FINANCIAL inclusion is the process by which people who are said to be “unbanked”, that is, not part of the formal financial system, are brought in through policy reforms that make such accessibility possible.
In Papua New Guinea one does not have to go far in order to appreciate the magnitude and complexity of the issue when the reality is that majority of the population is based in the informal economy, and cannot get formal sector jobs.
The majority of these “unbanked” are subsistence farmers or micro-enterprises in the agriculture or artisan industries.
These enterprises cover petty trading to large scale businesses that escape government scrutiny in the form of income tax and other requirements.
The need for urgent intervention to increase financial inclusion is reflected in the fact that a high level of financial exclusion is directly related to a high level of poverty.
When people cannot save money, plan or budget, the likelihood of falling into poverty is very high. In PNG the problem is one that concerns the bulk of the population where it has been reported that we have one of the worst rates of financial inclusion in the Asia Pacific Region.
It is estimated that only 15-20% of the population is “financially included”.
Ensuring that a critical mass of PNG’s population is financially included will not be a small feat. The problem becomes even more complex when one considers that PNG has a high level of financial illiteracy.
More concerning is the reality that those Papua New Guineans who are expected to make prudent financial decisions concerning their personal financial welfare very rarely budget or plan for the future. Many end up being victims of loan sharks and scams.
Such a population - with its conspicuous spending, unrealistic expectation and nomadic behaviour – may promote the collapse of the economy. Nevertheless, it is surprising that time and again our people have been able to weather the storm and come out intact.
Looking into the future, as the economy becomes more monetised, the social network that ties each of us into a web of family relations will increasingly come under immense pressure.
This brings me to discuss the efforts of the Bank of BPNG (BPNG) and other key partners in driving reforms and activities such as the annual Financial Inclusion Expo.
At its inception in 2012, the Expo in Lae was attended by well over 8,000 people and 34 financial institutions. For a first time event, the figures are indicative of the commitment, determination and willingness of people to be partners of the nation building process.
As the Expo continues it looks certain these numbers will swell. Already the 2013 Expo in Port Moresby has recorded about 15,000 participants with an increasing number of new accounts being opened.
It is expected that the numbers will double in 2014 as BPNG plans to host a couple of Expos and savings campaigns in different provinces.
In addition, government efforts to enhance our ability to access finance, such as the introduction of the Private Property Security Act, will allow more people to come out of their hideouts to seek new opportunities.
For too long our people have been left out in the cold not benefiting much from past mineral and commodity booms.
In these “lost years” the informal economy has been “mother” - rearing, clothing and feeding the majority of our people.
The development in PNG cannot be inclusive if the informal economy is not brought into the forefront of development discussion. This has been well articulated by BPNG Governor Loi Bakani who, at the official closing of the Kokopo Expo, stated that financial inclusion is all about “reaching out to the unbanked 80-85%, the majority of whom are based in the informal economy”.
And so we have taken on this mammoth but noble and important task of bringing people into the formal financial system. It is also a bold decision to undertake a journey that will take us deep into the heart of the “black economy”.
Financial Inclusion in PNG - the story so far….
Even in major towns and cities like Port Moresby and Lae many people don’t have access to bank accounts. For those that do, the account is either dormant or closed due to lack of money in the account or lack of knowledge and understanding of how best to use it.
For the providers, such as banks, he high cost of doing business compounded by the rise in law and order problems is forcing them to limit their services to places where they are able to conduct business without too much risk.
This makes it difficult for the majority of people in the rural areas to access these services. Deteriorating infrastructure and law and order issues have also increased operational costs.
Government initiatives such as the District Treasury Rollout Program need to be strengthened with more focus on how government can encourage private sector partners, in this case financial institutions, to invest in rural districts.
Financial inclusion through the National Informal Economy Policy 2011-2015 needs to be given prominence and the informal economy needs to be captured in the review of the 2011-2015 and future Medium Term Development Plans.
Budgetary appropriations at the national, provincial, district and LLG level also need to be made to allow the informal economy to continue its role as a “safety net” for the majority of our illiterate population both in rural and urban areas.
Financial literacy is the key to financial inclusion
Papua New Guineans are intelligent people but we are often plagued with an inability to utilise our full potential to make a difference, the result of certain obstacles most of which are beyond our control.
These include culture and traditions, upbringing, failure of the bureaucratic machinery to deliver, and structural issues and reforms that have not allowed an entrepreneurial spirit to be unleashed in PNG.
Lack of financial literacy has hampered people’s ability to be empowered to improve their welfare. Financial literacy is a key component of improving the level of financial inclusion in PNG.
One of the major reasons why we have a low level of financial inclusion is because most people in the informal economy are illiterate. For those who are able to read and write, information is not readily available to them.
Nevertheless, the government through BPNG and with assistance from some key government and private sector agencies is looking at exploring strategies to address this problem. These strategies are captured in the National Strategy on Financial Inclusion & Financial Literacy 2014-2015.
As part of this strategy it is envisage that BPNG in collaboration with the National Department of Education will introduce financial literacy into the education curriculum.
Developing a savings culture has to be done at a very early age so that we have a generation of Papua New Guineans who are competent to make better choices and decisions about how best to manage their lives financially.
Instill confidence in the people to improve financial inclusion
Historically, the establishment of the Papua New Guinea Banking Corporation (PNGBC) was a major catalyst for financial inclusion. However, its demise brought with it the closure of many bank branches across the country and loss of confidence by the people in PNG’s financial system.
Since then ordinary Papua New Guineans have complained about the unfavourable policies and requirements of most of the commercial banks.
There is a huge challenge now for the government and BPNG to educate our people about the pros and cons or the benefits and costs of the financial products and services that are offered on the market in order for people to regain their trust and confidence.
Without instilling that confidence, the majority of ordinary Papua New Guineans will remain skeptics of the idea of financial inclusion creating an obstacle to this means of increasing access to financial services.
Public private partnerships are crucial to improving financial inclusion
Although the numbers produced so far by the three expos are impressive, we have to remind ourselves that, for financial inclusion to become a mainstream agenda in PNG, will require both the government and the service providers – whether banks or micro-finance institutions - to work in partnership.
It is encouraging to note that many innovations such as SMS Phone Banking,the Electronic Wallet concept, Instore Banking and others in the pipeline, have come about because of great ingenuity by service providers to get around the many problems that hamper effective service delivery.
If financial inclusion is critical to attaining the many aspirations of the government, then it needs to be given appropriate support.
For a start, the government needs to take stock of the National Strategy on Financial Inclusion & Financial Literacy 2014-2015 and its aim to bring to the banks one million unbanked people by 2015.
The author is an economist and a senior project officer with the Consultative Implementation & Monitoring Council who specialises in issues concerning the informal economy in PNG