Microfinance Sector Assessment in the Republic of Malawi

Market assessment to profile microfinance sector, identify constraints and provide future direction
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This paper provides an overview of the microfinance market assessment that was commissioned by the Government of Malawi in order to:

  • Profile the microfinance sector;
  • Identify constraints to its development;
  • Provide ideas for the future that would make microfinance an integral part of Malawi’s financial system.

The assessment team conducted research on:

  • The legal and regulatory environment;
  • Performance of key microfinance service providers;
  • Market demand;
  • Donors active in microfinance;
  • Support structures to the sector.

The team’s key findings are related to the:

  • Socio-economic environment: Malawi is an agriculture-based economy characterized by high interest rates, declining inflation, increasing Government debt and the epidemic of AIDS;
  • Legal, regulatory and supervisory framework:
    • There is limited scope for intermediation in the financial system;
    • However, the Government has introduced a number of short-term reforms relevant to the microfinance sector.
  • Characteristics of microenterprises and microfinance demand: Commerce, trade and tourism account for 44% of micro and small enterprises (MSEs), other activities being manufacturing, crop production, and services;
  • Microfinance supply - assessment of key factors: Microfinance supply is a mixture of agricultural credit and business finance with the Government being the biggest player.

The paper recommends the following steps to improve the situation of microfinance in Malawi:

  • Reliance on market forces;
  • Withdrawal of the government;
  • Support to local capacity in the sector;
  • Investments contingent on performance.

About this Publication

By Luboyeski, V., Bagchi, D. & Chawinga, M.