Malawi: A Country in Need of Microfinance
by Dicken Chaplin
My first job as a summer intern for MFTransparency has been to research the market in Malawi in preparation for the Transparent Pricing Initiative in Malawi, the first project launch of the enabling APR & EIR Program, on August 31st. Through my research I have learned many things, but none more poignant than how poor and underdeveloped the majority of Malawi is.
I had some preconceptions about poverty in Malawi, but seeing the data made me realize the full extent of it and led me to understand the true necessity of an efficient and fair microfinance system. To give you some idea of the poverty in Malawi, the 2009 Human Development Report ranked Malawi 162 out of 182 countries measured, making it one of the poorest countries in the world. According to the same report, 74% of the population lives under the World Bank poverty line of $1.25 a day. Making this worse is a high prevalence of HIV/AIDS, with approximately 1 million people out of a total of 14 million living with the disease. To me, these figures are shocking. When one also considers that almost 90% of the population engages in subsistence farming, one starts to appreciate how difficult life is for many Malawians.
So the need for poverty reduction and economic development is clear, but what microfinance services are currently available? The answer is not a lot. The MIX reports only 6 MFIs in 2008, with a total gross loan portfolio of only $55 million. We do know, however, that the market in Malawi is a little more extensive than this as the Malawi Microfinance Network (MAMN) has 21 registered members. Nevertheless, there is a significant lack of information and data from the MFIs, which makes it very hard to fully assess the sector.
Malawi’s economy is primarily agricultural, accounting for 90% of all exports. Given the size of the agricultural sector, it is important to the economic development of Malawi that the financial sector focuses more on rural markets. There are significant challenges, however, in providing financial services in these markets. These challenges include such things as greater exposure to systemic risk, lower population density, weak physical infrastructure and greater seasonality of activities.
These challenges are far from impossible to overcome and solutions are already being found. The Malawi branch of the Opportunity International Bank (OIBM), for example, has started a mobile bank that drives to rural villages to offer services. Cooperation between banks to spread the risk and insure one another could also help mitigate the higher risk associated with rural finance.
Since the industry is small and there is very little information about what services are available, the possibility for MFTransparency to make an impact in Malawi is immense. For example, by making microfinance in Malawi transparent and increasing awareness of the sector, MFTransparency will help highlight Malawi’s nascent but growing microfinance market and hopefully help attract more funders and technical assistance providers, who are greatly needed to make rural finance successful. Check back for posts covering the project, starting with the launch event next month, to see how it unfolds.