In-depth

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Mobile money customers of Nationwide Micro Bank

In 1996, some 25% of Papua New Guineans lived below the poverty line, but in 2006 this rose to 37%.  Rural poverty is estimated to be almost double that of urban areas (41.3% compared to 16.1%). Low income households in Papua New Guinea typically exhibit low or low-moderate levels of financial competence across all financial domains and activities.  Rural households also face constraints to financial competence due to lack of access to financial services (in particular transaction services). Cash continues to be the dominant mode of payment across both urban and rural households. 

An increasing body of evidence shows that access to financial services, including financial education, can help improve household welfare and spur small enterprise activity. There is also macroeconomic evidence to show that economies with deeper financial intermediation tend to grow faster and reduce income inequality. The evidence strongly indicates that, when effectively regulated and supervised, financial development spurs economic growth, reduces income inequality, and helps lift households out of poverty.

An inclusive financial sector needs a regulatory environment that balances the needs of advancing access to finance with the stability of the financial system. Policy makers are recognizing that financial exclusion is a risk to political stability that impedes economic advancement. The global financial Standard Setting Bodies are changing their guidance to respond to this need to facilitate financial inclusion. And the G20 has recognized financial inclusion as an important global development priority.  Under G20 leadership, a powerful responsible financial market development vision is emerging – a vision that essentially aims at banking the other half of the global working-age adult population.

The financial inclusion agenda, led by the Pacific Financial Inclusion Programme, recognizes these broader issues. It also recognizes the importance of financial literacy, building consumer financial capabilities, and for consumer protection regimes that take the conditions and constraints of poor families in the informal economy into account.

Poverty Reduction through building an inclusive financial sector lies at the heart of UNDP’s mandate. In addition to its wealth of global best practices and technical expertise through UNCDF’s PFIP, UNDP’s impartiality allows it to approach these often sensitive and political issues, and to broker collaboration between various actors, including Government, the private sector, civil society and development partners.