Banking the Informal Sector Economy in PNG

Obed Ikupu graduated with a Bachelor’s Degree in Papua New Guinea Studies and International Relations (2015) from the Divine Word University. 

He now works as a Disaster Risk Reduction (DRR) Project Assistant with the UN Migration Agency – International Organization for Migration.

PNG Insight is delighted to have published Obed’s work on the Informal Sector Economy in PNG.

Note: Check out the PNG Writers’ Corner. Here is how to participate in the Writers-Earners initiative

PNG banking services


The informal sector economy accounts for 85% of the total marginalized population in Papua New Guinea (PNG). It provides an avenue for two substantial trends in the population:

  • employment for the urban population and
  • income generation for the rural population.

Overall, the informal sector economy increases as fewer opportunities are available. The increase is vast it requires strategic legislation to control the informal sector economy, but when put into effect loss in income-earning opportunities and poverty is inevitable.

The lack of “financial inclusion” halts the transformation of the informal sector economy. This observation – combined with the challenges faced by micro-business operators in Divine Word University (DWU) – supports this idea.

Key Words: Financial Literacy. Financial Inclusion, Informal Sector Economy


The informal sector economy is described as a dominant aspect of commercial activity in PNG. Current statistics show over 85% of the total population in the country are engaged in this sector alone.

The perception of the informal economy as an underground economy, having no value, is widely known in PNG. This is evident with its pitiful existence in almost every society.

The implications it has on socio-economic structures are challenging. This includes the health and hygiene issues it causes, and the law and order problems it arises. For example, the 2013 betelnut ban in Port Moresby imposed by the National Capital District Commission (NCDC) had resulted in a lot of misfortunes. People lost their way to find further opportunities and were unable to sustain their livelihoods in the city of Port Moresby.

Furthermore, the growth in population with a high level of unemployment, gender inequality, unavailability of capital, and limited banking and financial services in the country forces the population to seek refuge in the informal economy.

This stereotype also indicates that there is not enough support given by the government to help its 15% urban dwellers and 85% rural dwellers engaged in the informal sector economy.

The Microfinance Expansion Project (MEP) carried out by the Bank of Papua New Guinea (BPNG), funded by the World Bank, has progressed on financial literacy. But, has not to reach its full objective of financial inclusion across the country.

Section 2 of this literature review will help demonstrate and support this hypothesis.

Scope and objective of the review

The scope of this review is to develop a strategy in conjunction to the Financial Sector Development Strategy to guide the development of the financial services sector in PNG in a way that supports broader economic and development objectives; and to establish a legal framework to support the strategy.

Perhaps it is important to note that the review on the informal sector economy is to support the development of a strategy to enhance financial inclusion in PNG. The review has two objectives:

  • provides a case study with respect to financial inclusion and financial literacy in PNG, and
  • recommends possible enhancements to the National Financial Inclusion and Financial Literacy Strategy which may potentially support the achievement of the Maya Declaration and the expansion of financial literacy and financial inclusion in PNG.

Limitations of the review

The report has been compiled using extant data sources, published and unpublished reports, and interviews with key informants engaged in the proposed study area that was carried out in 2015. There is currently no national baseline of financial inclusion for Papua New Guinea.

BPNG has sponsored several research projects in order to develop an understanding of financial capability in PNG. However, it has not been possible, to date, to undertake a nationally representative survey of financial inclusion.


How can the informal sector economy be alleviated? Ever since Hualupmomi (2010) mentioned the “platinum age” in which the country is in, the question of technology has puzzled and inspired the business community. One of the key aspects is empirical: why have businesses integrated technologies in their operations, and what opportunities are there?

Views differ. But one popular interpretation is the increasing use of electronic products and services by the banking sector. Watson (2012) immortalized mobile banking as a tool for development, and Clyne (2012) echoed the use of EFTPOS machines as a cost-effective form of doing business.

The current market demand for electronic banking products and services is high. For small businesses, it is an opportunity to save cost and galvanize profit.

Considering the low income, increasing steadiness, and the financial constraints of micro-businesses in the informal sector economy it is hypothesized that the use of electronic products and services, particularly EFTPOS machines, be made available to the participants in the informal sector economy to

  • increase the pace of financial inclusion;
  • alleviate the expansion of the informal sector economy; and
  • allow small businesses to move onto the next top-level of micro-business activity.

Increasing the pace of financial inclusion

Banking the unbanked

Opening a bank account at a nearest available branch is one way the unbanked population can be banked. But, the geography and the low levels of financial literacy in the marginalized population delays this opportunity. Banks are reluctant to branch out into remote areas because of the low yielding markets.

The illiterate populations are not eager to save their money in the bank because of the low income they generate. The question then lies in how banks can foster an environment to bank the unbanked population in an affordable and convenient way.

The National Informal Economy Policy 2011-2015 which identified “microfinance” as an instrument to bridge the gap has been successful in the recent past with Nationwide Microbank and PNG Microfinance venturing into banking the unbanked population.

However, findings from the Asian Development Bank (ADB) suggest around 85% of PNG’s population remained unbanked in 2012, while the Bank of Papua New Guinea (BPNG) estimated in the same year that just 22% of the K900 million thought to be in rural circulation was held by commercial banks (Oxfam Business Group, 2013).

Figure 1 Percentage of financial inclusion in PNG

Source: Bank of Papua New Guinea (BPNG) 2014

This makes commercial banks viable through their electronic products and services to further bridge the gap which microfinance banks could not achieve. A move to digital banking and electronic transactions will circumvent the issue of branch banking. It will reduce operational risks; minimize the transit of large quantities of cash and improve internal accountancy (Oxfam Business Group, 2012).

In contrast, the precision which electronic banking systems function may result in job losses as technology takes over (Weaver & Shanahan, 1994:68). But there needs no panic for bank employees in PNG because of the very low rate of financial inclusion. So much so, the other functions which electronic systems are programmed to perform are limited to what a bank employee can do. Such as

  • open a bank account or;
  • fill out a deposit form or;
  • put a stamp on a bank application form.

Thus, this calls for more employees in the banking sector.

According to the Bank South Pacific’s corporate website, BSP Rural (a subsidiary of BSP established in 2009) has embarked on taking banking services to the rural places in PNG. BSP Rural is setting access points and opening bank accounts for people in remote areas.

Accounts are being opened using Tablets. Customers are given pre-generated cards after their details are entered and verified by BSP’s database. On a bonus, bank accounts which BSP rural open automatically links customers to mobile banking (mBanking)

This brings us to the mobile banking strategy which the rural populations now have access to. Considering, the very low financial literacy in PNG, people will be challenged to do banking using their mobile phones. But this is not true. 

To put this into perspective, I constructed the variable of ICT services over cigarette sales for income generation on a daily basis for micro-business operators. The data I gathered showed the market activity for servicing laptops and printing.

Model 1: Financial Literacy vs. ICT Expertise

Increasing the pace of financial inclusion

This is because at least 1 in 2 students in the university owns a laptop and has ample knowledge in servicing a computer. The same could be articulated for mobile phones with its very simple interfaces and wide ownership in the country. To own a mobile phone in order to have access to funds is therefore not a challenge.

Developments in Mobile Banking

Since the introduction of mobile competition in 2007, people in PNG are able to own affordable mobile handsets and make cheaper calls for both business and personal use. The potential of mobile phone banking has been evident ever since Digicel launched a service in 2009 allowing subscribers to purchase electricity by using pre-paid airtime.

In 2012, Bank of PNG granted a mobile banking licence to Digicel Financial Services, a Digicel subsidiary, to extend financial services to the niche market using their extensive mobile network coverage and their existing network of agents around the country.

Since then, the expansion of the banking sector has been piggybacking on PNG’s mobile network, which had a total of 2.4 million subscribers in 2013, equivalent to a 38% market penetration rate, up from just 4.6% in 2007 (Oxfam Business Group, 2012).

Figure 2 Mobile Banking Subscribes in 10 thousand

Mobile banking in PNG
Source: Oxfam Business Group

Some of the banking products and services provided by banks, along with Digicel and other public enterprises include;

  • BSP Mobile Banking (previously BSP SMS Banking)
  • Digicel CellMoni
  • Post PNG’s Mobile SMK
  • ANZ’s GoMoney
  • Nationwide Microbank with the MiCash service.

The biggest challenge that presents itself is having access to cash. The electronic outlets such as the ATMs, which are usually placed in the town centres, also services the needs of the rural people.

For example, the teachers and health workers who are posted further into the remote areas have raised concerns about the difficulty they face when they have to travel afar to reach an electronic outlet. 

Understandably, cash payments in term of transport fares are necessary before travelling from point A to point B. Without cash-bill, the rural population would have had difficulty travelling or affording a cash-based service.

Supposedly, EFTPOS machines can be put into the hands of individuals (goods and service providers) in the informal sector economy; it will galvanize enough capital and allow the financial inclusion of betelnut and cigarette business owners as well.

But, much said, it would require a licence and an application form which “illiterate” people need to fill to be eligible for an EFTPOS machine.

Expansion of the informal sector economy

EFTPOS Machines: Merchant Terminals

The EFTPOS machines have been widely accepted throughout the country and globally. It makes access to cash and purchases very convenient. It also means managing cash much easier, reducing cartage costs and providing a reliable and very safe means of paying for goods and services.

In 2012, BSP rolled out the GreenGold project whereby Tablet agents went out far and wide to open cheque accounts for EFTPOS machines to yield following after. Through its Merchant Terminal project, EFTPOS machines were made available almost everywhere. 

BSP has a range of EFTPOS terminals to enhance business and increase profitability. It has over 8,000 merchants’ access points and over 13,013 EFTPOS terminals based nationwide (Bank South Pacific Online).

BSP offers three (3) types of terminals.

  • Dial-Up: This terminal will work on a dedicated phone line and a power outlet. This terminal is a solution for business that trade at a fixed address.
  •  Wireless GPRS: This terminal works using the GPRS wireless network and is an ideal solution for business. It operates wherever there is Digicel coverage and is portable and convenient to use.
  • The IP based terminal: This terminal can be linked to IP connectivity for larger installations and has fast and efficient processing times.

Some benefits of using the range of BSP terminals include:

  • Improving the profitability for the merchant
  • Reducing cash holding
  • Transacting payments directed straight to the merchants’ account
  • Reliability of all EFTPOS terminals and;
  • Accepting payment options of the following cards: BSP Kundu Card, BSP Visa Debit Card, Master Card, Visa Card, American Express Card, ANZ Access Card, Westpac Handy Card and Wantok Moni.

The EFTPOS machine acts as a middle man in a financial transaction, it generates an income for the service it provides. In this case, banks who own the EFTPOS machines make money even when they are owned and operated by independent business owners.

Banking Agents

Given the technology which the banks have integrated into its operations, it has capitalized the banking business quite remarkably. And the use of labour (bank employees) may diminish soon after everyone in the country has a bank account. This leads to banking agents who make bank services available whilst getting paid for it.

In 2012, when ANZ launched its mBanking product called GoMoney, it attracted a lot of mini loans service operators to sign up for it. GoMoney allowed people to use their mobile phones to make deposits – creating a savings culture. However, it did not succeed as much as BSP’s agents who deposited and withdrew cash using Tablets for customers in isolated locations.

In contrast, BSP Agents are not so many compared to its customer baseline in the 1,200 societies and the million communities scattered across the country. This brings us to the hurdle which banks face with their agents. Most of the agents that operate on a single basis have all the funds which belong to the bank.

In some cases, these funds are stolen by robbers and sometimes by the agents themselves. The penalty is, however, not severe enough to imprison a bank agent but relieves him or her of their duties. The bank is not worried about the money it loses or the agent it fires. The money is insured, and there is always someone available to replace the previous agent. This creates an inevitable problem for opportunity shelving.

Galvanizing Profit in the informal sector economy

Opportunity Gap

As the banking sector provides convenient and efficient electronic services and products, more people are seeing their financial well beings improved. People are now able to bank using their mobile phones. And they can make their earnings viable through EFTPOS machines.

The lack of opportunity is no longer a barrier as technology is viable for its transition. The barrier that accounts financial literacy is not true – many people in PNG can run a business and operate a simple gadget such as an EFTPOS machine.

Substantial evidence from the data I gathered showed the current challenges faced by micro-business operators was not the lack of financial literacy but the lack of know-how to attain products and services.

For products and services put on the market by students this research, most indicated cigarettes and snacks. And, there were less of the other items such as Flex cards which were thought to be a popular item of sales among the students. When I asked why, most participants said it was hard to attain or they didn’t know how to get them.

Model 2: Student Dormitory Sales

eftpos machines and small business in PNG

This feedback can be synthesized to affirm that an electronic product, for the case of this hypothesis, an EFTPOS machine, is challenging for someone from the informal sector to attain. Thus the banks need to educate the small business owners and make available the electronic products for micro-business owners to attain.


Financial literacy is not a challenge with technology made available. Knowing how to attain vital electronic products and services is however a problem. The requirements which banks offer to be eligible for its products and services are so complicated it disallows people particularly in the smaller business operations i.e. bettlenut and cigarette sellers to have access.

The unbanked segment which the government and banks are concerned over is moving forward however, to create opportunities at the same time will increase the pace of financial inclusion.


The Maya Declaration of the National Financial Inclusion and Financial Literacy Strategy Actions, Strategic Objective 3 stated that


  • Transition cash to electronic payments to drive up transaction volume, lower costs and build interconnected ecosystem supporting electronic banking (Point 3.2)
  • Pilot mobile phone financial literacy programmes (Point 3.3.1)
  • Pilot consumer awareness notices via mobile phones (Point 4.1.4:)

In light of the journal article, I recommend that

  • EFTPOS machines are incremented upon Point 3.3.1. Thus, a financial institution in the country should ‘pilot EFTPOS machine financial literacy programmes’ with the aim to address the access problem in the informal sector.
  • Point 4.1.4, the “consumer awareness notices via mobile phones” should be incremented upon the pilot EFTPOS machine project as “awareness” for more participants of the informal sector to grasp this opportunity.

What the writer says about the work (at present)

As for the ethical sake of the study, I carried out the test on one-off/small-time businesses. My target was students who sold snacks, drinks, and cigarettes in the dormitories.  After the results were collated, I found the basis and need for money to be digitized.

The purpose is to allow small businesses to save. Circumventing the idea of taxing the informal sector. I then synthesized this notion to banking the unbanked population – were bank fees can substitute as taxes to the PNG government.

I then concluded with the need for banking products, such as the EFTPOS machines to be given to these small-time business operators.  In addition, I proposed a new project for micro-banks and commercial banks for the rolling out the EFTPOS machine for rural business operators all across the country.

What is emulated as a win-win situation has, unfortunately, never eventuated. This is because of certain downfalls; 80 per cent of microeconomic business operators lack financial literacy skills. Moreover, the generation gap between tech-savvy persons.

You can also write for us – we pay
more information on how to write for us on PNG Insight Blog – click here

Leave a Reply