New technologies offer unbanked populations more convenience

Formally launched in December 2013, the Bank of Papua New Guinea’s (BPNG) National Financial Inclusion and Financial Literacy Strategy aims to expand the reach of formal financial services to 1m of the previously unbanked, half of which are women, by the end of 2015. While ambitious, the strategy builds on initial successes in rural banking, mobile money and micro-finance to bridge the significant gaps in financial access. Downward revisions of commercial bank charges, aimed particularly at younger clients, will also play a key role in enfranchising new customers.

There is clearly significant room for growth, despite low average incomes: BPNG estimates some 85.62% of Papua New Guinea’s citizens remain entirely excluded from formal financial services in 2013. Scaling down services to meet the needs of low-income earners will be key, with close to three-quarters of respondents in a 2008 study by the International Finance Corporation (IFC) and the UNDP’s Pacific Financial Inclusion Programme (PFIP) estimating the potential for weekly savings at under PGK100 ($40). Promoting competition and affordability in financial services and expanding the ecosystem of non-bank access points will be key to driving growth in retail penetration.

Financial Mapping

A key challenge for policymakers stems from the largely informal nature of the PNG economy, with roughly 85% of the population engaging in grey-market activities. Several donor-funded projects aimed at mapping these households are significant. Building on the findings of the 2008 IFC-UNDP survey, another PFIP project, called the Financial Diaries Project, studied the financial habits of informal households. Among its key conclusions, the project found over 74% of informal financial transactions take place within a family network, while all borrowing occurred through informal channels, half of which was through store credit. Of those with bank accounts, 33% received direct deposits and 92% of withdrawals were made at a bank branch, involving average travel of 14 km, rather than through an ATM or agent. The 2008 study also found significant gender variations, with women twice as active as men in financial transactions, although men carried out larger-value transactions, highlighting the scope for expanding financial service access points to merchants, trade stores and supermarkets. A separate 2013 study by GSM Association, an industry organisation for mobile operators, on women in mobile payments found that some 80% of remittance senders rely on personally delivering money to the receiver. Meanwhile, in November 2013 the World Bank partnered with BPNG, with support from the Korean government, to conduct the first nationwide survey on the financial habits of households to establish a baseline.

Microfinance Expansion

A key component of the new national financial inclusion strategy focuses on expanding access to microfinance institutions (MFIs) under a 2012 programme funded by the Asian Development Bank, the Australian Agency for International Development and PNG’s government. The number of MFIs has already expanded to four by 2013, covering over 240,000 clients, while their total liabilities grew 124% to PGK164.1m ($66.7m) and their total lending rose 247.5% to PGK62.6m ($25.46m) in the four years to March 2013, according to BPNG. The MFI Expansion Programme involves reviewing the regulatory framework to strengthen MFIs’ financial capacity, enhancing financial literacy and providing a risk-sharing facility to MFIs to expand their lending. Central to financial literacy initiatives, a new Centre for Excellence in Financial Inclusion (CEFI) was established in October 2013 to coordinate financial initiatives and lead training for micro-enterprises. Alongside the regulatory review of MFIs, BPNG is also preparing to present a new savings and loans societies (SLS) bill to Parliament in 2014, which raises licensing and prudential standards in an effort to sanitise the sector and improve societies’ capacity.

Branchless Banking

While the expansion of MFIs will play a key role in lowering barriers for borrowers, BPNG has also supported unconventional banking access through agency and mobile services. Although the aggregate number of bank branches has grown from around 50 in 2008 to 111 by July 2013, according to BPNG, driven by significant investments by Bank of South Pacific (BSP) in its rural banking network. In January 2012 BPNG issued new prudential standards for mobile banking and payment services, while extending tax breaks for opening rural branches until 2017.

Mobile Options

The rules provide for distinct models of mobile platforms: a bank-led model of the types offered by BSP or Nationwide Microbank (NMB), a telecoms-led model launched by Digicel, and a model offering services through the post office’s branches and agencies. While banks offering the service do not require a separate licence, non-bank operators do and must segregate the service in a distinct business unit. The minimum capital requirements for a licence, which costs PGK15,000 ($6097), are PGK500,000 ($203,250) and operators must maintain a trust account for the pool of deposited funds. Deposits are not limited, while transactions are capped at PGK500 ($203) daily. Banks in particular have seized on the channel as a means of driving retail growth. “Low interest rates have prompted very competitive pricing in the lending market, further pushing banks to improve business development and efficiency, particularly via mobile and electronic banking solutions,” Robin Fleming, BSP’s CEO, told OBG.

By late 2013 five mobile money services had been licensed: BSP’s mobile Wantok Moni, NMB’s MiCash, Digicel’s Cell Moni, Post PNG’s Salim Moni Kwik and ANZ’s goMoney. Westpac is intending to launch its own local service in 2014. The central bank reported 380,000 active subscribers as of July 2013 and a total of 70m transactions through both mobile and electronic funds transfer at point of sale (EFTPOS) in 2012 alone. Meanwhile, BSP saw 100% growth in transaction volumes in 2013. The growing ecosystem of banking agents, such as retail stores and pharmacies, offering banking services through EFTPOS and mobile platforms has supported this expansion. While mobile banking has become more widespread, operators have witnessed very few mobile-to-mobile transactions. For NMB’s MiCash conversion transactions (namely cash-in and cash-out) accounted for 96.3% of all transactions by value in 2013, compared to a global average of 58.8%, according to the Alliance for Financial Inclusion, an international non-governmental organisation. “PNG remains a cash economy and this is reflected in the uses of mobile payments so far, including cash-out at merchants alongside phone top-ups and bill payments,” said Mark Baker, ANZ’s managing director in PNG. “We are still some way from widespread phone-to-phone transactions.”

BSP Rural has achieved considerable success in signing the unbanked up for its scaled-down Kundu Account, which waves monthly fees and charges only PGK1 ($0.41) per deposit or withdrawal. Launched in 2011, the bank opened 120,000 accounts through BSP Rural by mid-2013, expecting to reach 200,000 in early 2014. BSP also reported having migrated 375,000 users to its mobile platform by 2013, although the number of active users is lower. The IFC stated in October 2013 that BSP had facilitated $38m in e-payments since 2011. Meanwhile, Post PNG registered 150,000 users for its mobile remittance service in 2013. Some 70% of the 8000 MiCash customers that signed up in the first year of roll-out were not previous customers.

Youth Focus

Cognisant of PNG’s demographic pyramid, with 38% of the population younger than 15, according to the World Bank in 2012, authorities are focusing on the country’s youth. The central bank launched a National Youth Savings Campaign during its Financial Inclusion Expo in December 2013 and the school banking programme launched in the first quarter of 2013 resulted in 14,000 new bank accounts being opened by October. Following parliamentary scrutiny over bank fees at the start of 2014, banks announced new products catering to young and old clients. “Revising bank charges downward is part of the larger financial inclusion drive,” Baker told OBG. “Launching fee-free accounts for young people is an important step to expand coverage for instance.”

In February 2014 BSP rolled out a Kids Savings account for elementary and lower-primary school students, and a Sumatin account for upper-primary, high school and university students, both of which are free of all banking charges. Furthermore, in March 2014 ANZ also exempted minors, students under 25 and seniors from fees on “everyday” accounts.

While lowering bank fees will play a role in expanding banking penetration, expanding physical access through a non-bank network of agents will be key to facilitating access. “The next step in supporting the growth of mobile banking is developing a large ecosystem of participating merchants and keeping fees below those for branch banking,” Baker told OBG. Establishing a focal point for the various policies aimed at financial inclusion under the CEFI is also an important step in turning authorities’ ambitions into concrete progress. Competition between a growing array of players in the financial services market, from mobile money operators to MFIs, SLSs and commercial banks, should drive innovation in both products and distribution channels.