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Village banks are new safety net

TAKING OVER—Village banks

Village banks are gradually becoming the main source of borrowing for households across the country, a recent Integrated Household Survey by the National Statistical Office (NSO) shows.

Findings of the survey show that about 42.1 percent of the households borrow from village banks, while 15.1 percent borrow from relatives, 12.7 percent from neighbors, 9.0 percent from loan sharks (katapila) and 6.1 percent from other sources.

Bottom on the list of sources of loans is Mardef (now NEEF) which has 0.4 percent seconded by grocery local merchant and employers at 0.7 percent.

Borrowing from employers is fourth from bottom at 1.0 percent while banks are on number five from bottom at 1.5 percent.

“Loans obtained from village banks were higher in rural areas (42.9 percent) compared to urban areas (37.9 percent), relatives were a source of credit for 16.3 percent of households in rural areas compared to 8.9 percent in urban areas and borrowing from commercial banks was higher in urban areas (3.7 percent) than 1.0 percent of rural areas,” the report reads.

Chancellor College-based economist Laston Manja said in an interview Monday that this reflects that consumers are shunning the formal financial sector as source of funds.

Manja said there is need to regulate the informal sector to protect consumers from exploitation.

“It is evident that more people are borrowing. Therefore, we need more interventions because there is a possibility that people would be facing numerous challenges,” he said.

There have been continued calls from commentators to have village banks incorporated into the formal financial sector by regulator, the Reserve Bank of Malawi.

This comes amid growing concerns that the majority of Malawians still do not have access to formal banking services.

A recent Finscope Survey found that 51 percent of the population has no access to formal financial services while only 27 percent are banked.

In most cases, borrowing conditions of village banks are deemed flexible, with softer interest rates.

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