Improving Credit Access in Tonga

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SEATTLE, Washington — Tonga, a Polynesian country located in the South Pacific with a population of 106,000, is known as the friendly islands. It consists of 170 islands that are divided into five main island groups: Tongatapu, ‘Eua, Ha’apai, Vava’u and the Niuas. Tonga attracts many tourists due to its breathtaking landscapes; however, because Tonga is mostly a cash society, tourists need to bring a form of currency other than credit. The government is working with banks to improve credit access in Tonga, which will greatly improve the lives and its citizens.

An Underdeveloped Financial Sector

Due to Tonga’s 2008 financial crisis, its financial sector is underdeveloped; as a result, Tonga remains in poverty. In response to this, the Asian Development Bank (ADB) has provided the government of Tonga a $4.5 million policy-based grant to fund The Strengthening Public Financial Management Program. This program was designed to improve the way the country handles its current and future finances.

ADB’s economist and team leader for Tonga, Lai Tora, stated that the program will help the government of Tonga to invest in “productive sectors of the economy, improve investor confidence and create the fiscal room needed to respond to future economic or climate shocks.” Improving Tonga’s financial sector will take time and effort, but it will allow Tongans to see that safely and effectively managing one’s finances is achievable and important.

Bank Account Access

Tonga has three registered commercial banks. According to the 2016 Financial Services Demand Side Survey, at least 41 percent of Tongan adults have a bank account, but only 36 percent of them reported saving in their bank accounts. A slightly larger percentage, 46 percent, of Tongan adults save at home, and 23 percent of Tongan adults use services such as savings clubs.

These percentages reveal the financial management behaviors of Tongan adults. Informal savings and credit are extremely common in Tonga because many don’t know where they can find a financial institution nearby. Owning a bank account helps to improve credit access in Tonga because it can provide opportunities to develop a financial identity in the country. It also provides a more secure way to settle important transactions and to save money.

One problem stems from the fact that employees working in agriculture or the private sector still receive cash payments while employees working in the public sector receive payments through their bank accounts. This could heavily influence the reasons that almost every Tongan still uses cash to pay for bills and education instead of using debit cards, mobile money or bank transfers.

The “Ave Pa’Anga Pau” Voucher

Nearly 70 percent of Tongans receive remittances as a source of income. The lack of opportunities and resources for Tongan youths and adults has resulted in the majority of Tongans working outside of their country and sending money back home to their families in Tonga. Many Tongan youths and adults have had difficulties in sending remittances back to Tonga because it is expensive and can be quite tedious. Which is why the International Finance Corporation (IFC) and the Tonga Development Bank (TDB), with support from New Zealand and Australia, have created the “Ave Pa’Anga Pau” voucher.

The “Ave Pa’Anga Pau” (Send Money Securely) voucher is an affordable, cashless and computer-based system that lets Tongans transfer money from their bank account in New Zealand to their bank account in Tonga. This makes the process of sending money to their families back in Tonga a whole lot easier. By making financial services in Tonga more accessible, Tongans will be able to become more digitally involved when it comes to managing their finances.

The government of Tonga needs to provide more accessible financial services as well as change the way Tongans receive their income in order to make the financial sector of Tonga more inclusive for all. Hopefully, with the help of the Asian Development Bank, the government of Tonga will adopt smarter spending and saving habits, and its citizens will follow suit. As credit access in Tonga improves the country will see an improvement in the economy.

Jocelyn Aguilar

Photo: Flickr

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