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
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