1 April 2015

Financing growth through more accessible finance and financial services

Financial markets in the Pacific are generally underdeveloped, and many people, particularly women, do not have access to even the most basic financial services, especially in rural areas. 

Access to credit remains a problem, despite excess liquidity across Pacific financial systems and the increased availability of savings products. Without access to financial services, businesses cannot grow, entrepreneurship is stifled, and people on low incomes cannot save securely to invest, pay bills, or move beyond subsistence living standards.

To address these issues, PSDI focuses on developing the linkages within the financial system to deliver better intermediation between savers and borrowers, so as to increase the availability of loans, securities and other financing instruments. Better financial intermediation requires improving the integrity of financial systems; strengthening selected financial institutions; designing and implementing new products tailored to the realities and particular needs of Pacific island countries; and supporting financial inclusion throughout the Pacific.

Finally, it means undertaking the analytical work to identify the institutional constraints to access to finance, and advocating for appropriate policy responses.
The cornerstone of PSDI’s work to achieve these aims has been the implementation of secured transactions frameworks, which allow lenders to give credit against the security of “movable assets”. This is important to the Pacific because most borrowers cannot offer land and other real estate as collateral for loans (land is mostly communally-owned in the Pacific). It also impacts significantly on women who, in most countries in the region, have little control over customary land.

PSDI assists Pacific governments with drafting the necessary legislation, ensuring awareness of the reforms, and the procurement and deployment of online registries. Once the frameworks for improved financial intermediation are in place, PSDI works closely with lenders to develop financial products that will translate the opportunity into increased lending.

As secured transactions reforms take hold, PSDI is placing more emphasis on the role of provident funds within the financial system, the commercial sustainability of credit and other financial service providers, and regulatory frameworks. Provident funds are integral to the stability of Pacific financial systems, as well as the transformation of savings into longer-term investments. They will play a central role in the development of capital markets in the region through investments in long-term bonds, equity investments, and other financing arrangements. To give impetus to the development of capital markets, PSDI is developing a benchmarking study of Pacific provident funds, similar to the Finding Balance study for SOEs, and investigating constraints to securities issuance.

The focus of PSDI’s institutional strengthening activities is the commercial provision of finance, as this underpins the objective of increasing access to finance and complements the financial inclusion agenda.  In addition, PSDI works closely with central banks and other regulatory agencies to improve policy and regulatory frameworks.