Key Business Points
- High lending rates in Malawi are deterring businesses from borrowing, with average rates at 37.3 percent, while deposit rates are only 4.3 percent, making it unattractive for businesses to access capital.
- The wide interest rate spread of 33 percentage points is the highest in the region, reflecting macroeconomic stress and constraints on growth, and is driven by heavy domestic borrowing and fiscal dominance.
- SMEs are particularly affected, with high lending rates increasing production costs, reducing competitiveness, and limiting reinvestment, making it essential for the government to explore policy measures to reduce borrowing costs and unlock investment opportunities.
The high lending rates in Malawi are having a chilling effect on the private sector, with many businesses opting for informal or short-term financing options. According to Economics Association of Malawi president Bertha Bangara-Chikadza, the wide interest rate spread reflects both macroeconomic stress and a constraint on growth. The heavy domestic borrowing driven by persistent fiscal deficits is encouraging banks to lend to the government rather than the private sector, further exacerbating the problem. As Chancellor College economics lecturer Edward Leman notes, fiscal dominance is a key driver of Malawi’s interest rate dynamics, with sustained government borrowing providing banks with high-yield, low-risk alternatives to private lending.
The Bankers Association of Malawi (BAM) acknowledges the concerns but cites structural realities such as high operating costs, regulatory requirements, and slow judicial loan recovery as key drivers of the wide spreads. However, Finance Minister Joseph Mwanamvekha has questioned the sustainability of Malawi’s borrowing costs, citing policy measures in Kenya and Botswana that cap interest or limit spreads. As he noted, lower borrowing costs could unlock investment, value addition, and employment. For SMEs, the impact is immediate, with high lending rates increasing production costs, reducing competitiveness, and leaving little room for reinvestment. The Malawi Union of Small and Medium Enterprises president James Chiutsi highlights the need for affordable financing options for SMEs, which are critical for job creation and economic growth.
In Chichewa, this challenge can be described as "kugwira ntchito kwa ndalama za malawi", which translates to "working with Malawian money" or "kupanga bizinesi kwa njira ya Malawi", meaning "doing business the Malawian way". To address this issue, the government and private sector must work together to promote financial inclusion and reduce borrowing costs. This can be achieved through policy reforms, such as reducing the policy rate, increasing access to credit, and improving the business environment. By doing so, Malawi can unlock its economic potential and create a more favorable business climate for entrepreneurs and businesses to thrive. With the right policies in place, Malawi can stimulate economic growth, create jobs, and reduce poverty, ultimately achieving its development goals.
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