The Reserve Bank of Malawi (RBM) considers scaling up interest rate subsidies and credit guarantees in the quest to enhance the flow of credit for industrial productivity amid structural imbalances that leave the economy wobbly.
The central bank, whose primary mandate is price stability, in its attempts to stimulate production, faces a challenge in the cost of production that emanates from its own tight monetary policy stance that elevates prevailing bank rates, soaring above 30 percent.
However, RBM Governor McDonald Mafuta Mwale said in an interview that a number of interventions are currently being considered amid it is tied hands to tamper with the policy rate at the time inflation rate remains high.
“It is the economic fundamentals, particularly inflation rate, that determine where the policy rate should be. At the moment, inflation is still high but we are comforted by the recent trend. It has been declining for the past four months, and if that continues we may consider a review of where the policy rate should be,” Mwale said.
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With the monetary policy interventions struggling to stabilize the economy, the central bank admits more needs to be done and has mobilized the private sector, policy holders and financial sector to jointly tuckle bottlenecks affecting investment in production.
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Several projects were pitched in Blantyre at a symposium; Mwale said the central bank had already created a division that will stir implementation of the projects that have potential for exports, import substitution, supply stability and backward linkages to create opportunities in the SMEs sector.
However, the RBM will capaciate Malawi Agricultural and Industrial Investment Corporation to provide wholesale lending to banks to offer subsidized loans and also use the loan guarantee approach.
“We are in discussion with the Treasury to see how we can capacitate MAIIC to provide wholesale lending to commercial banks,” he said.
This intervention is a replica of the $86 million Financial Inclusion and Entrepreneurship Scaling project that provided $47 million credit to micro, small and medium enterprises for a post Covid recovery of the SME sector. It also provided $16 million for concessionary loans, equity and quasi-equity and partial credit guarantees.
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Bankers Association of Malawi President Phillip Madinga admits that the banks are starving the productive sector, committing to increase credit and avoid the use of a regulation.
He shared at the symposium on Tuesday that only K100 billion was extended to the productive sector, hinting on the need for sustainable lending by the financial sector.
