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Loan conditions bother SMEs

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Small and Medium Enterprises Development Institute (Smedi) has lamented what it calls prohibitive conditions by financial institutions on credit access.

Smedi spokesperson Alinafe Mpoka said access to finance remains top on the list of bottlenecks for small and medium entrepreneurs (SMEs).

This comes at a time access to finance remains a challenge in the country, with the latest survey by the Reserve Bank of Malawi (RBM) stating that loan standards and conditions are tight, making credit expensive or unreachable for some.

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In an interview on Monday, Mpoka lamented “strict” conditions and requirements by banks, including demand for collateral and long processes.

“If supported, however, this sector has potential to contribute to the growth of the economy because SMEs are now innovating through products-offering and marketing,” he said.

According to the recent RBM Financial Stability Report, Malawians continue to be subjected to expensive and strict borrowing conditions by commercial banks.

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Results of the survey show that six out of eight banks reported that they maintained tight credit standards and conditions for approval of loans while two banks indicated that they had tightened further the standards and conditions for approval of loans.

This stance by the commercial banks is partly attributed to uncertainty in the operating environment following mounting inflationary pressures from unstable exchange rate, the Russia-Ukraine War and increasing commodity prices coupled with an increase in the level of non-performing loans, particularly in the SMEs sector.

“This notwithstanding, some banks reported that they expect to ease credit standards and conditions for approval of loans, particularly in the household and SME sectors, as a deliberate strategy to grow the loan book in the sectors supported by risk management strategies,” reads the survey.

Economist from the Malawi University of Business and Applied Sciences Betchani Tchereni said the situation means banks make it more difficult for people to borrow.

“Risk management is one key area which banks focus on because the money they manage is not theirs but that of their customers. Therefore, they cannot just be giving it to people who might not be able to pay back,” he said.

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