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)
Government of Malawi Microfinance Policy and Action Plan
United Nations Capital Development Fund (UNCDF) Expanding Access to Financial Services in Malawi
Similar Posts:
- SPECIAL REPORT: October 28 is Deadline for MFIs to Apply to Partner with CGAP via “Microfinance Digitization” Community of Practice
- MICROFINANCE PAPER WRAP-UP: “Climate Risk and Financial Inclusion: A Regulatory Perspective on Risks and Opportunities;” by Peter Knaack, Peter Zetterli
- MICROFINANCE PAPER WRAP UP: “Women Agents for Financial Inclusion: Exploring the Benefits, Constraints and Potential Solutions,” by Emilio Hernandez et al, Published by CGAP
- MICROFINANCE PAPER WRAP-UP: “Financial Inclusion That Works for Women,” by Sam Mendelson, Published by e-MFP
- MICROCAPITAL BRIEF: MLF Malawi Partnering with ADA, Grameen Credit Agricole to Develop Digital Finance for Women Farmers