Distressed businesses

On the edges of a road bend that leads to Chilomoni’s main trading centre, westwards of Blantyre City, stands, by the townships’ architectural standards, an imposing building.

The double-storey structure, constructed on the ruins of rickety, tiny and dirty shops, hosts a supermarket on the lower floor.

Its upper stanza is being designed into an entertainment theatre, an upper-class restaurant, gaming zone and a barbershop among other businesses, according to the developer, 37-year-old Tamani Mbukwa.

This project, however, faced a setback, lack of financial resources, that threatened its completion.

Having invested around K160 million in the building Mbukwa has named Studio 24, the entrepreneur confesses that he did not have funds to finalise its construction.

He says: “Having invested that amount of money into the project, the implementation was at 80 percent.

“The economic challenges worsened by Covid-19 affected my cashflow so we were a bit stuck.”

He, however, saw light at the end of the tunnel when he secured K25 million from the $86 million (about K87 billion) Financial Inclusion and Entrepreneurship Scaling (Fines) World Bank- funded project.

Being implemented under the Reserve Bank of Malawi (RBM), the project seeks to increase access to financial services, promote entrepreneurship and capabilities of micro, small, and medium enterprises (MSMEs) and address Covid-19 implications.

“I applied for a Fines loan through the NBM Development Bank and pleasingly I got the approval. I expect to finalise the project this year,” says Mbukwa, who projects to be generating K250 000 per day once all the planned businesses take off.

Currently, the business has employed 23 people, but the developer forecasts more employment opportunities once completed.

In Fines implementation, RBM disburses funds to banks and other lending institutions which, in turn, fund projects after scrutinisation and approval of business plans.

NBM Development Bank, Finca Malawi, Malawi Agricultural and Industrial Investment Corporation are among institutions that have received billions to support the businesses.

NBM Development Bank chief operating officer Esnat Kamudoni says her institutions received K3 billion from the Fines project and has, so far, disbursed around K194 million in new initiatives and already established ones in the agriculture and manufacturing sector.

She says: “In terms of impact, the projects that we have funded, we have actually seen projects creating employment. There is one which is into corn puff manufacturing which has created 30 jobs.

“There is another one which is making food supplements. These are supplements that were being imported and their coming has substituted imports, thereby saving foreign exchange.”

Kamudoni further reveals that the bank has earmarked K800 million worth of startup and existing projects to invest in this year.

Madalitso Butchery, which is inside Blantyre Market, is another micro finance business which has benefitted from the Fines funding through Finca Malawi.

Its owner Shaurai Thumba concedes that her entity, which includes three more butcheries located in different townships, was collapsing before she got a K10 million recapitalisation package.

“We were struggling to buy cows because the prices had skyrocketed. Amid the business failure, we were unable to pay for our children’s school fees. Now, a month after we got the loan, we no longer run out of beef in all our shops,” she says.

At Mkondezi, on the fringes of Nkhata Bay District, Shadreck Kamisa used to sell groceries at the veranda of his house, but today, he is an established businessperson running a fully-packed shop after he got a K600 000 Fines loan.

“I used to make sales of less than K8 000 a day while operating the veranda shop. Now I make between K100 000 and K40 000 per day.

“I am able to pay school fees for my child at private secondary school. Added to that, I used to struggle to feed my family properly, but that is now history,” says Kamisa, whose aspirations include operating a wholesale venture.

The Fines credit line was designed to soften loan accessibility through easing of collateral requirements and pegging an interest rate at four percent as opposed to the average 24 percent lending interest rate offered in commercial banks.

However, some local investors are crying foul over some financial institutions’ demand for collateral.

Among them is Fannie Gondwe, executive director for Lilongwe-based Perisha Agro and Packaging Enterprise.

“We had to surrender documents for land valued at over K100 million to access a loan of K21 million from which we have received K12 million.

“We find this so unrealistic and prohibitive,” she says.

Fines project manager Mark Lungu concedes that financial institutions are going overboard, but was quick to explain that steps are being taken to induce flexibility.

“It is true that financial institutions mostly lend against acceptable collateral. This has been occasioned by the growth of non-performing loans in the financial services industry.

“In order to assist some of the businesses, particularly the MSMEs, the Fines Project introduced a Partial Credit Guarantee which, upon successful application, will cover at least 50 percent of the enterprises’ credit exposure.

“In addition, the Project Implementation Unit, in its communications strategy, will also come up with deliberate messages to encourage a mind-set change when it comes to the strict observance of credit terms and conditions, including the requirement to dutifully honour the agreed loan repayment terms,” he says.

The project is expected to wind up in 2025 and there is a prevalence of optimism that the full disbursement of the allocated $47 million (about K48 billion) will meet the target.

Lungu says: “It is a fact that there is high demand for funds on the market for start-up capital as well as boosting business particularly as the economy recovers from the Covid-19 pandemic.

“We have already disbursed about 30 percent of the funds. Going by this trend, the funds should be exhausted within the next three years. We believe that we have by now dealt with most of the teething issues as well as structural challenges that we experienced as a Project Implementation Unit.”

The World Bank approved the project as an International Development Association credit in 2020.

The maturing period for the loan is 38 years with a six-year grace period.

The project comprises four components, namely liquidity enhancement for MSMEs, scaling entrepreneurship, enhancing financial inclusion and project implementation support where funds have been allocated to meet the costs of the Project Implementation Unit.