economy into the rural sector, so that the rural population participates meaningfully in economic development. savings and loan societies complement other financial service providers such as banks and financial institutions in providing basic savings and loans products to members. the difference between the movement and other financial institutions is that savings and loan societies operate on the principle of mutuality. that is the members are the owners of the societies, where each member has an equal say on the election of directors to the boards of the societies. they also have a direct say in the distribution of profits. challenges the movement has faced many challenges in its evolution over the years. the bank in its supervisory role has observed serious weaknesses in areas of governance and management. we have seen and dealt with directors and managers who have conflict of interest when making decisions that were not in the best interest of members. we have also dealt with infightings between directors and managements and also between supervisory committees and boards members. in its supervisory role, the bank has increased its enforcement efforts to ensure that the societies are constantly in compliance with directives and regulations so that the bad experiences of the past do not repeat themselves. in many cases where such instances have occurred, the bank has not hesitated in suspending or removing board members, managers and / or supervisory committee members from those societies. other challenges which we have seen societies faced over the years were concerning operational difficulties in ensuring accurate and timely reporting of financial statements, lack of effective management of asset quality such as nonperforming loans, weaknesses in controls and risk management systems and more seriously fraud. directors, management and committeemen of the societies have a duty to continue the effort in educating members to save for the future and to borrow within the required limits. members must be educated to repay the loans that they borrow. legislative framework the growth experienced by many societies over the years has also resulted in most societies moving away from the traditional savings and loans business. many have now invested their surplus savings in other products such as in equities and government securities. in view of these developments and the challenges which i have just mentioned, i have established a working team within the bank which has started looking at reviewing the existing legislative framework with the view to reform the entire savings and loan societies industry and microfinance / microbanking businesses. the work of the working team is progressing and at this stage the bank is looking at securing funding for technical assistance to carry out the substantial work in improving the legislative framework. east new britain savings & loan society on

loi m bakani : financial system reform in papua new guinea address by mr loi m bakani, acting governor of the bank of papua new guinea, at the launch of the fincorp downscaling initiative closure meeting, 23 june 2005. * 1. * * acknowledgement chairman of fincorp mr kerengua kua, staff of fincorp and mcc. thank you for giving me the honour to address the launch of the downscaling initiative closure today. firstly, on behalf of the microfinance steering committee ( msc ) and the bank of png as an executing agent of the microfinance & employment project, i would like to acknowledge and thank those involved in initiating this downscaling program, namely ; the staff of mcc, the staff & management of finance corporation limited ( fincorp ), and last but not the least the 500 or so micro entrepreneurs under the liklik bisnis finance loan program. this is another milestone in the development of microfinance in png, with a product provided based on mutual trust. 2. introduction let me congratulate you all for the success in running and expanding this program for one year now. like all other developing countries, png is constantly challenged to provide solutions as to how best it can wrestle the problems associated with poverty and lack of employment opportunities. png ’ s 5 million population of which 80 percent live in the rural areas have been denied development opportunities because of unfair or uneven distribution of the country ’ s financial resources & limitation in infrastructure developments. lack of serious attention to the declining state of infrastructure has forced many of the rural dwellers to migrate to the urban centres in search of employment opportunities and services of urban dwellings. with lack of education and entrepreneurial skills, many could not find jobs and had to resort to crime and other illegal activities as a means to survive. in addressing the lack of financial services to the rural population, the bank had agreed to be a party to the development of the microfinance sector, although is outside the core functions of the bank. we see this new development as an important milestone in the development of the financial system in png. this industry will complement the financial services provided by the existing financial institutions, but with different scope and mandate. we are encouraged by the huge interest in the microfinance sector as evidenced by the growth of the current two ( 2 ) microfinance institutions, namely, the wau microbank and the png microfinance limited