The economic effects of the Covid pandemic, a situation that has been compounded by harsh weather conditions in the country, are said to have had a knock down effect on microfinance institutions.
Although a Financial Stability Report from the Reserve Bank of Malawi for the second half of 2021 shows that the sector, along with other sub-sectors, remained resilient between July and December 2021, the outlook looks gloomy.
According to the report, the sector faces other downward risks such as lack of funds for working capital, depreciation of the Kwacha, high operating expenses, relatively high interest rates, non-performing loans and liquidity challenges.
“The sector remains on the recovery path from the adverse effects of Covid and is expected to remain in this trajectory.
However, flooding, as reported in some areas, will pose a challenge as it will disrupt business activities and agriculture productivity, thereby negatively affecting the ability of clients to honour their credit obligations,” the report reads.
On growth of sub-sectors, the deposit taking microfinance institutions registered asset growth of 10.3 percent to K25.6 billion, non-deposit taking microfinance institutions total equity capital registered a growth to K27.3 billion from K13.3 billion in June 2021 and financial cooperatives total assets increased by 4.8 percent to K40.8 billion during the review period.
One of the players in the microfinance sector, Select Finance Services, says institutions whose largest portfolio is in the rural areas are likely to be hit the hardest.
Select Finance Services Chief Executive Officer Kisa Kalolokesya said to help microfinance institutions and borrowers, there is a need for continuance of moratoriums and restructuring of loans.
“It will be good to extend credit facilities to the people who have been affected so that they are assisted in the recovery process because they need to bounce back if they are to efficiently repay the loans,” he said.
Justin Mkweu is a fast growing reporter who currently works with Times Group on the business desk.
He is however flexible as he also writes about current affairs and national issues.