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SMEs rated poorly on credit worthiness

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James Chiutsi

Small and medium enterprises (SMEs) in the country have been rated poorly on credit worthiness due to high default rate and lack of necessary skills to manage funds.

This came out during the Monetary Policy Conference that the Reserve Bank of Malawi (RBM) held last week in Lilongwe.

Players in the banking sector took turns to express their frustration with the sector following a question raised by one of the participants.

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Bankers Association of Malawi (Bam) President, who is also National Bank of Malawi Chief Executive Officer, MacFussy Kawawa said a solution to the problem requires collective effort.

He was quick to point out that if the government’s appetite for borrowing reduces, it will have an automatic effect and drive the right behaviours within the banks.

“My advice is that the RBM should come up with policies, guidelines and directives that make it more attractive for commercial banks to play their role in the market,” Kawawa said.

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NBS Bank Chief Executive Officer Kwanele Ngwenya said he has had no pleasing experience that he would not want to go through again.

“So, we need to have the right culture and skills for the SMEs to enjoy the desired products,” Ngwenya said.

Seasoned banker and former secretary to the Treasury Elias Ngalande said some SMEs portrayed a wrong impression on debt management.

RBM Governor Wilson Banda said the central bank deliberately shies away from such policies after a similar policy affected the government negatively in the early 1970s.

“There was a government directive to hold commercial banks that X amount of their resources were to be channeled to agriculture. It followed that some two to three years later, we had drought and agriculture collapsed. It took down a huge chunk of the portfolio for the commercial banks.

“They came back to the government that ‘you put us in this situation; so bail us out’ and the government had no choice but bailed them out. So from that experience it was decided that the government should never again demand a portion of commercial bank resources to sectors of the economy,” Banda said.

President of the Malawi Union of Small and Medium Enterprises Barbara Banda pointed out that banks use ‘one size fits all’ approach to SMEs, which exacerbates the problem.

SME Chamber Executive Director James Chiutsi said commercial banks should work towards easing the conditions for loan access for SMEs.

The 2019 Malawi FinScope MSME Survey estimates that there were almost 1.6 million MSMEs in the country, employing about 1.8 million people in total.

About 74 percent of enterprises are micro, 23 percent are small enterprises and only 3 percent are medium enterprises.

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