Microfinance Sector Assessment in the Republic of Malawi
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.