l wilson kamit : microfinancing in papua new guinea speech by mr l wilson kamit, cbe, governor of the bank of papua new guinea, at the presentation of banking licence to nationwide microbank limited and opening of its new boroko branch, boroko, 17 june 2008. * * * acknowledgement hon. powes parkop, mp – governor for national capital district chairman of wau microbank – mr ray clark deputy governor – mr popoitai deputy governor – mr bakani mr lionel somaratna, ceo, wau microbank distinguished guests, ladies and gentlemen 1. 0 introduction i wish to thank the board of wau microbank for the invitation to officiate in today ’ s event. in particular, there are a few important reasons for being here today partly to witness the results of the hard work of the board, management and staff of wau microbank, culminating in the opening of the new microbank ’ s branch in the national capital district but also to present a new banking licence to the entity that will continue the work of the “ wau microbank ”. 2. 0 historical developments the development of microfinance in png dates as far back as the 1960s with the establishments of savings clubs and savings and loan societies in many parts of the country under the guidance and involvement of the reserve bank of australia through its branch based in port moresby and later by the bank of papua new guinea through the registrar of savings and loan societies. over the years, numerous attempts to establish microfinance institutions and / or provide microfinance products were also undertaken by various non - government organizations and other government - funded donor agencies. the development bank in its various forms over the years has been known to have provided some microfinancing. many of these initiatives were very much subsidized. typically, many of these initiatives faced lots of challenges which included sustainability. it is one aspect to open up branches and other points of representation and yet another to sustain, maintain and grow the business without resorting to any form of subsidies. dependence on subsidized funds is fraut with problems as we have experienced in papua new guinea. ceo lionel sonaratna mentioned and emphasized sustainability in his remarks. however, despite these challenges and sad experiences many of us are keen to foster the growth of microfinance alongside the expansion and growth of other financial service providers such as banks, superannuation funds and the insurance industry. there

the ceilings at the more distant points on the yield curve. less clear is the extent to which the pegging policy itself influenced those policy expectations. probably the safest conclusion about policies based on changing the composition of the central bank ’ s balance sheet is that they should be used only to supplement other policies, such as an attempt ( for example, through a policy commitment ) to influence expectations of future short rates. this combined approach allows the central bank to enjoy whatever benefits arise from changing the relative supplies of outstanding securities without risking the problems that may arise if the yields desired by the central bank are inconsistent with market expectations. iii. expanding the size of the central bank ’ s balance sheet besides changing the composition of its balance sheet, the central bank can also alter policy by changing the size of its balance sheet ; that is, by buying or selling securities to affect the overall supply of reserves and the money stock. of course, this strategy represents the conventional means of conducting monetary policy, as described in many textbooks. these days, most central banks choose to calibrate the degree of policy ease or tightness by targeting the price of reserves - - in the case of the federal reserve, the overnight federal funds rate. however, nothing prevents a central bank from switching its focus from the price of reserves to the quantity or growth of reserves. when stated in terms of quantities, it becomes apparent that even if the price of reserves ( the federal funds rate ) becomes pinned at zero, the central bank can still expand the quantity of reserves. that is, reserves can be increased beyond the level required to hold the overnight rate at zero - - a policy sometimes referred to as “ quantitative easing. ” some evidence exists that quantitative easing can stimulate the economy even when interest rates are near zero ; see, for example, christina romer ’ s ( 1992 ) discussion of the effects of increases in the money supply during the great depression in the united states. quantitative easing may affect the economy through several possible channels. one potential channel is based on the premise that money is an imperfect substitute for other financial assets ( in contrast to the view discussed in the previous section that emphasizes the imperfect substitutability of various nonmoney assets ). if this premise holds, then large increases in the money supply will lead investors to seek to rebalance their portfolios, raising prices and reducing yields on alternative, non - money assets. lower yields on long - term assets will in turn stimulate economic activity. the possibility that monetary policy works