An analysis of the challenges of the microfinance industry in Malawi with a focus on its supply-side

Abstract

The research study was carried out in order to analyse the challenges of the microfinance industry in Malawi with a focus on its supply-side. The specific objectives were to; determine the prevailing challenges affecting micro-financing by attempting to; identify the challenges disturbing the industry and generate possible solutions to mitigate the challenges. The afore-mentioned background prompted this research study to be commissioned to analyse the status quo and eventually provide solutions that can lead to the sustainability and growth of the industry. The study employed an exploratory and a descriptive research design. The target population was all registered and licensed Microfinance Institutions (MFIs) in Malawi totalling 25. In each MFI 3 key managers were targeted. A mixture of Purposive and Convenience sampling was used to determine the sample. This study used both primary and secondary sources of collecting data. Primary data was collected using self-administered questionnaires which were e-mailed, and in some cases, hand delivered to the MFIs. Secondary Data was collected from industry performance reports from 2013 to 2015. The results of the study exposed that lack of adequate capital, weak legislation and regulatory framework are the severe challenges distressing the growth of the industry. Moderate challenges included; collections, unreliable infrastructure, Information Communication Technology (ICT), theft by staff, double-dipping by customers, customer retention, higher lending rates, Know Your Customers (KYC), education level of customers and staff, high operational costs, poor customer care. Attributes worth noting were; MFIs raise capital through private equity only which is not sufficient, the Portfolio at Risk (PAR) drastically increased to 152% in 2015, the volume of loans declined by 31% in 2015, incapacitated ICT cannot propel increase on coverage and outlets as most MFIs have less than 4 branches and they only cover less than 4 districts. Some of the suggested solution to the MFIs’ situation and its challenges are; availability of soft loans from Government of Malawi (GoM) through Reserve Bank of Malawi (RBM), accessible by registered and licenced MFIs, strengthening the current Financial Services Act (2010) to criminalize defaulters, inculcate the spirit of micro-financing in both staff and customer through training and sensitization initiatives.