D
onors under Trade, Industry and Private Sector Development Partners have urged the Malawi Government to engage investors to establish a specialised private bank for micro, small and medium enterprises (MSME) financing to ease access to credit.
The call follows concerns from the development partners chaired by the European Union (EU) that the domestic economy is currently facing several risks that limit the participation of MSMEs in the economy.
In a December 2024 key message published on Thursday, the development partners note that domestic credit to the private sector as a percentage of gross domestic product (GDP) is less than 10 percent compared to an average of 34.2 percent for Southern African Development Community countries and 28.4 percent for Sub-Saharan Africa.
Reads the brief in part: “Access to finance is a barrier to private sector growth because without adequate funding, businesses, particularly MSMEs cannot invest in expansion, research and development or hardly cover operational costs, ultimately hindering their ability to grow and contribute to economic growth.
“This is especially true when faced with stringent lending requirements like high collateral demands, which can be difficult for smaller businesses to meet.”
The development partners argue that financial service providers’ allocation of funds towards MSMEs remains below the demand due to several factors, including increased government borrowing as government loan is deemed most secure, high interest rates, which have also increased the cost of financing and placed restraints on the availability of medium and long-term financing solutions, negatively affecting an MSMEs capacity to borrow.
A FinScope Survey of 2022 indicated that only 10 percent of medium enterprises, five percent of small enterprises and three percent of microenterprises have access to credit from commercial banks.
In an interview yesterday, Chamber for Small and Medium Enterprises executive secretary James Chiutsi said small businesses continue to struggle to access finance, saying a specialised bank would help to alleviate the challenge.
He said: “For years, we have pushed for that. Banks in Malawi have not prioritised coming up with product portfolios that favour SMEs because government borrowing has given steady business to banks’ hence, they don’t seriously consider working with the sector.
“Again, most of the banks are not offering development funds to small businesses because once an SME gets a loan from the bank, repayment is after a month. But, if we are to develop the sector, we need concessionary risk and ample grace period because businesses take time to develop.”
In an interview yesterday National Working Group on Trade Policy chairperson Frederick Changaya said in Malawi MSMEs are not really catered for both fiscal as well as monetary policies.
He said: “Countries that have industrialised quickly have grown their MSMEs into corporates through highly targeted interventions such as better packaged credit, sensitisation and civic education, sector-specific business opportunities and other forms of support.
“We need specialised banks for MSME and private sector in general if the sectors are to develop to competitive levels given regional and continental trade parts. It doesn’t make sense to put a condition for local preference where these small companies, if given orders, have capital formation difficulties.”
Ministry of FInance and Economic Affairs spokesperson Williams Bandan said in an interview yesterday that while they welcome the idea, they will wait for the concept and validation from various stakeholders.
The Malawi Financial Inclusion Strategy (2024-2028) seeks to reduce financial exclusion from 12 percent to five percent to achieve sustainable and inclusive growth and support job creation.
The strategy intends to include all players in the country’s economy with financial inclusion as an essential instrument for increasing agriculture and small enterprises production and eventually increasing household income, reducing poverty, increasing resilience and accelerating economic growth.
