Weak private sector credit worries SMEs

Indigenous Businesses Association of Malawi (Ibam) says commercial banks’ preference to lend government more than the private sector is negatively impacting businesses as they are failing to access credit.

Ibam’s concern follows Reserve Bank of Malawi (RBM) figures which show that the banking system’s supply of credit to the domestic economy continues to be taken up by government.

RBM’s October Economic Review Report shows that during the month under review, growth in net domestic claims was largely driven by net claims on the central government which expanded by K195.7 billion.

In an interview on Tuesday, Ibam president Mike Mlombwa said government’s continued borrowing is creating competition for funds for businesses.

He said: “SMEs are facing a tough time to access loans from commercial banks who have put tough measures for them to borrow, making SMEs fail to access loans.

“The businesses that want to borrow cannot get the funds in time because government has gone flat out borrowing from the commercial banks where private sector borrowing is supposed to be accessed.”

Mlombwa said while it is the wish of Ibam to see small industries growing, businesses are failing to grow because of capital requirements.

According to the RBM report, net credit to government from commercial banks expanded by K202.6 billion in October 2021.

This followed increases of K155.4 billion and K40.3 billion in net claims on the central government from the monetary authorities and the commercial banks respectively as well as commercial banks’ gross claims on the State-owned enterprises amounting to K6.9 billion.

On the other hand, annual growth in private sector credit moderated to 21.3 percent in October 2021 from the preceding month’s position of 21.7 percent.

In terms of economic sectors, wholesale and retail trade took up the largest share of loan stock at K16.8 billion followed by financial services at K5 billion.

In his explanation of the credit composition, Bankers Association of Malawi (BAM) president Macfussy Kawawa said banks are only playing their role to channel funds to sectors that are expressing appetite to borrow.

He said the situation is partly on account of the impact of the Covid-19, but admitted it is not sustainable and that banks are working on ensuring that excess funds are channelled to productive sector.

“BAM is contemplating ways to channel more resources into major development initiatives that will have a lasting impact on the economy.