There is a quiet problem in Malawi’s economy that does not always dominate headlines, but shapes many of the things people worry about—jobs, prices, struggling businesses and slow growth.
It is the cost of borrowing money.
In simple terms, banks in Malawi charge very high interest on loans, while paying very little to people who save money with them. The gap between the two has grown so wide that it now influences how the whole economy behaves.
Treasur y data shows that average lending rates in Malawi are about 37.3 percent, while depositors earn roughly 4.3 percent on their savings. That creates an interest rate spread of around 33 percentage points, the widest among selected countries in the region.
For comparison, Botswana’s spread is about 4.3 percentage points, South Africa’s just over three percentage points, and Mauritius’ around 6.5 percentage points. Even Zambia, often described as a high-cost credit market, records a spread of about 21 percentage points, still far below Malawi’s.
For businesses, these numbers change behaviour.
When loan i nte res t rates approach 40 percent, borrowing stops being a way to grow. Businesses no longer ask whether an idea is promising. They ask a more basic question: will this loan sink me? For many, the answer is yes. Plans to expand, buy equipment or hire workers are quietly abandoned.
At the same time, people who save money in banks earn returns that do not keep up with rising prices. Saving feels unrewarding. Some people hold cash, others buy foreign currency, and many simply spend instead of saving. Over time, this leaves less money available to support productive investment.
So, money becomes expensive to borrow and unrewarding to save. That is not how a healthy financial system is supposed to work.
A large part of the problem lies in how government finances itself.
The government borrows heavily from the same banks that businesses rely on for loans. From a bank’s point of view, lending to government is safer and easier than lending to a business that might fail. Government loans are almost guaranteed to be repaid, often at attractive interest rates.
Once banks can earn good returns lending to government , they have little reason to lower rates for businesses. This pushes borrowing costs up across the economy, even for firms with solid plans and experience.
This also helps explain why interest rates remain high despite repeated efforts to control inflation. Much of Malawi’s inflation is driven by factors such as exchange rate pressures, import dependence and supply shortages— problems that higher interest rates alone cannot fix. The result is painful borrowing costs without much relief on prices.
Small and medium-sized businesses feel this most.
Hi gh i n te res t rates quickly translate into higher production costs. Locally made goods become more expensive than imports, weakening competitiveness. Many firms price products just to survive, not to reinvest or grow.
Even when banks offer better rates than informal lenders, loan conditions are often too strict. Many small businesses are asked to provide collateral worth more than the loan itself— sometimes far more. For most entrepreneurs, that is simply not possible
So, the message becomes clear: take all the risk yourself, but do not expect affordable support.
This helps explain why many businesses remain small or informal—not because people lack ideas or effort, but because the cost of trying is too high.
There are no quick fixes. Limiting interest charges or regulating spreads carries risks, especially in a high-inflation environment. The more durable solution lies in reducing government reliance on bank borrowing, stabilising prices by fixing supply-side problems, and creating conditions where banks can lend profitably without charging extreme rates.
Until then, Malawi’s wide interest rate spread will keep sending the same message.
Not that opportunity does not exist—but that trying to seize it has become too expensive.
And when trying costs that much, economies do not collapse overnight. They simply move forward more slowly, year after year.
