The National Development Bank Limited has established its micro banking subsidiary; the People’s Micro Bank Limited (PMBL) in line with the Government’s Wealth Creation Agenda of providing the vast unbanked population with access to banking and inclusive financial services. PMB is a licensed and regulated financial institution which operates with a Banking Business License under the Bank and Financial Institutions Act 2000 issued by the Bank of Papua New Guinea in January 2013. It operates under an independent Board of Directors with high professional qualification with technical, legal and commercial expertise and with high standing in the business community. The Management and staff comprised of seasoned and experienced calibre banking professionals of high standing. The PMBL was set up to provide more opportunities to the marginalized and unbanked population to get easy access to banking services and affordable credit to start up or grow their income generating activities. It aims to integrate millions of unbanked rural population into the mainstream economy and create a distinction in the banking industry as the fee-less and most affordable bank in Papua New Guinea.
In only less than 3 years since its inception in April 2013, the People’s Micro Bank has emerged as a very competitive player in the provision of inclusive financial services to over 60,000 bank customers that are either unserved or underserved by existing financial institutions. It continues to expand its client reach thru its 4 branch networks that are strategically located in PNG’s key economic centers namely; Boroko, Madang, Wewak and Popondetta. Since its launching, PMBL has seen a massive improvement in its viability and a strong indication to become operationally viable in 2015. Guided by its mission to make banking services accessible to the unbanked population, it has developed a distinct strategy and market brand as a fee-less and customer-friendly people’s bank.
RAPIDLY GROWING CUSTOMER OUTREACH
The PMBL’s customers’ deposit accounts have consistently increased from 13,000 to 38,000 and 60,000 from 2013, 2014 and 2015 respectively. Consequently, its deposit liabilities have expanded from K19M, K43M, and K54M in the same period. The growing deposit base indicates a growing popularity and deepening trust of more customers who keep their funds at PMBL for safekeeping and investment. During the same period, the number of loan accounts has increased from 300, 1,700, and 2,500 loan accounts which registered a net book value of over K20M.
A PMBL branch is designed to effectively serve at least 10,000 client base to become profitable. Currently, all its branches have reached the following number of savings accounts as follows; Boroko branch: 26,000 accounts, Madang branch: 14,000 accounts, Wewak branch: 13,000 accounts and Popondetta branch: 10,000 accounts. New branches are opened in response to local demand and ongoing branch refurbishment and rebranding of the National Development Bank offices across the country. Additional new branches are currently under construction and are expected to be completed in early 2016. It will be followed development of new branches in 5 new Provinces of PNG. The construction of these additional branches will commence by early 2016 and expected to be completed in 2017.
FAST GROWING LOAN BOOK
PMBL’s current loan book comprise of 70% business loans and 30% personal loans. It has grown by over 40% from K15 million in 2014 to K21 million in 2015. The arrears rate was registered at 0.9% and a portfolio at-risk (PAR) of 3% for all loans with past-due over 30 days. This rate is considered very efficient for microfinance institutions by global standards of less than 3% arrears and PAR of below 5%.
Various loan products are made available for microenterprises, SMEs and the informal sector. Loan sizes ranges from K500 to as much as K1M per borrower depending on the need and risk profile of the borrowers.
INCLUSIVE AND AFFORDABLE BANKING SERVICE
The banking services offered at PMBL are very affordable and accessible even to the most illiterate clients. Opening of a saving account is made simple and easy with very low one-time K10 fee to open and maintain an account. Its lending fees and interest rates are the cheapest in the microfinance industry by over twice less than what the other forerunner Microbanks are charging to their clients. There are no recurring fees and no monthly charges that have always been a source of frustration among bank clients. The PMBL understand that customers do not want their savings balance to diminish while in possession of the bank but expects them to rather grow thru the quarterly capitalization of interest income. The PMBL will strive to ensure that its fees and rates are kept down to affordable level to maintain a reputation as a fee-less and customer-friendly bank.
PMBL’s reputation as a fee-less bank is fast spreading. More bank customers realized the huge benefits they would gain if they switch over to its low-cost services than other financial institutions. Interestingly, a growing number of customers have transferred their savings accounts from either commercial banks or Microbanks to avail of PMBL’s products and services.
Savings Products are diversified to cater to individuals, businesses and corporate entities. There are at least 10 different savings Products which Customers can choose from that best suit their needs. The most fast selling savings product is currently the Regular Savings Account which can be accessed anytime on demand by the customers. This account is intended for any purpose as preferred by the Customer. Over 90% of total accounts falls under this category.
The PMBL business plan follows a 3-year viability model. The direct costs of the head office and business units are covered by generating their own revenue incomes out of growing its own lending portfolio and thru investments of idle funds in interest-bearing deposits. A proportionate cost of providing management administration support to the branches is charged relative to the size of the branch and their cost structure. A branch is required to cover its operating cost and head office support and to meet break-even point during its first 3 years from inception thru revenue incomes from its own retail and lending operations.
The Return on Equity rate in 2015 was at positive 10%, a massive improvement from negative 21% in 2014. Its cumulated Operational Self-sufficiency (OSS) rate was registered at 120% in 2015. PMBL’s positive growth in return on equity has been consistent since the 1st quarter of 2015. This indicates that PMBL is achieving its viability targets within its first 3 years from launching.
The savings and lending products developed at PMBL are demand-orientated and market-driven. They are a result of the many lessons learnt from banking experience and thru constant feedback from PMBL’s clients and employees. In collaboration with, and provision of free technical assistance from the Microfinance Expansion Project, it continues to introduce innovations in its banking products.
In the last 2 years, the PMBL’s new savings accounts and customer deposits have increased at a monthly average rate of 2,000 new accounts and K2 million respectively. In 2015, it has funded approximately K20 million in total loans to over 2,500 clients. Seventy five percent of this funding was utilized to fund the inception and growth of micro, small and medium-sized businesses. Currently PMBL funds 300 new loans per month. It has provided easy access to credit to individuals and businesses at very affordable rates. As a distinctive player in delivering financial services it makes credit accessible to both individuals, informal businesses and SMEs at lower fees than its competitors resulting to more and more people coming to be served by PMBL.
The PMBL Board and Management aims to see the PMBL become a leading provider of inclusive banking services for the majority of unbanked population and business owners across PNG. Over the next 5-10 years, it aims to expand its operations nation-wide through the setting up of branches in all 4 regions of the country.
INNOVATION AND RESPONSIVENESS
The Management has consistently introduced innovation to meet the market’s demands for banking service. To assist in the continuous improvements of products and services, the Management team gathers direct feedback and responds to comments from customers on a daily basis. This is done either by collecting positive and negative feedback from the customers from all business units. Customers’ send their comments to key members of the Management by emailing them using a dedicated Computer installed at the Customer Kiosk in each branch. Customer Service Officers also talk to Customers at the branch. Customers can also call PMBL’s Customer Service Hotline numbers. This system allows quick and almost instant response to Customer queries and complaints.
The feedback is processed at Management meetings where product improvements and innovations are developed and eventually introduced. A customer feedback report is also provided to the Board for information at their quarterly meetings.
The PMBL provides electronic banking services such Mobile Banking, SMS Benking, and recently introduced its ATM and EFTPOS services in its first branch in Port Moresby. Soon all its branches will be fitted out with ATM machines to enhance its delivery capacity and competitiveness in the banking industry. These products herald the Bank’s entry into the electronic banking platform using mobile devices and automated payment system. The PMBL e-banking team has recently completed the testing of EFTPOS and ATM machines.
Further, a discussion is currently underway to explore the possibilities of interconnectivity of PMBL banking system with ATM machines and EFTPOS devices of other local banks as a way forward.
In addition, PMBL also offers micro insurance products to its small borrowers who typically cannot access the services of insurance companies. Thru linkage with a local insurance company, PMBL is able to provide life and loan cover for its microfinance clients with loan sizes of less than K20, 000.
The PMBL used to run business and product seminars at Head office during its first 2 years. A new approach was developed by introducing interactive financial literacy concepts via PMB’s face book account and website. This new approach will be launched soon this month.
The PMB aims to make its services more accessible to a larger number of populations in greater geographical areas thru the use of mobile banking. In 2016, this new business model will be the bank’s main strategy to reach the unbanked that are mostly residing in the remote rural areas of the country. With the introduction of this new product, new savings and loan accounts can be opened with the use of wireless devices which bank representatives or agents will use to extend financial services to the unbanked.
The PMB has developed a unique niche in capturing a broad market base thru its “low profile but modern approach” to reach the unbanked and underserved market. It has built a solid reputation as a bank for the people with tailor-fit products and methods of service that is non-threatening and friendly to individuals who in the past have not visited or transacted with a formal financial institution. Bank clients are serve by warm approaches and deserved courtesy as they enter the bank premises. Customers feel as if the bank staff knows them personally and understand their needs.
The NDB’s cumulative capital funding of K20 million since launching of PMBL in 2013 has made its capital ratios consistently strong and above the regulation limits. The PMBL’s current capital ratios were registered as; Tier 1: 99%, Tier 2: 110%, and Leverage ratio: 20%. This ratio positions PMBL as one of the most stable financial institution in PNG. The Shareholder commits to provide adequate capital to ensure PMBL remains fully compliant to BPNG regulations.
Currently, PMBL’s capital remains strong and adequate to support the roll out of more branches in the next 3 years. However, rolling out of PMB throughout the 22 Provinces of PNG would require more capital funding to meet the bank’s capital adequacy requirements.
CHALLENGES TO GROWTH
The main challenges to continue the sustainable growth of PMB is the provision of adequate capital for expansion, high infrastructure and maintenance cost of electronic banking technology, lack of skilled banking professionals to support manpower requirement for the rollouts, low level of economic activity, sparsely populated centers, low financial literacy and high operating cost in PNG.
DEMAND EXCEEDS THE SUPPLY
In a study conducted for the Financial Inclusion Program, the Bank of PNG estimates that demand for banking services from the unbanked sector in PNG is registered at over 2 million savings accounts, 1 million loan accounts and 0.5 million micro insurance accounts. It is estimated that if PMBL follows an organic growth approach in the next 5 years, it could only serve less than 10% of this demand. Hence, the unmet demand for banking service would still be very high.