Loi M Bakani: The benefits of electronic payments and mobile banking
products
Welcome speech by Mr Loi M Bakani, Governor of the Bank of Papua New Guinea, at the
Mobile Money Workshop, Port Moresby, 10 August 2010.
* * *
Acknowledgements
Mr. Tilman Bruett, Regional Advisor, Pacific Financial Inclusion Program (PFIP),
Mr Micheal Tarazi, Senior Policy Advisor, Consultative Group to Assist the Poor,
Mr Waameek Noor, Alliance for Financial Inclusion,
Representatives from the ADB, UNDP and World Bank,
Ladies and gentlemen.
Introduction
It gives me great pleasure to host this Mobile Money Workshop at the Bank of Papua New
Guinea. This workshop is a follow up of the workshops in Vanuatu, Philippines and Fiji in
which three Bank of PNG representatives together with our colleagues from other Pacific
Islands central banks attended to learn about regulatory processes and operating
environments as well as benefits of electronic payments and mobile banking products. The
convening of this workshop is part of the programs on "Financial Inclusion" agreed to by
central banks and Finance Ministers in the Pacific, and is also consistent with the
Government's increased focus on extending financial services to the rural areas of Papua
New Guinea. This program was supported by the Forum Economic Ministers Meeting in
Raratonga, Cook Islands in October 2009, which stressed that measures should be taken by
respective governments to strengthen advances in financial inclusion in their respective
countries to reduce poverty. Before discussing the benefits of mobile phone banking in
Papua New Guinea, I wish to outline briefly the geographical and economic setting, financial
sector innovations, and the challenges in Papua New Guinea.
Geographical and economic setting
Papua New Guinea is characterized by rugged geographical terrain with many parts of the
country inaccessible by road and fragmented markets which are separated by oceans and
jungles. As a consequence, the provision of Government services in the rural areas is
scarce, if not it is non existent, and this has led to an absence of some basis services in the
rural areas. Some of the Government services either absent or in very poor and deteriorating
conditions in the rural areas include:

Inadequate infrastructure;

Inadequate health services; and

Inadequate educational services.
These core inadequacies have led to:

High infant mortality, pregnancy deaths, and deaths from curable diseases such as
malaria;

Low literacy and high unemployment levels;
 Poor accessibility to markets; and

Poor accessibility to banking and other financial services.
Whilst the Government has addressed and continues to focus on the structural issues in the
previous medium term development plan and now in the Vision 2050, capacity constraints
have slowed the pace of implementation. Addressing these constraints continues to be the
major challenge for the Government's development agenda and considerable efforts are
required to advance in these areas.
Financial sector innovations
The Government's reform of the financial sector which commenced in 2000, with the Central
Banking Act 2000 (CBA), the Banks and Financial Institutions Act (2000), the
Superannuation Act and the Life Insurance Act (2000) became a catalyst for private sector
development. This is obvious from the rapid pace of private sector credit growth of between
20-40 percent per annum since 2003, which has led to an increase in economic growth of
4-7 percent per annum in the same period. The developments in the financial sector have
set the foundation for a robust financial system and to date, Papua New Guinea's banking
system remains well capitalized, highly liquid, and profitable and is well placed to take on the
challenges of funding private sector credit from deposits. Technological advances in financial
services have also gained momentum with increased ATMs, EFPTOS, internet banking, and
telephone banking over the last decade. This is encouraging and the Bank has allowed these
products in the market as they were issued by regulated financial institutions to enhance
banking services to their customers.
The liberalization of the telecommunication industry made way for an additional entrant into
the telecommunication industry. While this has led to an increase in competition and market
penetration for mobile phones, it also created an impetus for the introduction of mobile phone
banking and other means of payment services by the regulated and non regulated
institutions. The Central Bank is particularly aware of the following products:

SMS banking by BSP;

Mobile phone top-up using a bank account with BSP;

A pilot project by DataNets on mobile phone or electronic wallet (M-Powa);

Cross crediting of mobile phone credits by Digicel;

Payment of electricity bills using mobile phone credits; and

Checking superfund contributions by Nasfund.
The Bank of PNG welcomes such innovative products to be introduced and wants to work
with development partners in the promotion of these products to offer consumers with an
alternative means of banking or payment service in a cost effective, low risk and efficient
manner.
Certainly the benefits to the economy are overwhelming because these products target the
niche market. Where conventional banking has limitation, electronic payments and mobile
banking products should fill the gap. It is highly relevant for an economy like Papua New
Guinea because of its rugged geographical terrain and sparsely distributed provinces which
stand to benefit considerably from the use of electronic and mobile phone banking. The
greatest challenge is to extend these services to the "unbanked" segment of the population
who are mostly in the rural areas. In this respect a trade store in the remote part of Papua
New Guinea could be an agent of this service and this could solve the everyday problem of a
farmer who has to travel long distances and incurs high costs to get the required financial
services in urban towns.
Role of bank of PNG
Section 7 (c) of the Central Banking Act 2000 specifies that Bank of PNG has to promote an
efficient national and international system. In this regard, the Bank welcomes the introduction
of electronic payments and mobile banking products, which can assist in reducing
transaction cost and contribute to the expansion of financial services in the country,
particularly in the rural areas. Whilst the Bank seeks to encourage the introduction of new
innovative instruments for payments, it also needs to ensure that high levels of standards are
maintained for safety, security and cost effectiveness with adequate levels of protection for
consumers' interests.
In other words, the Bank wishes to ensure that electronic payments and mobile banking
instruments are appropriately regulated to mitigate any potential incidences that might give
rise to systemic risk on the entire financial system. It is also important that the other
legislations such as the Proceeds of Crime Act (PCA), Information, Communication and
Technology Act (ICTA) and Independent Consumer, Competition, Commission Act are also
adhered to provide the necessary safety net for financial transactions. In this regard, the
Bank of PNG introduced its Statement of Intent on electronic payments and mobile banking
in May 2010. It outlines the current views and approach of the Central Bank towards
electronic and mobile payment services and sets out the measures which the Bank intends
to adopt in the future.
This forum demonstrates the Bank's intention to work with our development partners in
achieving the Governments objectives of promoting financial inclusion, access to finance,
and reduce the cost of banking that will lead to sustained economic growth. In this regard,
the Bank of Papua New Guinea has been actively involved with the development of
microfinance industry, the mobile phone banking and payment services, and is now finalizing
a project with donor partners to undertake a financial literacy survey and linkage program for
the unbanked. These programs will see the introduction of a Financial Inclusion and Literacy
Policy which will be submitted to the Government for adoption, and development of a
Microfinance Regulation.
Going forward
Going forward, much still needs to be done. The telecommunication liberalization has led to
the creation of an enabling environment for the introduction of electronic payments and
mobile banking products never witnessed before in Papua New Guinea. We have only seen
the start of it but the rest is yet to come and it is here to stay and grow.
However, the challenge of all the regulatory institutions are to ensure that transactions
conducted are cost effective, efficient, and poses a low risk on the consumers. This requires
close coordination in the area of regulation especially monitoring and licensing, provision of
technological infrastructure and ensuring maximum benefit for consumers.
The Bank has commenced a major review of the payments system in Papua New Guinea in
2009. Review of the payments system is necessary for promoting a sound and efficient
system that will reduce costs to both businesses and consumers and also improve monetary
policy transmission. As the electronic or mobile phone banking products are means of
payments, the payments legislation will cover its regulatory aspects and where necessary
specific guidelines will be introduced for the electronic payments products.
Conclusion
I trust that this workshop will help us understand the various issues relating to mobile phone
or mobile money systems and products, and also appreciate major developments and pilot
programs already taking place in Papua New Guinea. This workshop is meant to create
awareness on the mobile phone technology that is already in the market place which can be
adopted to connect the unbanked segment of our population to financial services so they can
be empowered to improve their livelihood.
Thank you all for accepting our invitation to attend this workshop and I look forward to your
productive participation today.
Thank you ladies and gentlemen for listening.