Malawi strategises to unlock unbanked $1bn
By Collins Mtika
MUZUZ – Malawi has unveiled a three-year blueprint that seeks to incorporate about USD1.3 billion which it believes is circulating outside the formal financial system as one way of kick starting its moribund economy.
Dubbed National Strategy for Financial Inclusion (NSFI) the country aims to increase to 54 percent from 34 percent people accessing financial services.
A 2014 FinScope survey revealed that the micro, small and medium enterprise sector, in which some 91% of businesses operate informally with no registration, generates at least $1 billion in annual turnover, and employs more people than the formal sector
Basically, the (NSFI) plan, which is targeting micro, SMEs and smallholder farmers, seeks to increase access to formal loans, insurance products, and reduce costs of operating a bank account.
Comparatively, there is only USD500 million in the formal financial system.
“What is all this money doing out there? Is it earning any interest?” Malawi’s flagship daily, The Daily Times quoted, Malawi’s Central Bank Czar Dalitso Kabambe saying.
The country’s macroeconomic environment and its performance recently faced a number of challenges which included prolonged dry spells and floods which contributed to negative growth in agricultural production.
In addition, growth in manufacturing, electricity and gas as well as water supply activities in the last two years registered a declining trend thereby hampering the performance of the private sector.
Consequently, the economy only attained a real GDP growth rate of 2.7 per cent in 2016. But the government is optimistic that growth will reach 5 or 6 per cent.
But Kabambe suggests than Malawians should invest this money in the local bourse, the Malawi Stock Exchange (MSE) so that they get dividends and capital gains.
“I believe the MSE provides a good avenue to bring this money into formal financial system,” he said.
However, MSE which has 13 counters has since stagnant growth since 2008 because they are no new listings but two de-listings.
Local experts contend that tough listing requirements coupled with the fact that many businesses in Malawi are family owned have made MSE unattractive.
“There is also some equivalent of Islamic financing in most Malawian businesses which are owned by Malawians of Islamic faith.
“They tend to lend capital to each other in line with Islamic banking rules. Hence, they will not see value in listing on the MSE as means of capitalization,” said Chancellor Kaferapanjira, CEO, Malawi Confederation of Chambers of Commerce and Industry (MCCCI).
The World bank hailed Malawi for embracing new initiatives such as mobile and village banking as other ways to reach marginalized groups but it contends that Malawi still has huge challenge as afar as incorporating its rural populace into the formal financial sector.
“Interest rates are high and Banks offer a narrow range for financial inclusion,” said the Bank’s Senior Private Sector Development Specialist Ephraim Chilima.
While the NSFI among other priorities pin points the expansion of digital payments and group savings as conveyors for growth and improved livelihoods for Malawians but the sectors face liquidity problems.
“Mobile money has the potential to extend reach but… the growth in the subscriber base slowed in 2014. Two of the primary challenges are the limited business for agents . . . and liquidity constraints,” reads the report.