The World Bank says it is committed to help Malawi create a healthy and vibrant financial sector and safeguard it against risks.
The bank said this in Lilongwe on Thursday during the official launch of the Financial Sector Technical Assistance Project Launch (FSTAP) it will finance to the tune of $28 million (K4.7 billion at yesterdayÃ¢â‚¬â„¢s exchange rates) over the next five years.
The projectÃ¢â‚¬â„¢s main goal is to help increase access to finance for 3.5 million Malawian adults who are currently unbanked, but bankable.
World Bank Malawi office senior financial sector specialist Samuel Maimbo said during the launch that MalawiÃ¢â‚¬â„¢s financial sector plays an important role both in allocating resources and providing finance private sector growth.
Maimbo cautioned that MalawiÃ¢â‚¬â„¢s financial sector does not exist in a vacuum but exists in a global economy whose financial system Ã¢â‚¬Å“is currently at crossroads.Ã¢â‚¬Â
Ã¢â‚¬Å“A health and vibrant financial sector is crucial to the future of Malawi. And this is what we all wish for,Ã¢â‚¬Â he said.
He stressed that although the direct exposure of MalawiÃ¢â‚¬â„¢s financial sector to global risks continues to be limited, the two recent global financial crisesÃ¢â‚¬â€the 2008 financial crisis and the 2011 European debt crisisÃ¢â‚¬â€are a strong alert for Malawi.
Maimbo said the crises provide sound evidence that significant stability risks can be generated from unanticipated sources both from institutions and policies.
He also cautioned that where governance structures of financial institutions are weak, they can undermine effective oversight and limit access to finance.
Ã¢â‚¬Å“Hence, the interest of the World Bank to support Malawi in trying to manage its financial sector through the [FSTAP] project we are launching today,Ã¢â‚¬Â Maimbo added.
He said FSTAP builds on the work previously done in Malawi such as the Finscope studies as well as the recently completed Financial Sector Development Strategy.
A Finscope demand survey in 2008 revealed that only 26 percent of the adult population in Malawi is served by formal financial institutions and that 55 percent are financially excluded.
He assured the Malawi Government that the World Bank will put in place Ã¢â‚¬Å“all the necessary ingredientsÃ¢â‚¬Â to ensure the successful implementation of the project.
On her part, Reserve Bank of Malawi (RBM) deputy governor Mary Nkosi said the launch of the project is an outcome of the 2008 World Bank-IMF Financial Sector Assessment Programme report which, among others, pointed at the need to expand and improve access to finance.
She said it was also observed from the study that financial services do not yet make full potential contribution to economic growth and poverty reduction in the country.
Nkosi said government recognises the vital role that financial sector plays in the social economic development of a country and has, therefore, consistently followed a path towards comprehensive financial sector development.
She also said RBM has taken a leading role in the development of a policy and institutional framework for the development of the financial sector.
Major components of the project, which will expire in August 2016, include strengthening the capacity of the Ministry of Finance and Development Planning and the RBM to improve the legislation, regulation and supervision frameworks for banking, capital markets, microfinance and pensions.