Financial Crime World

Solomon Islands’ Private Sector Credit Remains Insufficient, Experts Warn

Honiara, Solomon Islands - The private sector credit in Solomon Islands has been growing over the years, but it remains insufficient compared to other Pacific island economies, according to a recent report by the Asian Development Bank (ADB).

ADB Report Highlights Insufficiency of Private Sector Credit

The ADB’s 2016 report on Private Sector Assessment for Solomon Islands revealed that the ratio of private sector credit to GDP in Solomon Islands averaged 22.3% from 2011 to 2017, which is lower than the global average and one of the lowest in the Pacific.

Factors Contributing to Insufficient Credit Provision

Experts point to two main factors contributing to the insufficient credit provision:

  • Weaknesses in the collateral framework
  • Difficulties in assessing risk

The prevalence of unregistered land in Solomon Islands makes it an undesirable form of collateral for banks, while poor business record-keeping and accounting practices make it difficult for lenders to assess the risk of borrowers.

Need for Modernization and Financial Inclusion

The ADB report also highlighted the need for modernizing the country’s financial system, including the deployment of branchless banking to deliver formal financial services to remote areas. However, progress has been slow due to concerns over costs and security risks.

Another issue identified by the ADB is the need to enhance the country’s payment system, which currently relies on a manual method for settling interbank transfers. The Central Bank of Solomon Islands (CBSI) has taken steps to address this issue, but negotiation of interchange fees among commercial banks remains a stumbling block.

National Financial Inclusion Strategy

The CBSI has launched a national financial inclusion strategy 2016-2020 to address these issues and promote financial inclusion in the country. However, more needs to be done to stimulate private investment and boost economic growth.

Key Recommendations

  • Improve the collateral framework
  • Enhance risk assessment
  • Modernize the payment system

Conclusion

The government and financial institutions must work together to create an enabling environment that encourages private sector development. The ADB is committed to helping developing member countries like Solomon Islands achieve prosperity, inclusivity, resilience, and sustainability.

References

  • Asian Development Bank (2016). Continuing Reforms to Stimulate Private Investment: A Private Sector Assessment for Solomon Islands. Manila.
  • Central Bank of Solomon Islands (CBSI) website: http://www.cbsi.com.sb/
  • CBSI (n.d.). Solomon Islands National Financial Inclusion Strategy 2016-2020. Honiara: CBSI.
  • International Monetary Fund (2016). Solomon Islands: 2016 Article IV Consultation. IMF Country Report. No. 16/90. Washington, DC.
  • International Monetary Fund (2018). Solomon Islands: 2018 Article IV Consultation. IMF Country Report. No. 18/309. Washington, DC.
  • International Monetary Fund (2019). Financial Access Survey. Online portal: http://data.imf.org/?sk=E5DCAB7E-A5CA-4892-A6EA-598B5463A34C