Domestic financing under microscope

Malawi’s productive sectors are failing to grow as financial institutions prefer financing other sectors, an investment and advisory firm has said. 

The current credit composition which favours non-productive sectors, according to the firm, is undesirable for the economy.

Nico Asset managers in its Monthly Economic Review report published on Wednesday, observed that meaningful economic growth remains a challenge as long as investment to productive sectors is minimal.

Said the firm: “Sectors that are expected to show gains in 2023 are the mining and construction sectors by 7.8 percent and 7.9 percent, respectively. This is on account of the scaling up of the mining industry and the rise in the number of infrastructure development projects lined up in the government’s development agenda.

“However, a key barrier to growth in these sectors is the amount of financing available. The bulk of private sector credit is still heavily geared towards unproductive sectors such as community, social and personal services representing a 36 percent share.”

The firm observes that one sector consistently short of financing is the small and medium sized enterprises (SMEs) that have the potential to contribute significantly to the economic growth of the country but financing has been minimal.

Malawi University of Business and Applied Sciences associate professor of economics Betchani Tchereni also observed that the credit spread gives direction as to where the economy should go going forward.

He said: “Most of these personal loans are used to acquire conductive goods such as electronics, motor vehicles and sometimes for holidays.

“This is a situation, which on the other hand, is contributing to the worsening depreciation of the kwacha. An ideal situation is where we have more investment loans than consumption loans.”

On his part Chamber for Small and Medium Business Association executive secretary James Chiutsi also observed that access to formal credit from banks continues to be a challenge.

“Despite the country having several entrepreneurs with sound business ideas, accessing loans has and continues to be a challenge for SMEs.

“Not many people have assets that can be used as collateral which banks look at despite having viable business ventures which can grow the economy,” he said.

But Bankers Association of Malawi (BAM) president Mcfussy Kawawa, however, said banks are doing their part to invest in productive sectors such as manufacturing, information and communications technology, agriculture and infrastructure.

But he said growth has not been significant due to economic challenges as the country has not seen new investments that banks could be financing.

“We believe we have a role to play in building a more resilient business environment that would easily contain external shocks and subsequently recover from many unfortunate economic circumstances,” said Kawawa.

He said banks remain cautious on who to lend, as such, economic sectors need to make due diligence when engaging banks to finance their investments.

“We understand the need for us to engage those we deal with to understand their challenges and let them know our policies in the bank and make it possible for banks to play our role efficiently,” said Kawawa.