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Micro-finance Policy and Development Framework: Malawi
| Guest post by: African Development Bank |
Article Overview: In Malawi poverty is more persistent in the rural areas at about 65.3% of the population. The recent poverty profile (National Economic Council, 2000) suggests that these poor are characterised by malnutrition, lack of income earning opportunities, and unfavourable production environment. Female-headed households, which are estimated to be about 35% nationally, are consistently poorer than male-headed households, and are mainly engaged in subsistence farming and petty trading activities.
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Free Download - References: Human Capital and Economic Development By African Development Bank |
Micro-finance Policy and Development Framework: Malawi
In Malawi poverty is more persistent in the rural areas at about 65.3% of the population. The
recent poverty profile (National Economic Council, 2000) suggests that these poor are characterised
by malnutrition, lack of income earning opportunities, and unfavourable production environment.
Female-headed households, which are estimated to be about 35% nationally, are consistently
poorer than male-headed households, and are mainly engaged in subsistence farming and petty
trading activities.
Available information shows that although there has been an increase in the number of institutions
offering micro-credit in Malawi, to date about 29, the main constraint to affordable access is the
high interest rates in the country. The second constraint is the high inflation rates which restricts
long-term lending. Moreover, the exorbitant interest rates (up to about 60%) and high inflation
make it difficult for the rural poor to save after borrowing funds for production. This contributes
to weakening the rural poor’s purchasing power and thereby intensifying their poverty status.
Another constraint to the credit sector is the involvement of the Government in some lending
institutions leading to the ineffective targeting of potential beneficiaries. Moreover the entry of
new commercial banks is hampered by the small size of the economy in the country. This affects
the competitive environment necessary for efficient delivery of credit.
The micro-finance sector in Malawi is not clearly covered by any specific legislation or regulatory
policy, and is therefore not supervised like other financial institutions. However, it is within the
recent Highly Indebted Poor Countries (HIPC) initiative to develop a Poverty Reduction Strategy
paper (PRSP) that the present thrust to develop a relevant policy framework at the country level
has arisen. The main objectives of a draft Micro-finance Policy (MFP) is to create an enabling
legal and regulatory environment conducive to the development of micro-finance; to improve
coordination between implementing institutions, Reserve Bank of Malawi (RBM) and the
Government of Malawi (GOM); to promote the best practices among the MFIs, GOM and the
donor community. Existing MFIs are registered under different legislation such as a private company,
or under the cooperatives act. The RBM which is mandated to supervise all financial institutions,
does not have the capacity to supervise or regulate all MFIs directly. Table 1 gives a profile of
some of the micro-credit initiatives in Malawi.
ECONOMIC RESEARCH PAPERS
NO 74
(January 2003)
Factors Impeding the Poverty Reduction Capacity of Micro-credit: Some Field Observations from Malawi and Ethiopia
by
Sunita Pitamber
What is the government’s role in supporting microfinance? FAQ
Globalization of Microfinance Markets: an Overview and Some Conditions for Success by Dr. Jairo Morales-Nieto
IV Module I Key Principles for an African Model of Microfinance
6.0 References: Microfinance in Africa - Experience and Lessons from Selected African Countries
1.3 Methodology: Support for Growth-oriented Women Entrepreneurs in Tanzania, 2005
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About the Author: African Development Bank RSS for African's articles - Visit African's website Click here to visit African's website   Export competition and export subsidies Provisions of Agreement on Agriculture Export Promotion Strategies for Manufactured Goods New Approaches to Trade Development in Africa Recommendations for future research Factors Impeding the Poverty Reduction Capacity of Microcredit Some Field Observations from Malawi and Ethiopia Poverty Measurements and Relevance of Microcredit MFI structural inconsistencies and mismatch for poverty reduction Tenets of Microcredit for Poverty Reduction |
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