Can a Multipronged Strategy of “Soft” Interventions Surmount Structural Barriers for Financial Inclusion? Evidence From the Unbanked in Papua New Guinea

Abstract

We study the impacts of a comprehensive financial inclusion program in a particularly remote, insecure and low-trust setting, lacking bridging institutions to facilitate sustained interventions. We evaluate this program in Wewak district in northwest Papua New Guinea, by randomly assigning treatment to 41 of 79 villages. The program involves a 2-day financial literacy training workshop, timely offers of no-fee bank accounts with reduced administrative hurdles, and savings ‘nudges’. We use both survey and bank account administrative data to measure its impact on financial literacy, budgeting and savings behavior, as well as on the ownership and use of bank accounts. Although 25 per cent of adults in treatment villages attended the training and 70 per cent of participants opened a bank account, we do not detect any significant downstream effects. Our results draw into question the benefit of initiatives aiming to ‘bank the unbanked’ in remote areas, revealing challenges in promoting financial inclusion among the next frontier of underserved and hard-to-reach populations.

Keywords:

• Field experiment
• financial education
• saving
• banking
• Papua New Guinea
• reminders

Ethics approval

We have human subjects approval from the University of Sydney Human Research Ethics Committee. Our project title and number are as follows:

Project Title: Evaluation of financial inclusion training program in Wewak district, Papua New Guinea

Project number: 2018/113

Disclosure statement

During the research period, Christopher Hoy and Russell Toth were employed as consultants by the Asian Development Bank (ADB). The ADB supported all costs of the study (i.e. field survey costs, backcheck, etc), and this was the ADB’s preferred way to contract the authors under TA-8993 REG: Developing Impact Evaluation Methodologies, Approaches, and Capacities in Selected Developing Member Countries (Subproject 2). The funding was meant to cover some of the authors’ time in designing the study and helping to manage its implementation, and to guarantee that the authors would produce internal policy reports and presentations for the ADB at key points in the project cycle. However, the researchers formed an agreement with the ADB that they would be free to independently publish the results of the study, and that their time spent in doing so would not be covered under the consultancy. This agreement was affirmed by official letters from the ADB on two separate occasions, which are available on request.

Notes

1 A ward is the lowest level of government demarcation. In rural areas, a ward typically covers one village. In urban areas, a ward typically refers to a neighbourhood.

2 The population sample in Doi, McKenzie, and Zia (2014) is mixed between an urban area and a rural area.

3 In terms of administrative divisions in PNG, there are 22 provinces, 87 districts, and 326 local-level governments (or sub-districts) comprising around 6112 wards.

4 This is a more comprehensive version of the program than was rolled out elsewhere in PNG as SMS reminders were added, and the ADB partnered with the banks to reduce or remove the account opening fees, and reduce or remove ongoing usage fees. We preregistered the program with the American Economic Association’s randomised controlled trials (AEA RCT) registry on 30 August 2017 (AEARCTR-0002402).

5 In PNG, all banks charge either an account operating fee or a monthly account keeping fee. As part of this program, MiBank offered customers no-fee bank accounts over the life of the account; Bank South Pacific and People’s Micro Bank only removed bank fees for the first three months. See Supplementary Materials S4 for details.

6 The list of treatment and control wards included in the follow-up survey is available in Supplementary Materials S1.

7 There are no existing household listings in East Sepik. As a result, enumerators began interviewing households at a central location in each ward and then walked in a circular pattern out of the ward interviewing every third household on the left.

8 A video documenting the random selection is available here: https://www.youtube.com/watch?v=tO00JAOmZxM.

9 As a robustness check, we conduct logit regression analysis for binary outcomes regression and the results are qualitatively similar.

10 One question is about whether respondents have a bank account (the extensive margin), one question is about the number of accounts (the intensive margin), and one question relates to account usage.

11 It is possible that participants opened an account with more than one bank. We are not able to verify whether this took place because it would be a breach of participants’ confidentiality. However, it is unlikely. Participants waited for long periods of time to open accounts (typically 1–2 h), which means they would have had to queue up twice. In addition, only around half of wards had two banks attend.

12 We received incomplete data from the other two banks, Bank South Pacific and People’s Micro Bank, which is why we focus our discussion solely on data from MiBank. The limited analysis that could be conducted of the other data from the other two banks showed very similar patterns of very limited use of accounts.

13 The banks required an initial deposit to open an account. As such, every program participant made one deposit at the time of account opening.

14 As shown in Table S9 in the Supplementary Materials, we find that the wards with high share of participation tended to be further away from Wewak town (less likely to be located within 30 min away from Wewak town, though the cost to Wewak was more likely to be less than K5).

15 These attrition rates are quite comparable to those found in other studies. In a more urban setting, Jack and Suri (2014) documented 24% attrition rate.

16 We also provide results from our analysis restricting the sample to individuals (households) who were present at the baseline and endline surveys in Supplementary Materials (see Sections S7 and S8).

Additional information

Funding

This work was supported by the Asian Development Bank [TA-8993 REG: Developing Impact Evaluation Methodologies, Approaches, and Capacities in Selected Developing Member Countries (Subproject 2)].