Nkhani Zathu
Our News — United Nations Malawi Quarterly Journal

AUGUST 2007

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News Extra

UN boosts Microfinance Sector in Malawi

In June, the Government of Malawi and United Nations signed a micro financing project that will contribute significantly towards poverty reduction by increasing access to financial services for poor and low-income population groups. UNDP and UNCDF have contributed USD 4 million to a USD 6 million basket-fund.

In Malawi, only 3% of the population has access to saving services while a marginal 1% access credit. Insurance services are virtually absent, and the percentage of poor families with access to any financial services in rural areas is even lower.

Nkhani Zathu spoke to Michael Keating, UN Resident Coordinator and UNDP Resident Representative and Bill Chanza, Programme Analyst UNDP Decentralisation and Micro Finance/ UNCDF about the microfinance sector in Malawi.

Michael Keating
“This project is strengthening the architecture of an inclusive financial sector in Malawi. Inclusive means creating opportunities for people who do not normally have them, particularly people in rural areas

Malawi already has a number of micro credit institutions and this project aims to help these institutions improve their services and their reach. This includes Pride Malawi, which was started two years ago, through a UNCDF grant of $3 million and now a key player. Their success and that of other institutions can be measured in terms of the increasing number of borrowers and the demand for the savings and loans services. Malawi’s financial sector is dominated by large banks but the service requirements of small savers and borrowers are not met.

Access to credit is a key driver for entrepreneurship and indeed economic growth, whether they are women in rural areas or street vendors. It creates opportunities to increase the enterprise base, improve the product or service and enable people to nurture better standards of living and definitely lift them out of poverty. And that is the UN’s objective in Malawi, human development.”

Bill Chanza (right)
“The three components of the project are policy formulation, innovation in services and capacity development. Firstly, the project will help the Government develop micro finance policies to appropriately regulate and supervise the sector.

Microfinance services including credit, savings, insurance and money transfers, yet they can raise standards of living and encourage entrepreneurship.

In the area of policies, which is UNDP’s competitive advantage, the project will help the Government develop micro finance policies to appropriately regulate and supervise the sector. This is about creating policies, which will promote the sector rather than undermine it and enforcing the legal framework of the sector.

Secondly, the project will support innovation in financial services and outreach. We want institutions to be creative to attract more clients especially in the rural areas. Examples include savings services, tapping agricultural markets, technology and electronic banking and lending packages. We want to see breakthroughs to increase access of these services to the poor.

The third component is capacity development. UNDP strongly believes in strong institutional capacities to support emerging demands of a developing nation. We are targeting key institutions including Reserve Bank of Malawi, which is the regulatory body and Malawi Micro finance Network, the collective voice for the sector, which needs support, particularly in developing Management Information Systems or MIS.

MIS is a major area of concern. Microfinance institutions are unable to increase the capital base because they lack proper data to demonstrate their viability and ability to pay back commercial banks from whom they borrow. They need to have the right systems to generate data and we hope this support with develop robust management information systems. Lastly, financial services providers including audit companies, training institutions and management consultants need to appreciate fully the dynamics of the sector so that their services are fine-tuned to the needs.”