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.