The Consultative Group to Assist the Poor (CGAP) reports that currently in Malawi, approximately 90 percent of the population is unbanked. Though there is large demand for financial services, the Malawian microfinance sector suffers from lack of financial resources, outreach, and sustainability. A very weak physical infrastructure is another huge obstacle.

A 2002 Microfinance Policy and Action Plan released by the government of Malawi recognized the need for a stable microfinance sector. The plan cited lack of microfinance services as a major obstacle to the country’s economic development. In a country where over 60 percent of the 13.9 million population lives in poverty, an effective microfinance policy promoting income generation and employment could offer a viable economic solution.

Though there has been much government effort to promote microfinance throughout the country, outreach remains a huge problem, as the majority of Malawi’s working poor live in rural areas. The United States Central Intelligence Agency (CIA) World fact book reports that 90 percent of Malawi’s labor force works in the agricultural sector, raising tobacco, cotton and other cash crops.

Branchless banking, the use of mobile phones or other technology together with existing retail outlets to provide banking services without entering a bank, could provide the solution to Malawi’s rural working poor population’s lack of access to financial services.

Two large microfinance institutions have already instituted branchless banking practices. First Merchant Bank (FMB), targeting tobacco farmers, provides a debit card for payments and withdrawals via 60 point-of-service (POS) terminals at chain retailer, Farmer’s World. Opportunity International Bank of Malawi (OIBM) currently has 70 thousand clients using smartcard, a type of electronic passbook.

Current government regulation may cause a significant obstacle to branchless banking and the growth of the country’s microfinance sector, as Malawi’s Banking Act forbids non-bank participation in banking business.

By Melissa Duscha

Additional Resources:

Consultative Group to Assist the Poor (CGAP)

Consultative Group to Assist the Poor (CGAP) Portfolio: Access to Finance in Malawi: Could branchless banking transform the financial sector?

Government of Malawi Microfinance Policy and Action Plan

Rural Poverty in Malawi

United Nations Capital Development Fund (UNCDF) Expanding Access to Financial Services in Malawi