THE establishment of Papua New Guinea Banking Corporation (PNGBC) was one of the catalysts for the high level of financial inclusion in PNG in the past.
Yet political interference in the management of the bank’s affairs subsequently led to the government liquidating and selling it to Bank of South Pacific.
In those early days the PNGBC spread its wings to the far corners of PNG and ordinary Papua New Guineans opened simple passbook accounts to save their hard earned cash. School kids too.
Its closure cut off countless people from the formal banking sector and the road back into the banking sector for many Papua New Guineans under BSP has not been easy.
For those who decided to stay loyal to the bank through its transition into BSP, it has been a big challenge just to keep their accounts active.
While formal sector workers were able to maintain their accounts, those in the informal sector, mainly farmers, were not lucky.
Over time, the old bank’s policies were drastically changed to reflect the new management’s desire to develop the bank into a corporate entity capable of generating greater profit. The bank’s commercial interest took precedence over the government’s obligation to the community.
As a result uneconomical bank branches set up during PNGBC’s heyday were soon shut down. Stringent policies were introduced to ensure the bank did business only with those customers considered “bankable”.
These decisions cut off many people from accessing basic banking services. The World Bank found that almost 90% of the population was “unbanked” or “financially excluded”.
This represented a major development challenge for the government as most people were deprived from actively participating in economic development. Those excluded also included formal sector workers such as teachers, medical officers and plantation workers based in the rural areas.
Most of these professionals prefer to be paid in cash or by cheque than through bank accounts because of concern that bank fees and charges decimate savings.
The government asked how it could foster an environment to bank the unbanked population and through the ground-breaking National Informal Economy Policy 2011-2015 identified “microfinance” as an instrument to bridge that gap.
The success of the Nationwide Microbank Ltd and the PNG Microfinance Ltd showed the great potential of microfinance. Furthermore it unearthed the massive untapped demand in areas that were traditionally regarded as unbankable. Subsequently existing players like BSP embarked on extending their services into rural areas.
The microfinance industry has since expanded with WauMicrobank, Women’s Microbank and Pipol’s Microbank as part of a strategy to bank one million unbanked people by 2015. Furthermore, the introduction of mobile phone technology has allowed further penetration and with it massive uptake in the market. The rapid spread of mobile phones is further proof of the depth of the PNG market.
Mobile phone technology provides banks with a cost effective and seamless way of extending their services while providing people with the opportunity to access banking services at their fingertips.
The introduction of mobile phone as a service delivery platform will change the formal financial sector in PNG. This is due to the leadership shown by the Bank of Papua New Guinea in driving the agenda of financial inclusion from the outset.
Yet questions are being raised on the central bank’s ability to regulate and at the same time promote the expansion in the financial sector. Some fear the bank is compromising its traditional role as a policeman guarding against unfair play by financial institutions.
Others commend the bank for taking on this challenging role as promoter of a noble agenda. They view BPNG as the ideal driver given its wide ranging powers to introduce reforms and provide supervision to maintain the health of PNG’s formal financial sector.
Already the bank has included financial inclusion as one of its key policy priorities and has created a new unit to focus on driving it.
BPNG has been proactive and smart in ensuring it does not compromise its regulatory function through its Centre of Excellence in Financial Inclusion (CEFI). The establishment of CEFI can be seen as an attempt by the Bank to offload its promoter role.
While CEFI will coordinate financial inclusion activities, it remains to be seen how BPNG will address customer complaints. It needs to come down to a level where it can be reached by ordinary people.
In forums conducted by CIMC, participants have frequently expressed their desire to have BPNG establish branches in provinces to address customer grievances. This shows how widespread are the problems customers experience in banking.
The majority of customers in PNG are either illiterate or semi-literate. Most of these people are in the informal economy, largely composed of the agriculture sector. The government through its central bank has an obligation to protect the interest of ordinary Papua New Guineans who have accounts with these commercial banks.
In fact there are more complaints than compliments about the commercial banks’ unfair play. Complaints to banks for remedial action normally go through an internal investigation process. But whether the bank actually attends to the complaint or not is unknown.
When customers don’t receive feedback there is frustration. The establishment of a Banking Ombudsman will further strengthen the investigation of customer complaints. But, right now, customer confidence in the banking sector is lacking and this issue needs to be addressed quickly.
Regaining the trust and confidence of people is a pre-requisite to reducing the divide between the financially included and the financially excluded. Without instilling trust, the majority of Papua New Guineans will remain skeptical of the idea of financial inclusion creating an obstacle to the aim of increased access to financial services.
The time is ripe for the government to introduce a Banking Ombudsmen to ensure the interests of customers are protected. A Banking Ombudsman investigates and resolves disputes between customers and banking service providers. The entity is independent of its participants, customers, and government. Its services are freeand easy to use. One of the important elements is its ability to produce fair and independent findings concerning customer complaints.
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