Bypassing banking with bitcoin

People in Papua New Guinea could use mobile phones to access bitcoin and blockchain technology.

Bitcoin and blockchain have the potential to change the way Papua New Guineans gain access to funds and credit.

Like most Papua New Guineans, Veronica Kapu relies on cash. The mother of four, who works as a cleaner and nanny, has a bank account, but cannot recall the last time she used it. As for taking out a loan or having a credit card, Kapu just laughs.

“Maybe if we had hundreds to put away I would use a bank more,” Kapu says, and explains that most of what her family earns is spent at the market. 

Like her, the vast majority of Papua New Guineans have little, if anything, to do with the banking system.

A study by the Bank of Papua New Guinea, the nation’s central bank, found that in 2013 less than 15 per cent of adults had a bank account, and just 7 per cent had a loan from a regulated financial institution. The International Monetary Fund says there were fewer than three bank branches for every 100,000 people living in Papua New Guinea (PNG) in 2015, compared with a global average of 12.7. 

In PNG’s highlands, where almost half of the nation’s seven million people live, the situation is worse. There, barely 8 per cent have a bank account.

“For us, we want to help our family, so when they call to ask for money ... we can just send it ...” Veronica Kapu

As Bank of Papua New Guinea governor Loi Bakani observes, poor access to financial services is a major hurdle for people trying to escape poverty.

“Their only option is cash, and cash is a bit of a trap,” Bakani wrote in the foreword of the bank’s National Financial Inclusion and Financial Literacy Strategy in 2013. 

“It can be stolen, you can’t submit yourself to discipline policies, you don’t get interest on it, you don’t have insurance or credit and so, in lots of ways, it is the most limiting way to hold assets.”

A different line of credit

Local entrepreneur Shane Ninai thinks he knows how to change all that. He spent more than a year in a Silicon Valley entrepreneurship program founded by venture capitalist Tim Draper, and believes technology could give Papua New Guinea access to systems of accounting and credit that bypass the formal banking system.

Now a partner in Draper’s venture capital firm Day One Investments, Ninai sees the virtual currency bitcoin and the blockchain method of accountancy as the way ahead for countries like PNG, where the formal banking sector is out of reach for most. 

“Informal and alternative economies and governance systems are deeply ingrained in our culture and are still alive and well, and blockchain allows us, for the first time, to capture this activity,” he says. 

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As he points out, in many PNG communities, exchanges of value involve pigs, shell necklaces and other objects, rather than money.

For most, such transactions only take place within relatively tight communities, because people only trust those they know.

In the northern Oro province, for example, small groups of workers club together in what is commonly referred to as the Sunday-to-Sunday system. They pool their savings, which can then be drawn on for making payments and obtaining credit. While this is fine for very small transactions, Ninai says blockchain and bitcoin have the potential to give such people access to funds and credit on a much more substantial scale.

Technology leapfrog 

Bitcoin uses a software program to record and pay for transactions without the involvement of a third party such as a bank, while blockchain is a method of bookkeeping that binds entries together, so that they are very difficult to falsify. Proponents such as Peter Gersak, chief technology officer of IBM South East Europe, says such technology provides a permanent, reliable record of transactions.

Ninai thinks the relatively high penetration of mobile phones in PNG – almost half of adults were estimated by Oxford Business Group in 2016 to have a mobile – provides a ready-made means for people to bypass a traditional banking system. They could access blockchain and bitcoin technologies on their mobile phones to facilitate transactions and access credit.

Though Kapu has never heard of bitcoin or blockchain, she is well acquainted with using mobiles to transmit credit to her relatives living in her home village.

“It’s easy to do. For us, we want to help our family, so when they call to ask for money ... we can just send it, because it is not easy in the village to get to money like that,” she says.

Ninai thinks the best ideas on how to use bitcoin and blockchain are likely to come from those communities that already operate outside the formal banking system. In that case, PNG could be a bitcoin laboratory. 

“The central bank is very open to the idea and very excited about its potential ..." Shane Ninai, Day One Investments

He admits, however, it will take years to win acceptance and embed such systems in the local economy.

The Bank of Papua New Guinea will play a crucial role if digital currencies and transactions are to win broad acceptance, Ninai says.

“The central bank is very open to the idea and very excited about its potential but, as the principal financial regulator, it needs to give it the tick of approval if people are to trust it,” he explains.

It won’t happen overnight, but Ninai is optimistic that in the next five years or so, blockchain technology will open the financial door to millions, not just in PNG, but around the world. 

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