The informal business operators in money lending, can be able to transition their business to become a Micro, Small and Medium-sized Enterprises (MSMEs) through the support of government.
This transition to formal MSMEs will expand the economic base of the country, according to a study done by the Papua New Guinea (PNG) National Research Institute (NRI).
PNG NRI Research Project Officer Joseph Kaile, in the 07th issue of the Spotlight Volume 16, identified challenges faced by informal finance operators and some initiatives that can be used to migrate the operators to MSMEs.
Kaile reported that the most important challenges faced by informal finance operators include high risk of default by the borrowers; delay in the repayment of fund by the borrowers; and the refusal of some borrowers to pay an agreed interest rate. Therefore, the transition to something more formal should eliminate all that.
Some of the initiatives identified that can be used to migrate informal finance businesses to formal MSMEs include the government to consider facilitating the growth of micro finance institutions to extend financial services to low-income households that are not engaged in formal employment, and government to consider developing effective programs that can assist informal finance operators to transition to formal MSMEs.
Other initiatives include, Investment Promotion Authority (IPA) to consider creating more awareness among informal finance operators on the benefits of migrating informal businesses to formal businesses and lastly, educate informal finance operators on the need to have documented guidelines, which must be agreed on by a potential borrower before a transaction takes place.