Kina Bank’s Chief Executive and Managing Director Greg Pawson is expecting to start the SME Capital Fund this year, which will offer PNG businesses a new way of raising money. He tells Business Advantage PNG it is designed to help businesses expand.

Kina Haus in downtown Port Moresby. Credit: Kina Bank

One challenge facing Papua New Guinea’s small and medium enterprises (SMEs), says Kina Bank’s Greg Pawson, is a lack of access to equity capital. He believes there are PNG businesses that ‘have some amazing potential and opportunities’ but they do not have sufficient cash within their businesses to be able to ‘take that next step’ and grow.

While subsidised loans are one way of addressing supporting SMEs, another is to actually create a fund that can actually invest in some of PNG’s most promising small businesses, providing them with the financial backing they need.

‘That is what this fund would be about,’ Pawson tells Business Advantage PNG, pointing out that a lack equity capital for PNG businesses has long been an issue.

‘Lots of different parties have been talking about it for the last decade – more around setting up private equity funds and independent people investing in these funds and then the money being on-linked to SMEs. It hasn’t really got anywhere; it hasn’t got any traction.

‘We have an amazing capability. How do we leverage that in better and smarter ways that benefit PNG?’

‘So why don’t we set it up? Even though we are a bank, we have an investment banking licence. So, let’s try to leverage that. We are just doing some due diligence on it at the moment.’

Under the equity model being considered, Pawson says, the Kina-backed fund would effectively purchase a share in each business it picked to invest in.

‘There might be a debt component as well but it [too] would just be a form of equity.’

Experience

Kina Bank’s Greg Pawson.

Pawson notes that the bank has ‘quite an extensive’ funds management business already.

‘We are the leading investment manager for Nambawan Super and other smaller provident funds. It is really about leveraging that capability.’

The planned new fund is anticipated to have K50 to K100 million under management.

He says its goal will be to invest in ‘SMEs that you would probably categorise more as commercial businesses, that have opportunities to expand.’

Liquidity

In spite of the recent COVID-19 economic downturn, Pawson says most of the domestic banks in PNG have access to more than enough cash to fund such investments: ‘The domestic market is flush with liquidity.’

Competition

Importantly, Pawson believes that the new fund will drive ‘competitive tension’ in PNG’s funds management sector. ‘We have an amazing capability. How do we leverage that in better and smarter ways that benefit PNG?’

According to Pawson, the approach could be provide an alternative to the K200 million cheap loan program currently being offered by the government through Bank South Pacific and the National Development Bank.

‘The proposition we are coming up with, which is actually about equity not about debt, is potentially a better one for some of these businesses.’

He warns that debt should not be considered free money. ‘You are paying for a loan that has a discounted rate over a longer period of time that is funded by the government. You still have to pay it back.’