Malawi’s State Debt and Your Bottom Line: Ecama’s Strategic Insights

Key Business Points

• Banks are holding onto cash and preferring safe government bonds over lending to private businesses, making it hard for local entrepreneurs to get the funding they need to grow.
• High loan defaults are forcing banks to enforce strict collateral rules, meaning small businesses must prove their financial health to unlock credit.
• Private credit growth is slowing down, so business owners must focus on building strong financial records and lean operations to attract lenders in a tough market.

The Economics Association of Malawi (Ecama) has issued a stark warning that simply reducing government borrowing alone will not be enough to free up credit for the private sector. Ecama president Bertha Bangara-Chikadza says Malawi must strengthen systems allowing banks to accurately assess and price private-sector risk. She explained that while government borrowing has significantly crowded out the private sector, elevated non-performing loans and difficult macroeconomic conditions have also made new private businesses comparatively much riskier for financial institutions.

Recent figures from the Reserve Bank of Malawi (RBM) support this concern. The banking sector’s loan-to-deposit ratio remains below 40 percent, even though banks are currently sitting on substantial liquidity. Ecama notes that this low ratio also suggests banks are not channelling enough deposits towards productive investment that could support business expansion, employment, and economic growth. Locally, the mwanjira (business) sector struggles to access the bodi (capital) needed to thrive and create local jobs.

Citing the International Monetary Fund’s 2025 Article IV assessment, Ecama highlighted that holdings of government securities by depository corporations increased by 78 percent between the years 2024 and 2025. This shift reflects increased domestic financing needs, pulling funds from private lending. Chikadza stated, “This, therefore, crowded out the private sector, which is riskier.” However, she acknowledged that poor macroeconomic conditions have also increased private-sector credit risk. Non-performing loans peaked at 9.8 percent in November 2024 before declining to 7.7 percent in April 2025, though they still remain above the five percent regulatory threshold today.

Malawian economist Velli Nyirongo similarly noted that the low loan-to-deposit ratio reflects both government borrowing and structural weaknesses that make private lending unattractive. He explained that banks have the resources to lend, but government securities offer predictable returns. Meanwhile, businesses always face high interest rates, global foreign exchange shortages, and weak balance sheets. Nyirongo emphasized, “Ultimately, Malawi needs an environment in which productive private investment becomes much more attractive to banks than simply financing government.”

To address this, Ecama recommended reducing the government’s appetite for domestic borrowing while simultaneously improving banks’ ability to distinguish viable borrowers from risky ones. The association called for wider use and coverage of credit bureaus and stronger collateral registries. Lecturer Edward Leman added that crucial reforms must address high borrowing costs and non-price barriers, like stringent collateral rules affecting small and medium enterprises to local businesses.

The urgency of these reforms is underscored by RBM’s June 2026 Financial Stability Report. The report shows that annual private-sector credit growth slowed to 31.3 percent from 44.7 percent in December 2025. The central bank attributed this weak financial intermediation mainly to tight lending standards and warned that limited access to credit, particularly for SMEs, was constraining investment and economic growth. RBM recommends fiscal consolidation, moderation in domestic borrowing, austerity measures, and stronger domestic revenue mobilisation. As Malawi navigates these current financial hurdles, business owners must remain vigilant, seek out financial partnerships wisely, and build robust operational frameworks to weather the ongoing economic shifts and secure their future.

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