Financial Crime World

PNG’s Financial Sector Struggles with Limited Access and Shallow Depth

Papua New Guinea (PNG) is facing significant challenges in its financial sector, with limited access to finance and a shallow depth of financial services. A report by the Asian Development Bank (ADB) highlights these challenges, which are hindering economic growth and development in the country.

Challenges in PNG’s Financial Sector

  • Limited Access to Finance: Despite commercial bank loans to the private sector increasing steadily over the years, reaching $3.74 billion in 2017, access to finance for the majority of PNG’s population remains limited.
  • High Lending Rate: The lending rate has been consistently high, ranging from 8.4% to 10.8%, making it difficult for individuals and businesses to access credit at affordable rates.

Structural Constraints

  • Limited Urbanization: Papua New Guinea is a rural country with limited urbanization, which restricts the development of its financial sector.
  • Lack of Financial Literacy: Many people in PNG lack financial literacy, making it difficult for them to manage their finances effectively and access financial services.

Impact on Economic Growth

  • Underserved Rural Areas: Only about half of PNG’s population has access to formal financial services, with rural areas being particularly underserved.
  • Hindering Economic Growth: The lack of access to finance is hindering economic growth and development in the country.

Government Initiatives

  • Strengthening Bank Governance: The government is launching initiatives aimed at increasing financial inclusion and deepening the financial sector, including strengthening bank governance.
  • Promoting Financial Literacy: The government is promoting financial literacy to help individuals manage their finances effectively and access financial services.
  • Expanding Digital Financial Services: The government is expanding digital financial services to increase access to finance in rural areas.

Addressing Structural Constraints

  • Law and Order: Improving law and order will help reduce credit risk and increase access to finance.
  • Contract Enforceability: Strengthening contract enforceability will improve the confidence of lenders and borrowers.
  • Property Rights: Improving property rights will increase access to collateral, making it easier for individuals and businesses to access credit.
  • Land Tenure: Improving land tenure will reduce uncertainty and increase access to finance.

Conclusion

PNG’s financial sector faces significant challenges, but with the right policies and initiatives, it has the potential to become a key driver of economic growth and development in the country. Addressing structural constraints and increasing financial inclusion will be crucial in achieving this goal.