The International Monetary Fund(IMF) has urged Malawi to promote entrepreneurship development by addressing structural challenges constraining small and medium enterprises (SMEs).
In its country report for Malawi, IMF says while the country has made progress towards financial deepening, easing various structural barriers to financial deepening in terms of depth and access to financial services will bring substantial benefits for the economy.
The report titled Supporting Growth Through Increased Credit to Private Sector says the benefits to the economy include growth, poverty alleviation, resilience to shocks and effectiveness of monetary and fiscal policies.
The report says private sector banking is low compared to other countries in sub-Saharan Africa and low income countries, a development which hinders their growth.
It shows that 16 percent of the country’s population hold accounts at a financial institution compared to averages of 29 percent for the sub-Saharan African region and 22 percent for low income countries.
The report says that raising credit growth across the population will benefit broad-based economic growth.
On the demand side factors behind weak private sector credit, the report says weak macro-economic environment characterised by Cashgate—plunder of taxpayer’s money at Capital Hill—El nino, insufficient structural reforms and weak infrastructure affect economic activities in the country.
It further states that Malawi has high interest rates by regional standards while under-developed mobile banking is also affecting access to finance for the rural population.
Bank interest rates hover around 25 and 27 percent in most commercial banks.
In an interview, Chamber of Small and Medium Enterprises executive secretary James Chiutsi said banks do not favour SMEs because the banks are mostly looking for quick returns from the SMEs.
“Banks do not aim at partnering SMEs to see them grow evidenced by absence of no reasonable grace periods before the loan repayment starts. This encourages more SMEs to engage in pure trading than production ventures,” he said.
Chiutsi said SMEs believe that because government provides banks with substantial business, it makes them less inclined to develop more conducive product portfolios for SMEs.
He called for the establishment of development banks that will provide capital for long term growth.
According to the report, among other rising banking sector vulnerabilities are non-performing loans which rose from 10.6 percent in 2015 to 16 percent at the end of 2017, reflecting weak economic activity.
The report also mentions that gaps in financial market infrastructure have contributed to low credit provision and suggests the need to address information gaps by offering financial literacy education and training.