Village savings and loans groups or village banks have emerged as the primary source of borrowing for a majority of people to support food consumption amid deepening financial strain and limited financial inclusion, a World Bank report shows.
New evidence from the World Bank’s 2024 Rapid Feedback Monitoring System contained in the July 2025 Malawi Economic Monitor, a biannual publication that dissects the country’s economic performance, shows that an average of 80 percent of the respondents relied on village banks, with businesses at 90 percent topping the list followed by farmers at about 80 percent and salaried workers at about 70 percent.
Reads the analysis in part: “Between 15 percent and 20 percent of households reported taking out loans during the survey period. However, more formal financial products are used by households with salaried employment, who are more likely to access credit from commercial banks.
“Interestingly, salaried workers also report a higher use of money lenders [katapila], with six percent relying on this informal, but high-cost credit source compared to only four percent of farmers. This suggests that money lenders may evaluate clients based on income regularity rather than occupation, favouring those with predictable earnings.”
The survey also established that loan application outcomes also reveal patterns of exclusion with households engaged in informal piecework labour experiencing the highest rates of loan rejection.
In all livelihood categories, the primary reason for borrowing was to purchase food, while secondary uses of loans varied by income source with farmers borrowing to purchase agricultural inputs, salaried workers using loans and to cover education costs.
“The formal financial institutions in Malawi have failed to develop financial packages for the ordinary Malawians as their customer base is big private sector where they make money,” he said.
Ironically, in 2021, an Integrated Household Survey by the National Statistical Office (NSO) showed that village banks were gradually becoming the main source of borrowing for households across the country.
NSO figures at the time showed that about 42.1 percent of the households borrowed from village banks while 15.1 percent borrow from relatives, 12.7 percent from neighbours, nine percent from loan sharks (katapila) and 6.1 percent from other sources.
Market analyst Cosmas Chigwe said that it is the conditions that banks attach such as collateral and high account turnover history that push people to the village banks.
He said: “Commercial bank rates are far cheaper than village bank rates, but when accessing loans, village banks also cut out the middleman getting all the profits which banks would have made through the margin between lending and savings rates.”
Consumers Association of Malawi executive director John Kapito said village banks have grown over time due to several factors, including trust and tailored lending conditions that are attractive to local communities.
He said: “Commercial banks are unwilling to diversify because they are relying on government, it is not possible for the ordinary people to borrow from commercial banks.
“Let us hope RBM [Reserve Bank of Malawi] can assist to strengthen and grow the village banks as Malawians need alternative banks and the village banks offer that opportunity.”
Meanwhile, RBM is banking on credit reporting and asset based lending to solve the country’s production challenges by improving the private sector’s credit access through borrowing using movable assets.
The development comes at a time the public sector continues dominating the credit market, having accumulated K5.7 trillion debt stock from the banking system as of November 2024 compared to private sector’s K1.5 trillion.
RBM Governor MacDonald Mafuta-Mwale is on record as having said the law only enhanced financial inclusion while credit access remains an issue, with only 10 percent of Malawians able to obtain loans from financial institutions.
