Small and medium-sized businesses have the capacity to create jobs and propel Papua New Guinea’s economy, but how can this best be achieved? Business Advantage PNG looks at how banks are supporting the sector.

Farmers at Gerehu Vegetable Markets. Credit: DFA

Papua New Guinea has set a target of 500,000 small and medium enterprises by 2050. However, Liz Mackinlay, CEO of Australian Business Volunteers suggested in a recent business forum that there are currently approximately 45,000 SMEs operating in PNG, notwithstanding the recent economic slowdown.

So, what can be done to help create those additional SMEs?

It’s generally acknowledged that a lack of financial inclusion and financial infrastructure, little or no entrepreneurial training, limited access to commercial land, markets and infrastructure are just some of the barriers people face when trying to open a new business in PNG.

The need for financial basics

BSP Group’s Daniel Faunt.

According to Daniel Faunt, Group General Manager Retail Bank for the BSP Financial Group (BSP), financial literacy is the ‘biggest challenge’ for the SME sector. He told the same business forum that the lack of basic financial knowledge combined with the perception of it being ‘difficult to deal with banks’ are two of the main reasons SMEs find it hard to access loans.

BSP is trying to address some of these challenges. For example, the bank has dedicated SME centres in Lae, Goroka and Port Moresby, and has partnered with entities such as the Asian Development Bank and the United States Embassy to deliver financial literacy programs. Since 2013, the bank has delivered the program to 135,000 people.

BSP, Faunt explained, is also trying to create an environment where SMEs clients can access bank loans more easily. This includes using bank statements, which are easier to obtain and track, instead of audited and unaudited financial reports as the basis for loan applications for a small business.

As a result of this bank statement policy, Faunt explained, BSP has funded over K200 million to the sector.

Cheap loans

A partnership with the PNG government last year saw BSP launch K100 million lending fund to help boost the SMEs sector through loans offered at a cheaper interest rate (five per cent). The program, Faunt said, has been successful, with over K40 million already lent.

The bank also recently reduced its equity requirement on SME loans from 30% to 10% and increased its maximum loan borrowing under the scheme, from K3 million to K5 million.

SME toolbox

While PNG’s other main retail bank, Kina Bank, is not currently participating in the PNG government’s SME lending scheme, it is launching its own initiatives aimed at the SME sector.

The bank’s CEO, Greg Pawson, has flagged the introduction of an SME Capital Fund, which would invest directly in ‘SMEs that have opportunities to expand.’

The bank is also aiming to introduce other financial tools for SMEs.

‘We’re looking at developing an SME solution that is tailored specifically to the banking needs of small businesses,’ Kina Bank’s Executive General Manager Lending, Asi Nauna, tells Business Advantage PNG. Part of this offering will be a new business Visa card for SMEs.

‘What this will do is provide business with access to making payments online,’ she explains.