OBG talks to Tony Westaway, Managing Director, Nationwide Microbank
WESTAWAY: Microfinance is a largely untapped industry in PNG, and two statistics that best illustrate the situation are that 85% of the population lives in rural areas and 81% of them are still unbanked. With only four registered licensed micro-banks in the market, it is clear that the supply does not meet the demand in PNG. Contrary to general wisdom, one of the biggest challenges for rural dwellers is not access to credit, but where to deposit their funds, as it is very difficult for them to open accounts with commercial banks considering the existing branch network in the country. Let us not forget that the population density in PNG is only 14.8 per sq km, and extending the branch network is a very expensive exercise. Microfinance could address these issues as it increasingly relies on mobile money to move cash around, thanks to a network of agents set up in stores or even churches in villages and plantations. Although the idea of commuting to urban centres for banking persists in PNG, we are finally seeing the appearance of ecosystems where there is less reliance on cash. There is little doubt that as a delivery channel, mobile money will be the future of outreach.
Why has microfinance not taken off in PNG, while it has been successful in neighbouring countries?
WESTAWAY: I believe the model that was tried out at the turn of the century was just not right for this country as it was based on the idea that lending to communities would enforce repayment. Unfortunately, in PNG individuals often hide behind their clan and this cultural oversight has had negative repercussions for operators, many of whom were forced to shut down. This model was based on previous experience in the Indian subcontinent. No external system can be superimposed anywhere, and it needs to be contextualised to the local environment. This is particularly true in microfinance, which deals with very sensitive segments of society. The industry needs capital injections and more attention to sustainability. The encouraging trend is that non-performing loans continue to fall among micro-banking institutions in PNG, and when coupled with financial literacy, microfinance can be a very effective tool to improve people’s living conditions.
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