital Life Insurance, a local insurance firm and underwriter, and Digicel. While BIMA sells policies through more traditional methods such as a call centre, the provider also has a team of field agents who visit communities to explain the company’s insurance products and recruit new customers.

By the end of the first quarter of this year, the company – which is supported by the UN-backed Pacific Financial Inclusion Programme – had more than 600,000 active insurance policies, representing some 328,000 customers, 85% of whom are first-time insurance buyers.

From the company’s launch in 2014 through to March 2016, nearly 400 claims had been paid out with a value of more than PGK3m ($944,000), according to press reports.

With insurance penetration rates at less than 2% of GDP, compared to a global average of 7.5%, PNG’s micro-financing segment has considerable potential to increase access to a variety of financial services and boost penetration rates.

Source: Oxford Business Group