Re-positioning Non-bank Service Strategy in Papua New Guinea

This paper examines microfinance schemes in the Pacific and identifies reasons for their failure.

The paper argues that:

• There is a need to differentiate products and services through careful market segmentation and environmental analysis as well as through innovation;
• Innovative financial service mechanisms can be developed through the emergence of a wide range of microfinance organizations and strategies with a diverse set of sound practices.

The paper examines:

• The experience of the application of microfinance in Papua New Guinea (PNG);
• A selection of institutions involved in microfinance activities at various levels and in various ways;
• Non-microfinance schemes and their managerial experiences.

The paper draws lessons from the experiences of non-bank financial provision in PNG and concludes that:

• Microfinance institutions (MFIs) need to be modified to suit local conditions rather than merely adopting off-the-shelf models;
• One reason for the lack of maturity in the credit culture of PNG is that the lending is “security-guarantee-based” rather than “collateral-based”;
• Efforts should be made to help would-be borrowers graduate through a spectrum of micro-small-medium-large loans;
• There is room for repositioning savings and loans societies and revolving funds in order to extend outreach and achieve operational and financial sustainability;
• The lack of a strong credit culture in PNG can be addressed through the development of a credit record tracking agency and the reduction of cash handouts in society for political purposes.