Malawi’s microfinance sector chalked mixed results in the first half of 2025 as weaknesses in underwriting and delayed loan repayments increased credit risk despite the sector remaining sound and profitable.
The sector, which comprises deposit-taking microfinance institutions, non-deposit-taking microfinance institutions and savings and credit cooperatives (Saccos), has seen total sector assets growing by 32.2 percent to K172.6 billion, with liquidity and core capital at 23 percent above the regulatory recommended thresholds, according to the Reserve Bank of Malawi Financial Stability Report.
Among others, deposit-taking and non-deposit taking microfinance institutions recorded solid performance with asset base growing while capital adequacy issues persisted in Saccos with four institutions undercapitalised and five illiquid.
Reads part of the report: “All the three categories of the sector registered asset growth, better non-performing loans of below five percent threshold and a sharp rise in profitability.
“Profitability increased by 10.2 percent through high reliance on interest income and reduced liquidity at 57.4 percent heightened exposure to interest rate and funding risks.”
The report further showed that Saccos maintained satisfactory asset quality and liquidity, but capital adequacy issues persisted.
“Key vulnerabilities across the sector include elevated interest rate risk from asset–liability mismatches, solvency concerns in undercapitalised institutions, liquidity pressures from delayed employer remittances and governance and compliance breaches in saccos,” reads the report.
Financial analysts have since attributed the existing risks like asset–liability mismatches and solvency concerns in Saccos to lagged effects of 44 percent kwacha devaluation in November 2023, which resulted in rising inflation and dampened the value of money.
In an interview on Sunday, economic consultant Booker Matemvu said the economy is showing all the signs of distress and more people are falling deep into poverty with no room to maintain repayments for loans as they struggle to survive.
He said the non-deposit taking microfinance institutions are able to declare profits because demand for loans has gone up and the collateral demands are compensated for by higher interest rates.
Financial expert Brian Kampanje said in an interview on Sunday that the increased loan demand to small and medium enterprises (SMEs) indicates the businesses prefer to borrow from microfinance institutions rather than commercial banks.
“The increased profits in the subsector of the economy also means that individuals and SMEs are finding it easier to access credit from this sector than the traditional banking system, perhaps due to flexibility in the lending process,” he said.
Malawi Union of Savings and Credit Cooperatives chief executive officer Fumbani Nyangulu is quoted as having said that bad loans have weighed negatively on microfinance institutions.
He said: “While it was expected that the harsh economic environment would negatively affect savings and credit cooperatives, the fact is our operations have been affected specifically in terms of liquidity due to the bad loans.
“We have, however, adopted coping mechanisms, which among others include switching to short and medium-term loans from long-term loans to allow for our members to access loans given the liquidity challenges.”
The International Monetary Fund Financial Access Survey shows that Malawi’s access to formal financial markets and services has risen in the last five years, sustained by non-traditional financial platforms.
The IMF notes that access to finance has changed, with traditional financial access points gradually declining.
Microfinance institutions play a critical role in boosting entrepreneurship, providing access to capital for small business and promoting economic development.
