Majority of micro, small and medium enterprises (MSMEs) in the country are still failing to access finance despite the sector being a significant source of employment, providing jobs to 1.6 million people
In its recently published July 2020 Malawi Economic Monitor, the World Bank says only 10 percent of medium enterprises, 5 percent of small enterprises and 3 percent of micro enterprises have credit from commercial banks.
This is despite the country having 60 percent of businesses being microenterprises (employing 1 to 4 people), 32 percent being small enterprises (employing 5 to 20 people) and only 8 percent being medium enterprises (employing 21 to 99 people).
Reads the report in part: “Bank lending to MSMEs is low. Lack of robust lending models results in the reliance on traditional forms of collateral, which are often limiting for MSMEs. Banks continue to perceive MSMEs as too risky.
“Low literacy levels of MSME owners and entrepreneurs inhibits MSMEs from meeting the requirements for formal financing. Informality is another key challenge. The majority of MSMEs [89 percent] are informal, some do not keep records [36 percent], and they lack innovation and diversification [45 percent].”
FinScope MSME Malawi 2019 reports that there are 1.1 million businesses classified as MSMEs in Malawi operating mostly in the wholesale, retail and agriculture sectors.
Although a good proportion of MSMEs are in the mature stage (23 percent), the majority are in a start-up phase.
Chamber for Small and Medium Businesses Association executive secretary James Chiutsi said in a written response to a questionnaire small businesses are still facing access to finance challenges due to strict collateral requirements.
He said this is despite the country having several entrepreneurs with sound business ideas but having no means to acquire assets.
He said: “Not many people have acquired assets that can be used as collateral.
“Formal registration has only been an expense small businesses can do without.”
Recently published data from the Global Systems for Mobile Association indicate that within the economy, an estimated 91 percent of businesses accounting for 89 percent of employees operating without formal registration and outside of the tax-net.
On the other hand, the 2018 Population and Housing Census data indicates that out of 3 984 981 households in Malawi, 651 357 households operated a business of some kind representing 16.3 percent of all the households.