The National Small and Medium Scale Enterprises (Nasme) has described the performance of small and medium enterprises (SMEs) in 2025 as uneven, citing a tough economic climate marked by high interest rates, rising inflation and limited access to finance.
Speaking to Times Business on Sunday, Nasme SME Ambassador for the Southern Region, Patrick Chatanga, said most SMEs struggled to remain afloat due to macroeconomic challenges largely beyond their control.
Inflation, he explained, reached about 30 percent at the start of the year before averaging 28 percent by November, reducing consumer purchasing power while driving up business operating costs.
The situation was worsened by persistent foreign exchange shortages and high levels of government borrowing, which squeezed private sector access to credit.
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“If you look at the credit trend in 2025, the government was the preferred borrower. This meant most SMEs could not access financing, while many had still not been paid for goods and services supplied over the past two to three years,” Chatanga said.
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Despite these challenges, Chatanga pointed out positive developments , particularly increased government investment in priority sectors under the Agriculture, Tourism, Mining and Manufacturing strategy.
“This created opportunities for SMEs, especially in agro-processing and tourism services, generating jobs in the process,” he said.
He highlighted progress among women-led SMEs producing locally made goods such as cleaning products, which increasingly meet quality standards and reduce reliance on imports.
Looking ahead, Chatanga said the anticipated implementation of the Micro, Small and Medium Enterprises Act of 2024 in 2026 could widen access to capital and encourage formalisation of informal businesses.
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On prospects for 2026, he said SMEs are cautiously optimistic, expecting the government to adopt more disciplined borrowing policies.
“We expect a better year. SMEs make up about 85 percent of the private sector, and if government avoids reckless borrowing, the private sector can thrive,” he said.
The assessment comes amid sustained government dominance in domestic credit markets throughout 2025.
In the third quarter alone, net credit to Central Government from the domestic market rose to K900.6 billion, far exceeding the private sector’s K257.7 billion, according to the Reserve Bank of Malawi’s Third Quarter Financial and Economic Review.
Forex shortages persisted, with import cover below two weeks for most of the year, restricting access to forex for firms reliant on imported raw materials.
Economist Velli Nyirongo said the crowding-out effect was severe for SMEs, as high interest rates and government borrowing led banks to favour lower-risk government securities.
“This reduced credit available to SMEs, which are already seen as higher risk. SMEs are labour-intensive and account for a large share of new jobs, so constrained financing slowed hiring and, in some cases, led to job losses,” he said.
Nyirongo added that the gradual easing of inflation towards the end of 2025 offers some optimism for improved monetary conditions in 2026.
“If inflation continues to fall, the central bank could gradually reduce policy rates and ease liquidity, lowering borrowing costs and encouraging banks to lend to the private sector,” he said.
Meanwhile, Ministry of Industrialisation, Business, Trade and Tourism spokesperson Patrick Botha said government efforts focus on formalising SMEs through capacity building in financial management and value addition, supporting a shift from a consumption-based to an export-led economy.
Botha said the ministry is working with development partners and financial institutions to improve long-term access to finance.
He added that SMEs must register with the ministry and have products certified by institutions such as the Malawi Bureau of Standards to benefit from these initiatives.
