Vanuatu Deputy Prime Minister Joe Natuman Keynote Address at 2nd Pacific Islands Regional Initiative (PIRI) Forum

The honorable Minister of Finance, Ministry of Finance and Economic Management,

Mr. Denton Rarawa, Governor Central Bank of Solomon Islands and Chair of the Alliance for Financial Inclusion’s Pacific Island Regional Initiative, Governors and Deputy Governors of regional central banks,

Mr. Norbert Mumba, Deputy Executive Director, Alliance for Financial Inclusion (AFI),

Mr. Mark Flaming, Regional Advisor and Programme Manager, Pacific Financial Inclusion Programme (PFIP),

Senior officials of the Government of Vanuatu, Members of the Banker Association of Vanuatu,

Members of the Vanuatu Chamber of Commerce and Industry, Members of the Vanuatu National Financial Inclusion Taskforce, Development Partners,

Ladies and Gentlemen, Good morning.

To our guests who have travelled to Port Vila from both the Pacific region and beyond, I warmly welcome you all to our shores on behalf of the people and Government of Vanuatu. I know you have travelled far and I hope your arrival has been met with the warm hospitality and friendly smiles typical of the South Pacific and Vanuatu. Tourism, as you may have observed, is an important component of our economy and I urge you to also take the time to explore a little more of this beautiful country to see what it can offer.

It is a real pleasure for me to be part of the Alliance for Financial Inclusion’s Pacific Islands Regional Initiative Meeting and a great honour to be invited to deliver this keynote address. This meeting marks another significant milestone for the Pacific region on its journey towards building a financially inclusive society. It reinforces our common vision as members of PIRI that inclusion is not simply some far off objective we seek to attain—it is also the means through which we attain this objective.

As many here today are aware, during the Forum Economic Ministers Meeting in 2009, Pacific Leaders approved the ‘‘2020 Money-Pacific Goals’’, which requires: (i) All children to receive financial education through core curricula; (ii) All adults to have access to financial education; (iii) To have a simple and transparent consumer protection mechanism in place; and (iv) Halve the number of households without access to basic financial services.

The level of progress in achieving these objectives is certainly disparate country to country across the region. However, this meeting of PIRI members is an important part of a process that ensures all of us successfully meet those objectives, by allowing us to share our unique experiences with one another. In fact, it is increasingly evident that PIRI has become the embodiment of the successful peer-to-peer model championed by the AFI network, now also acknowledged by the international community as paramount to reaching its development targets—including the Sustainable Development Goals.

So with that in mind, allow me to express my sincere gratitude to the organisers for hosting this year’s PIRI meeting in Port Vila. I recognise and appreciate all the efforts that have been made by AFI, the Reserve Bank of Vanuatu and the regional central banks in hosting this important gathering. It is not an easy task and I congratulate you all for a job well done.

In fact, it is increasingly evident that PIRI has become the embodiment of the successful peer-to-peer model championed by the AFI network, now also acknowledged by the international community as paramount to reaching its development targets—including the Sustainable Development Goals.

Ladies and Gentleman,

The agenda of financial inclusion continues to grow in importance within our region and needs to be given greater support. It rightly focusses on making financial services – such as savings or deposit services, payment and transfer services, credit and insurance – affordable and accessible to the unbanked and low-income population in a manner that empowers them to participate in economic activity so growth can be more inclusive and sustainable. In fact, financial inclusion has an important social dimension too, in that it ultimately leads to reducing income inequality within our region.

Yet, without a doubt, this objective remains both a global and regional challenge. Over 2 billion of the world’s population lacks access to formal financial services at a reasonable cost. Problems of low access to financial services in Vanuatu serve as a microcosm of the Pacific—the least-banked region in the world. This is not a tremendous surprise given the challenges we all face in serving similar and remote populations.

For instance, Vanuatu is a lower-middle-income nation. It has a small, open economy with a population that this year is projected to reach approximately 270,000, and is dispersed across 83 islands, making it costly to maintain banking and financial services. This issue was highlighted in 2011 after a Financial Services Sector Assessment (FSSA) estimated that only 44,000 or 19% of Vanuatu’s population use financial services.

Moreover, the general level of infrastructure development in our region, and particularly in Vanuatu, remains low. This means business activities tend to be concentrated in urban centers where banking services are clustered. The banking sector in Vanuatu, comprising of four banks, is dominant within the domestic financial sector. This sector has proven to be healthy, liquid and well capitalised with low levels of non-performing loans. The non-bank sector however remains small and undeveloped by contrast.

The structural features contribute to a high cost of doing business. In fact, Vanuatu is a medium-to-low risk destination for commerce and investment. In the World Bank’s 2010 ‘‘Doing Business Report’’, Vanuatu was ranked 59th out of 183 economies overall, behind the Pacific Island nations of Tonga (52nd), and Fiji (54th). The cost of doing business contributes to a high risk perception particularly to small businesses among banks. The issue is compounded by the fact that banks are the main source of business credit.

However, there have been promising developments in gaining access to formal financial services, notably through the rolling out of electronic banking services, mobile banking and card accessed bank accounts which are now reaching more and more of the ‘‘unbanked’’ regions and provinces.

Furthermore, a national financial inclusion workshop held in 2012 mapped a path forward for financial inclusion in Vanuatu. Three key action agendas were approved: First is the creation of a National Financial Inclusion Taskforce (NFIT) which was established and endorsed by the Council of Ministers in 2013: second is  to  conduct a  demand-side survey for  financial services, an initiative that is currently being undertaken and is scheduled to conclude later this month; and the final that called for improvements on financial literacy and consumer protection, an agenda that is also being pursued right now.

Ladies and gentlemen,

The tagline for this PIRI meeting is “Islands of Inclusive Finance – Small and Medium-Sized Enterprises (SMEs) and Financial Inclusion in the Pacific”, with discussions being held under the overarching theme of SME finance. This will include deepening dialogue for exploring and promoting SME finance particularly for women entrepreneurs and women-based enterprises, as well as to identify policymakers’ and regulators’ roles in promoting an enabling environment for SMEs.

This theme is timely for the entire region but perhaps even more so for Vanuatu, which has relied heavily on commodity exports. Our economic fortunes have therefore been dependent on world economic conditions, particularly world commodity prices. Therefore, we have been highly susceptible to external economic shocks.

Across the Pacific countries there are challenges in providing an enabling environment for SME finance. In 2015, through the PIRI members, a survey was undertaken to determine such barriers, and the results found common factors across the region, including in laws and legislation, government policies and procedures and how central banks provide the prudential regulatory environment.

In Vanuatu, studies indicate that micro-small and medium sized businesses (MSMEs) comprised the largest source of employment. Hence, SMEs can be an important engine of growth for Vanuatu as well as across the region.

The Government of Vanuatu’s policy framework falls under the Ministry of Trade, Tourism, Commerce and Industry. The Government is taking effective measures and policy initiatives to provide support businesses including SMEs. As part of the initiative to develop SME finance, the Reserve Bank of Vanuatu is currently undertaking a peer-review of AFI member practices and will undertake research on SME finance in 2016 with a view to develop a strategy for the RBV as a financial enabler in SME finance.

The Reserve Bank stated to address the issue of SME finance through two policy initiatives in 2015, specifically in the form of an Import Substitution and Export Financing Facility (ISEFF) and a Disaster Reconstruction Credit Facility (DRCF). Under the two facilities the RBV provides low cost finance to businesses, including SMEs, through the commercial banks.

RBV’s experience in implementing these facilities has been interesting but reflected to a large extend the challenges facing many of the small island economies today in effectively moving forward with this regional initiatives.

I note that experiences from Asia indicate a key aspect of SME finance would require a broad policy strategy that encompasses relevant ministries, agencies and financial providers. It may perhaps require a lead role from key government ministries to push the agenda of SME finance through in its initial stages. It would also require relevant changes in legislations.