The Reserve Bank of Malawi (RBM) says microfinance institutions registered a 53 percent growth in the just-ended year as loans jumped from K32 billion at the beginning of last year to K49 billion by November 2019.
RBM spokesperson Mbane Ngwira in a written response on Monday, attributed this to private sector credit which remained positive in 2019 compared to the previous year.
He said the development was due to interest rates for microfinance institutions which dropped to six percent per month from 30 percent.
He said: “Ultimately, it is expected that these improvements will support further growth of the macro-economy in the medium to long-term. We eased monetary policy stance to 13.5 percent down from 16 percent at the beginning of the year and successfully introduced the reference rate as the base lending rate for commercial banks.
“Our major challenge has been food price developments, particularly maize.
“Maize prices increased strongly during last year, causing persistent high food inflation. This is a challenge for monetary policy because it creates negative inflation expectations despite the fact that the source of inflation is from the supply side.”
Ngwira, however, said the central bank expects food prices to collapse and converge towards non-food inflation, assuming there will be no any serious supply shock in 2020.
University of Malawi’s Chancellor College economics professor Ben Kaluwa on Monday said knowing that such dynamics have been happening within a year, it is quite impressive because globally, countries are thriving on micro, small and medium enterprises who borrow from microfinance institutions.
He said the development means the economy is getting towards formalisation through small and medium enterprises’ economic activities that benefit the economy at large.
“Six percent interest rate per month is very high, which means the achievement shows resilience in the microfinance institutions. The argument is that formalising micro-financing is better than the curb [black] market, which charges exorbitant interest rates.
“We hope that the formalised microfinance lending is cheaper than money lenders. If the microfinance lending institutions can absorb high interest rates it means they are resilient,” he said.
Figures from the central bank show that non-performing loans at 4.3 percent have decreased to their minimum regulatory requirement levels of less than five percent and that the banking sector has become more liquid and profitable. It said at 13.5 percent, not only is the base lending rate the lowest in decades, it has also assisted in pulling down interest rate spread from 31 percent in 2016 down to 7.5 percent, which is much better than regional peers.