Blantyre – High interest rates and other prohibitive costs of doing business with commercial banks in Malawi have pushed SMEs to seek informal financial services.
This has driven the rise of community-based banking, called Banki M’khonde (veranda or village bank).
A FinScope survey says over half of Malawi’s population is unbanked.
While access to business and agricultural credit for Malawi’s rural population, who largely depend on subsistence agriculture, is limited and requires collateral, it is also expensive requiring high-interest rates and comes with specific conditions for borrowers.
The Integrated Household Survey (2019-2020) conducted by the National Statistical Office (NSO) observes that 42 percent of the population access loans through the village bank while only 1.5 percent are serviced by commercial banks.
Village banks are community groups, mostly formed by household individuals, who pool their savings in order to have a source of funds for periodic lending for business start-ups, building household assets, income, food security, consumption, education and empowerment.
The banks have become the simplest means for local Malawians to increase their incomes by mobilising savings and providing loans which can be used to support the creation of small businesses in urban and rural areas. They have proved significant in reducing risks and vulnerability and in increasing the ability of Malawians to access basic services like health and education, therefore having a direct bearing on growth, employment and poverty reduction.
Economists say Malawi needs a stable, liquid, competitive and efficient inclusive financial system in order to expand agricultural production, micro and small enterprises, employment and to increase household income in a sustainable way.
As a self-sustainable and self-replicating mechanism with home-tailored by-laws, village banks operate on trust without formal registration but are fast spreading in formation in Malawi’s most remote areas as well as in urban centres.
Sensing the popularity and competition that the veranda banks have had against the formal banking industry, several major commercial banks in the country have gone on a campaign trying to rope the village banks into their fold.
But while acknowledging the substantial percent of clientele it is losing to village banks, there is less likelihood that commercial banks could themselves reach out to capture the segment that the informal service providers are serving.
Although Malawi has introduced microfinance institutions to provide access to financial services, access in rural areas remains a major challenge.
Organisations like the Malawi Union of Savings and Credit Co-operatives have also emerged to mobilise capital.