Centre creating financial freedom

The National Business

The Centre for Excellence and Financial Inclusion is an initiative of the microfinance expansion project co-financed by the Asian Development Bank, AusAID, the PNG Government, Central Bank and technical partners Microsave, an international development consulting firm. It was launched in 2013. The National Business reporter LEMACH LAVARI talks to CEFI director Saliya Ranasinghe about the institution.

Q: Tell us a bit about Centre for Excellence and Financial Inclusion.
RANASINGHE: The Centre for Excellence and Financial Inclusion (CEFI) was launched in 2013.
It was endorsed by National Executive Council as the organisation mandated to coordinate, advocate and monitor all financial inclusion activities in PNG. In this capacity, CEFI has been coordinating the implementation of PNG’s first National Financial Inclusion Strategy 2014-2015.
It is currently facilitating the implementation of the second National Financial Inclusion Strategy 2016-2020. Members include the Bank of PNG, Department of Planning and Monitoring and the Financial Services and Training institutions.
The board members consist of the Department of Treasury and the Department of Community Development. It envisages the creation of a robust financial sector which will ensure all Papua New Guineans are financially competent and have access to a wide range of financial services that address their needs. CEFI’s mission is Creating Financial Freedom – to promote excellence in financial services, innovate delivery channels and facilitate financial education.

Q: What is financial inclusion?
RANASINGHE: Financial inclusion means that individuals and businesses have access to and can effectively use affordable financial products and services that meet their needs – payments, savings, credit and insurance – which are delivered in a responsible and sustainable way. The CEFI recognises that expanding financial services can encourage the participation of more locals, especially those in rural areas and urban settlements, in development activities in both the formal and informal sectors.

Q: Why is financial inclusion important?
RANASINGHE: In PNG 75 per cent of the adult population do not have access to formal financial service. Difficult geographies, lack of physical and social infrastructure, limited technological skills and know-how has created difficult challenges in the supply and access of financial services.
As a result a large part of the low-income population, in particular rural people and women are financially “excluded”. Consistent with the Government’s Vision 2050 for Wealth Creation, financial inclusion ensures that all people have access to a full suite of quality financial services, provided to them at affordable prices and in a convenient manner.

Q: What are the successes of CEFI from implementing the first financial inclusion strategy 2014-2015?
RANASINGHE: Achievement and milestones achieved in the first National Financial Inclusion Strategy (2013-2015) are:

  • 1,187,024 new bank accounts opened – 462,939 or 35 per cent for women;
  • 124,375 people reached with financial education – 47 per cent were women. The percentage of adults with an account increased from 20 per cent to almost 37 per cent;
  • 67 new branches, 73 ATMs, 4959 Eftpos and 233 new agents added onto the financial service network. On total, 12,599 physical access points. Financial access points in the country have grown by 56 per cent in the last three years;
  • 696,792 policy holders have taken out micro-insurance products; and,
  • 315,993 people now linked their deposits account with mobile phone banking.

Q: Equal access of financial services for women is one of the organisation’s core objectives. Do you have specific targets in regards to that objective?
RANASINGHE: The second National Financial Inclusion Strategy 2016-2020 aims to expand access to financial services to a further two million people in PNG whose population is 50 per cent women.
Also to work with financial service providers in the country to provide products tailored to the needs of clients.
A majority of the population, especially the vulnerable which includes women, continue to lack access to formal financial services.
It is more prevalent in rural communities among women and microenterprises. Especially those within the informal economy and in agriculture.
Therefore, financial exclusion remains a fundamental challenge.
The scale of women’s financial exclusion in PNG makes it the need to focus on women. But this is not an easy task. Expanding access to finance for women brings some unique challenges. Socio-cultural factors, limited financial and/or functional literacy, lower levels of formal employment and limited familiarity with formal financial institutions may be factors why women are likely to have lower levels of financial inclusion and engagement in household financial decision making than men. Earlier this year, a Gender Equity and Social Inclusion (GESI) Policy for Microfinance Institutions was launched by the Asian Development Bank, the governments of Australia and PNG and CEFI.
The GESI policy was developed to help build and champion gender equity and social inclusion values and principles. The CEFI believes that providing low-income women worldwide with effective and affordable financial tools to save and borrow money, make and receive payments, and manage risk is critical to both women’s empowerment and poverty reduction.
However, the path to greater women’s financial inclusion is dependent upon the creation of a more gender inclusive financial system.

Q: What are the significant challenges in providing financial education services, especially to rural areas?
RANASINGHE: At the outset, financial educations is a means to financial inclusion, that is, financial education could play an important role in enabling the most vulnerable segments of the population to use appropriate financial services.
The main challenges or concern in delivering financial education in PNG rural areas is the level of literacy and consequently financial literacy.
In PNG, levels of adult financial literacy are low and many adults lack the skills to make informed financial decisions.

Q: Recently, a senior economist from Westpac Bank highlighted that the access to affordable financial credit was impeding the growth of businesses in PNG. Similar sentiments were shared by Commerce, Trade and Industry Minister Wera Mori during the SME Expo last month. Mori said lack of financial capital has slowed the growth of SMEs in PNG. What is CEFI’s position in this regard?
RANASINGHE: CEFI agrees with those viewpoints. The second Financial Inclusion Strategy (NFIS) has SME finance as a key priority area under the new strategy. It seeks to align with and complement the initiatives implemented under the SME Policy 2016. SMEs face obstacles to financing and are often perceived as high-risk by commercial lenders.
According to local media reports, 94 per cent of SMEs in PNG have never received a loan and just 2.5 per cent had benefitted from direct government assistance.
The SME Finance priority area is focused on enhancing access to and usage of finance for SMEs. Activities include:

  • Enhance knowledge and data on financial inclusion among SMEs;
  • review regulatory and supervisory frameworks to ensure they are fully enabling for SME Finance;
  • promote innovation and competition in SME Finance; and,
  • Facilitate dialogue on existing public sector interventions and support schemes and strengthen capacity of SMEs and financial institutions.

Q: The CEFI has launched the first financial inclusion strategy and the second. What are some lessons from the first strategy?
RANASINGHE: The financial sector landscape is changing in PNG due to the spread of information and communication technologies (most importantly mobile phones) as well as the increasing digitisation of processes. This transformation presents opportunities for financial inclusion, as evidenced by growth in mobile/digital financial services deployments as well as access points in recent years. There is a growing trend towards interoperability across the payment system with some providers having entered into bilateral agreements and the Central Bank initiating a national switch to support interoperability across all retail payment providers. We have learned there are other important elements in financial inclusion. So we have added three working groups totalling seven that is tasked to implement the NFIS.
That is SME Finance and Access to Finance for Informal and Agricultural Enterprise; Resources Sector Engagement working group. We realised that the Resources Sector engagement working group has a very critical role in economic development in the country. A results framework with specific indicators and quantifiable targets has been added for assessing progress towards the objectives of the NFIS.
Another key trend is the ongoing formalisation of the Savings and Loans.
The Central Bank is promoting further professionalisation through a new Savings and Loans Societies Act which promotes a level playing field between savings and loans and other licensed deposit-taking institutions, thereby promoting
competition in the retail banking market.

Q: What is CEFI looking to achieve in the second strategy?
RANASINGHE: The second strategy will look at improving the four key pillars.
Enabling environment: that is the policy, legal and regulatory framework. Important advancement to translate policy goals into a fully enabling environment for innovative financial inclusion. There is:

  • Need to finalise long-term regulatory framework for digital financial services;
  • need for demand-driven roll-out of national payment switch;
  • need to strengthen financial consumer protection as industry matures;
  • need to introduce a comprehensive regulatory framework for micro-insurance; and,
  • Need for development partner support to catalyse further innovation and address capacity building needs where relevant
    Physical access points: Lack of financial access points, in particular in rural areas, continues to constitute a key barrier to financial inclusion in PNG. There is need to exploit the potential of digital financial services to expand the reach of the formal financial sector.

Quality: Need to further tailor financial products to suite excluded individuals and businesses; Need to reduce reliance on cash; and, Need to further promote competition in order to reduce prices.
Usage: Access and quality are both preconditions for effective and large scale usage of financial services. Financial literacy, competency and consumer awareness must be strengthened to drive usage.