INTRODUCTION OF SAVINGS & LOAN SOCIETY CONCEPT TO PAPUA NEW GUINEA
- Following investigations in Fiji and PNG in the 1950s after the introduction of cooperative society movement, it was felt that Savings & Loan Societies had a role to play in these countries.
- In 1961, the Reserve Bank of Australia decided to sponsor the development of Savings & Loan Societies in PNG.
- The Savings and Loan ordinance became law in 1962.
- The first societies were officially registered at Sideia (Milne Bay Province) and Rabaul (East New Britain) in May and September, 1962 respectively.
During the first few years the societies operated as single units under the control of the Registry of Savings and Loan Societies.
- In 1962, there was only one society with 80 members and total assets of K532
- In 1973, under the regulatory support of the reserve Bank of Australia and supervision from Fesalos the number grew to 328 societies with membership of 34,241 and total assets of K2.5 million.
- In 1981 the number declined to 127 societies, membership of 166,122 and total assets of K42.8 million.
- The decline in the number of societies was caused by a number of factors including:
- Transfer of regulatory functions from the Reserve Bank of Australia to the newly established Central Bank of PNG
- Lack of regulatory capacity
- Deterioration in good governance leading to rampant abuse and corruption of societies/members funds and resources
- Liquidation of more than 100 societies by the Bank of PNG
ESTABLISHMENT OF THE FEDERATION OF SAVINGS & LOAN SOCIETIES LTD (FESALOS)
- Fesalos was established and issued its certification of registration and incorporation as an association on 22 March, 1966.
- Its main aim was to promote co-operation amongst societies and to act for their common benefit.
- In 1972 Fesalos assumed all administrative responsibilities from the Reserve Bank.
- Fesalos went under administration for 5 years in the early 1990s due to maladministration problems.
- Fesalos has since 1995 traded out of administration under the BPNG and is now financially independent.
CURRENT STATUS OF FESALOS & IMMEDIATE FUTURE PLANS
- Fesalos is currently located on the 2nd level of TISA HAUS in Port Moresby, PNG.
- It currently has a board with 6 Directors derived from the 21 affiliated societies.
- It has two main core responsibilities:
- Provides relevant association support in the form of advocacy and other relevant assistance to its member societies.
- Technical support in the provision of an MIS Bureau service to its member societies.
- It has a staff complement of 7 staff and will increase staffing level to 8 in the near future.
- Fesalos will seek help from CUFA and WOCCU to establish a Development unit and resource it with a qualified person.
- Fesalos has obtained endorsement from its board and affiliates to develop its current MIS Bureau into a fully fledged Data processing center to fully support the technical needs of its user societies. Fesalos is keeping its options open to alternative retail banking solutions as part of this exercise.
CURRENT STATUS OF THE SAVINGS & LOAN INDUSTRY IN PNG
- Total Number of operating societies = 21
- Total/aggregate Membership = 331,648 (approx. Total household supported =1.1 million)
- Penetration = 3.76 %
- Total Assets = K1.066 billion (AUD$ 411 m )
- 4 % of total assets of the financial system
- Total Deposits/Savings = K558 million (AUD$ 215 m)
- Total Loans = K323 million (AUD$ 125 m )
- Total Reserves = K491 million (AUD$ 189 m)
- Societies are regulated under the S&L Societies Act that was enacted in 1962 and with slight amendments in 1995.
- The Governor of the Bank of PNG is the Registrar of Savings & Loan Societies. The current Registrar is Mr. Loi Bakani.
- Bank of PNG instituted reforms in 2000 to the Financial Sector in PNG (including S&Ls) which has contributed to the steady growth of the Industry’s total assets.
- BPNG has created a S&L unit within its Banking Supervision Department that directly regulates the conduct of S&Ls.
CURRENT ISSUES AND CHALLENGES
While the PNG’s Federation and Savings & Loan Societies have steadily prospered over the years, there are some issues that are commonly faced by the societies that impede their growth and development, these are:
- Legislation – The movement need properly drafted legislation that will be conducive to the growth and expansion of credit unions
- Government recognition – Credit Unions/Savings & Loan societies are regulated financial institutions as such would need governments to acknowledge the role they play in complementing other financial institutions in the provision of financial services to the rural areas that meets government’s poverty alleviation and wealth creation objectives
- Governance – The need to uphold and exercise good governance in the movement
- Ideal model – The need to develop an ideal model and strategic plan that would guide the movement forward,
- Technology – The need to fully utilise the current modern MIS platform that will improve operating: capacities, performances, reporting to achieve standardisation.
- Training – Availability of training relevant to the movement that is accessible to staff, directors and committeemen – also access to financial literacy training for members.
- Compliance – To statutory requirements
- Competition – By main stream banks, other financial institutions and loan sharks.
FINANCIAL INCLUSION INITIATIVES UNDER THE MICROFINANCE EXPANSION PROJECT
To have a coordinated approach to financial inclusion involving all the stakeholders that provides financial services to the poor.
INCLUSION OF SAVINGS & LOAN SOCIETIES
- Fesalos has a seat on the project steering committee
- 3 societies included in the initial pilot project
MAIN OBJECTIVES OF THE INITIATIVE
- Promote the development of financial institutions
- Strengthening institutional capacity through financial literacy training, and
- Promote mobile banking and payments services to bring financial services to rural PNG.