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Microfinance in Malawi: An Industry in Transition

Published on October 7, 2010

by Paul Kuwornu

Since launching the Transparent Pricing Initiative in Malawi in August (also the launch of the enabling APR & EIR Program), I have learned a lot about the microfinance industry in Malawi. The microfinance sector in Malawi is relatively small but actively involved in a transition into a more credible and sustainable business to cater for the poor’s financial needs. The microfinance industry in Malawi is made up of various types of institutions ranging from SACCOs, whose members own shares and earn dividend, to non-profit NGOs who seek to promote the well-being of the poor. Currently there 21 MFIs registered with the Malawi Microfinance Network (MAMN). The sector has received a lot of attention in recent days and various strategies and initiatives have been put in place to boost the industry.

The Malawian parliament recently voted the Microfinance Bill into law, which took effect from September 1 2010. This act is the major legislative instrument regulating the microfinance industry. In addition to passing the bill, the government has initiated the Malawi National Strategy for Financial Inclusion (2010 – 2014). The national strategy is a long-term plan designed to facilitate the development of financial inclusion in Malawi. It is designed to:

  1. Establish a shared vision for the sector;
  2. define guiding principles for the development of inclusive finance in Malawi and the support required;
  3. stipulate the core elements needed to promote financial inclusion;
  4. define the role of stakeholders in implementing the strategy;
  5. identify the targets and specific results to be achieved within the next 5 years;
  6. indicate the strategic interventions and action plans; and,
  7. coordinate the activities of various sectors during implementation of the strategy.

The Malawian government believes that the strategy will reverse the current situation where as of 2008 in Malawi slightly less than 9% of the 12.4 million-person population had access to a safe and secure place to keep their savings. To achieve the objectives of the national strategy, some interventions have been put in place at the client level.

The Financial Literacy Program is a client level intervention with two objectives: first, the program aims to facilitate attainment of knowledge and skills by target groups leading to accumulation of wealth at micro-level. Second, the program will entail building capacity of financial services providers. Currently, both the national committee and technical committee on financial literacy are meeting to come up with the framework which will stipulate the key activities, the target groups, delivery channels, implementation plan and funding requirements.

Another client-level intervention in the Malawi National Strategy for Financial Inclusion (2010 – 2014) is a client protection program which seeks to enable the inclusive finance providers to work out modalities to avoid over-indebtedness of clients through multiple loans from multiple sources, have transparent pricing, use appropriate collection practices, and ensure ethical staff behavior. MFTransparency’s Transparent Pricing Initiative in Malawi synchronizes well with the above client level interventions. MFTransparency’s initiative will promote transparent pricing in Malawi through loan product data collection and dissemination, education of stakeholders on interest rates, and provision of educational materials designed specially for interested parties. This has given an impetus to the client protection intervention stipulated in the National Strategy for Financial Inclusion (2010 – 2014).

With the strong desire by various stakeholders to transform the sector into a more sustainable means of providing financial services to the financially excluded and the various interventions accorded to the industry, the world expects to see Malawi’s microfinance market come into its own and be ranked among the best. MFTransparency’s Transparent Pricing Initiative in Malawi is definitely a catalyst for this change.

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  1. Nathan Were says:

    I read with interest your article on the transitory processes being initiated by the Malawians Government to deepen financial services at the bottom of the pyramid.It is good that the Microfinance bill has been put into place to regulate MFIs. This gives confidence to savers and borrowers. What is the Government plan though on starting the Credit reference bureau services to manage credit risk and track client histories prior to loan disbursement espeically now that you raised the issue of multiple borrowing? Is the malawian Government moving in to regulate SACCOs and MFIs by its central bank or an independent body has been set up to over-see this regulation?

    By and large, I think the steps taken are critical in building an inclussive financial system although more needs to be done.