How can Fintech Improve Financial Inclusion in the Pacific Island Countries?

Spanning a vast territory, the Pacific Island Countries (PICs) combine to be a similar size to Lithuania, with a similar population too (2.6 million people). Made up primarily of 13 island nations, the PICs are some of the most aid-reliant countries in the world. In light of this, can fintech act as a new lifeline?

Some people might argue that Papua New Guinea and even Australia and New Zealand make up a part of the PICs but in this article, the 13 PICs in discussion are:

Cook Islands
Federated States of Micronesia
Fiji
Kiribati
Nauru
Niue
Palau
Republic of Marshall Islands
Samoa
Solomon Islands
Tonga
Tuvalu
Vanuatu

Understanding the island countries’ economies

Between 2008 and 2021, the island nations received over $40billion in development assistance, with China and Australia being the largest donors. In fact, according to the Lowy Institute‘s Pacific Aid Map, no other economy in the world was as impacted by development assistance.

Each of the island nations is classified as a developing economy, bar one: the Cook Islands, which according to the Organisation for Economic Cooperation and Development (OECD) has a GDP per capita of over $18,000. This is due in large part to tourism.

In the second half of the 20th century, Nauru was actually the richest country in the world based on gross domestic product (GDP) per capita. This was largely due to it being rich in phosphate. However, this was short-lived as once these resources ran out, the market declined as a result of there being little to no economic diversification in place to sustain its growth.

Nonetheless, Nauru still has one of the highest GDP per capita in the region at nearly $12,000. This is considerably higher than its neighbours. For example, Fiji‘s is only just over $5,300, the Federated States of Micronesia at over $3,700 and Solomon Islands at over $2,200.

Access to finance

The PICs mobile penetration rates is incredibly low at only 47 per cent. This is much lower than mobile penetration rates across the world, with the Asia-Pacific region’s being 62 per cent as of 2022.

As a result of less than half the population having access to a mobile, it is no surprise that cash remains king in the region. With a myriad of factors impacting success including cultures and remoteness, traditional financial institutions have struggled to establish themselves. Furthermore, a lack of regulatory development has hindered progress – not just in financial services, but with mobile operators too.

Until recently, countries like Vanuatu relied heavily on manual transactions like clearing cheques. Access to financial institutions has historically been very sparse with some people having to walk hours or even cross an ocean to find their nearest branch or ATM.

In 2018, 37 per cent of Vanuatu adults had a bank account. Meanwhile, only 10 per cent had access to financial services from other formal means like credit unions, insurance, microfinance, and mobile money. On the flip side, 20 per cent of the adult population used informal sources to access financial services.

 There is room for optimism

Time for change

There have been various government initiatives across the region to help bring about greater financial inclusion.

For instance, the Fiji government is currently implementing its National Financial Inclusion Strategy 2022-2030. This builds on the progress made from the previous two five-year strategic plans that were implemented in 2010.

Results can already be seen from the completed plans, as in 2020, 81 per cent of adult Fijians had access to formal financial services, an improvement compared to 64 per cent in 2014. In terms of fintechs, according to the Reserve Bank of Fiji, the country has seen at least 16 fintech solutions in the market.

The Pacific Island Countries are also looking at developing their infrastructures as a means of making digital financial solutions more accessible. This is made possible in part due to the support of global institutions such as the World Bank, International Finance Corporation (IFC) and the governments of Australia and New Zealand have been supporting in upgrading these infrastructures. For example, in 2023, Samoa and Vanuatu both launched their digital payments systems.

Furthermore, the region has also been collaborating to further boost innovation and financial inclusion. In 2022, central banks in Fiji, Papua New Guinea, Samoa, Seychelles, Solomon Islands, Timor-Leste, Tonga and Vanuatu, with support from the Alliance Financial Inclusion (AFI), announced a launch of the Pacific Regional Regulatory Sandbox.

Another major PIC-wide initiative includes the United Nations Capital Development Fund (UNCDF) launching the ‘Pacific Islands FinTech Innovation Challenge’. Launched in 2022, it  aims to attract local and global fintechs to combat challenges the PICs face; this has been funded by UNCDF, Market Development Facility (MDF) and the Asian Development Bank (ADB).

Despite challenges, there is optimism that fintechs can help accelerate financial inclusion in the Pacific Island Countries.

The post How can Fintech Improve Financial Inclusion in the Pacific Island Countries? appeared first on The Fintech Times.

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