Key Business Points
- Malawi’s microfinance sector has seen a 32.2% growth in total assets, reaching K172.6 billion, with liquidity and core capital above regulatory thresholds.
- Despite elevated interest rate risk and solvency concerns, the sector remains sound and profitable, with a 10.2% increase in profitability driven by high interest income.
- Small and medium enterprises (SMEs) are increasingly turning to microfinance institutions for credit, indicating a preference for more flexible lending processes over traditional banking systems, with "kugawa" (access to finance) becoming a crucial factor in their growth.
The microfinance sector in Malawi has reported mixed results for the first half of 2025, with total sector assets growing despite weaknesses in underwriting and delayed loan repayments increasing credit risk. The sector, which includes deposit-taking microfinance institutions, non-deposit-taking microfinance institutions, and savings and credit cooperatives (Saccos), has seen solid performance from deposit-taking and non-deposit-taking institutions, with asset bases growing. However, capital adequacy issues persist in Saccos, with four institutions undercapitalized and five illiquid.
According to the Reserve Bank of Malawi Financial Stability Report, all three categories of the sector registered asset growth, with better non-performing loans below the five percent threshold and a sharp rise in profitability. The report highlights key vulnerabilities across the sector, including elevated interest rate risk from asset-liability mismatches, solvency concerns in undercapitalized institutions, liquidity pressures from delayed employer remittances, and governance and compliance breaches in Saccos.
Financial analysts attribute the existing risks to the lagged effects of the 44% kwacha devaluation in November 2023, which resulted in rising inflation and dampened the value of money. Economic consultant Booker Matemvu notes that the economy is showing signs of distress, with more people falling deep into poverty and struggling to maintain loan repayments. In response, microfinance institutions are adopting coping mechanisms, such as switching to short and medium-term loans to allow members to access loans despite "matenda a chipolisyo" (liquidity challenges).
The International Monetary Fund Financial Access Survey shows that Malawi’s access to formal financial markets and services has risen in the last five years, sustained by non-traditional financial platforms. The IMF notes that access to finance has changed, with traditional financial access points gradually declining. Microfinance institutions play a critical role in boosting entrepreneurship and providing access to capital for small businesses, promoting "tsogolo la mphiko" (economic development). As the sector continues to evolve, it is essential for microfinance institutions to manage risks effectively and adapt to changing market conditions to maintain their growth trajectory and support the development of SMEs in Malawi.
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