The National Economic Empowerment Fund (Neef) has disbursed K18.8 billion within a year with women and youths dominating the beneficiaries’ list.
Formerly Malawi Enterprise Development Fund (Medf), Neef has disbursed loans to 6 669 groups and 461 individual clients as of September 2021.
In written response to a questionnaire last week, Neef public relations and marketing officer Whytone Kapasule said K9.7 billion, representing 51.6 percent has gone to women, catering for 3 853 groups; K4.1 billion (21.8 percent) to the youth, benefiting 1 607 groups; K3.8 billion (20.2 percent) to 12 02 mixed groups of men and women and K982 million to 461 individuals, representing 5.2 percent.
The beneficiary groups’ ratios tie in well with the strategic intent of Neef, which is to empower Malawians, especially youths and women, for job creation, enhancement of entrepreneurial activities, supporting agricultural productivity and value addition.
In terms of recovery, the rate stood at 74 percent as at September 15 2021, making it one of the highest for a taxpayer-funded revolving loan scheme.
Out of the K4.2 billion that was due for recovered by September 15, Neef collected K3.14 billion.
This recovery rate is way better than the nine percent collected during the Democratic Progressive Party administration under former president Peter Mutharika when only K540 million was recovered out of a K6.4 billion disbursement in 2020.
Re a c t ing t o the developments in an interview last week, National Working Group on Trade and Policy chairperson Frederick Changaya, who is also managing director of Applecore Grain & Milling Limited, said it is the indigenous participation that can spur sustainable and meaningful economic development in Malawi.
He said Neef is a strategic entity that can reduce dependency rate which is a lead measure for economic development.
But Changaya said such efforts need to make business sense while taking into account the risks organisations such as Neef face.
He said: “I feel the interest rate is within range and microfinance organisations may ask for much more. The rate by Neef is like commercial banks, maybe where one may ask for consideration is the one-off 3.5 percent.”
According to Neef, the loans mainly target youthsand women as beneficiaries and the loan products targeting the groups have a monthly 2.5 percent interest rate, 3.5 percent once-off processing fee and 1.5 percent insurance.
But the success of Neef, which the Tonse Alliance administration led by President Lazarus Chakwera expanded into a K75 billion fund, has not come without grumbles from some groups who complain about payout amounts being too low, short repayment periods, and strict conditions.
National Small and Medium Enterprises (Nasme) national coordinator William Mwale described Neef loan conditions as prohibitive and not different from what commercial banks are exacting.
He said: “Generally, the Neef loans have many bottlenecks that will leave out many SMEs who intend to borrow.
“The requirements are stringent, not different from commercial banks or other loan predators. The government should make these loans responsive to the needs of those in need to start or expand their businesses.”
One of the Lilongwe-based SMEs, Pledge Sambo, who is a sole proprietor of Potter’s House Ceramics, recently lamented that his business expansion needed K10.5 million, but his loan application to Neef was thrown out due to the lack of collateral despite proving his business was viable with a ready customer base.
In response to the concerns, Kapasule said the fund is reviewing some of the requirements, but said the current rates and tariffs for the fund took into account the target market and the desire by the shareholders to have the fund as a sustainable entity.
He said the normal practice with any financial sector player is that rates and tariffs are set and reviewed from time to time, depending on prevailing market and firm-specific conditions.
Kapasule said: “While individuals that fail to meet the collateral requirements can come in a group and access the loans without collateral, we have removed the requirement for cash collateral on all loans to enable underserved Malawians access the loans. We have also relaxed the requirement for only registered landed property.”
On collateral demands, he said they have signed an agreement with Technical, Entrepreneurial and Vocational Education Training Authority (Teveta) aimed at providing business capital for the youth coming out of various technical and vocational training institutions under the Tevet programme in which Teveta will guarantee 70 percent of the loan that Neef will advance to the young entrepreneurs.
On concerns that Neef loans are too little to make an impact, Kapasule said Neef is licensed as a micro- finance institution and according to the Microfinance Act, 2010, the reason of existence is to economically empower ordinary and underserved Malawians, particularly women, youth, and persons with disabilities, through the provision of quality, affordable and sustainable microfinance services for improved livelihoods.
He said Neef’s current policy only allows them to give up to K50 million to a single borrower.
“Now, to get this amount of a loan or indeed any amount, the applicant should convince Neef that he/she either has a business that requires that kind of injection or has a business idea and its plan of implementation to justify the amount applied for,” Kapasule said.
However, economist Milward Tobias, who is also executive director of Centre for Research and Consultancy, said Neef should find ways of ensuring that loan beneficiaries are venturing into profitable businesses and that there are clear consequences for defaulters.
On another hand, Malawi University of Business and Applied Sciences associate professor of economics Betchani Tchereni said the concern with Neef is in the short termism of the disbursements.
He said expecting that beneficiaries to start repaying loans within one month of accessing the same would not transform the country in terms of industrialisation.
“Having such loans mainly disbursed for trading types of businesses, which may not indiscriminate the country is not ideal. “However, we commend Neef for at least focusing on depoliticisation of the disbursement of the loans,” he said.