1. Status of Agricultural and Rural Finance in Malawi July 2012 FinMark Trust Prepared by Jason Agar, Toby Lewis-Donaldson, Mannex Mwabumba, Chance Mwabutwa and Vuyo Mahlati Table of Contents Executive Summary ........................................................................... vi 1 Background to the Study .............................................................. 9 2 Introduction ................................................................................... 9 2.1 Economic Context ..................................................................................... 9 2.2 Rural Poverty ........................................................................................... 12 2.3 Agricultural Context ................................................................................ 13 2.4 Objectives, Ambit and Methodology...................................................... 16 3 Demand for Rural Financial Services ........................................ 17 3.1 Rural People ............................................................................................ 17 3.2 Savings..................................................................................................... 20 3.3 Insurance ................................................................................................. 22 3.4 Money Transfer ........................................................................................ 23 3.5 Borrowing ................................................................................................ 24 3.6 Implications for Policy Makers and Practitioners ................................. 27 3.7 Summary of Demand Side ...................................................................... 27 4 Supply of Rural Financial Services ............................................ 29 4.1 Macro - Regulatory Environment ........................................................... 29 4.2 Meso level – Supporting Institutions ..................................................... 30 4.3 Micro-Level – Financial Service Providers ............................................ 31 4.3.1 Banking Sector ............................................................................................ 31 4.3.2 Insurance, Pension and Capital Markets Sector .......................................... 34 4.3.3 Microfinance Sector ..................................................................................... 35 4.3.4 Informal Financial Service Providers ........................................................... 40 4.3.5 Money Transfer & Payment Services .......................................................... 42 4.4 Development Partners ............................................................................ 43 4.5 Implications for Policy-makers and Practitioners ................................ 44 4.6 Summary .................................................................................................. 44 5 Access and Inclusion .................................................................. 46 6 Disabling and Enabling Factors ................................................. 51 6.1 Predominantly Disabling Factors .......................................................... 51 6.1.1 Societal Factors ........................................................................................... 51 6.1.2 Demand factors ........................................................................................... 52 6.1.3 Supply factors ............................................................................................. 52 6.2 Predominantly Enabling factors ............................................................ 53 6.2.1 Societal Factors ........................................................................................... 53 6.2.2 Demand Factors .......................................................................................... 53 6.2.3 Supply factors ............................................................................................. 54 6.3 Summary Of Predominantly Enabling and Disabling ........................... 55 7 Recommendations ...................................................................... 57 Annex 1: Expectations Guide for Revision of Country Report ...... 58 Annex 2: References ......................................................................... 62 Page ii Table of Tables Table 1: Sectoral Share of GDP, 2008................................................................................ 10 Table 2: Agricultural Exports by Value (MK Millions) ........................................................... 14 Table 3: Main Household Livelihood Activity, 2010 ............................................................. 18 Table 4: Sector’s Share of GDP and Domestic Private Credit in 2008 ................................ 25 Table 5: Ownership and Outreach of Commercial Banks ................................................... 32 Table 6: Microfinance Loan Market Share, by Lender Category (2009-2010) ..................... 36 Table 7: Predominantly enabling and disabling factors for Malawi ...................................... 55 Table of Figures Figure 1: Budget Deficit and Debt/Interest, as % of GDP .................................................... 11 Figure 2: Growth Rates, 2000-2011 .................................................................................... 11 Figure 3: Sources of exports per capita (real 1994 MK) ...................................................... 15 Figure 4: Most Important Income Source, Rural People, 2008 ............................................ 18 Figure 5: Types of MSME, by Rural/Urban 2012 ................................................................ 19 Figure 6: 2012 MSME Occupations, as % of all MSMEs..................................................... 19 Figure 7: MSME Obstacles to Growth, 2012 ....................................................................... 20 Figure 8: MSME Attitudes to Risk, 2012 ............................................................................. 20 Figure 9: MSME Savings Access Strand, 2012 .................................................................. 21 Figure 10: Reasons to Save, MSME Owners, 2012 ............................................................ 21 Figure 11: Main Threats to Livelihoods, Rural Population, 2008 ......................................... 22 Figure 12: Potential Demand for Range of M-money Services, Urban/Rural Split, 2011 ..... 24 Figure 13: MSME Borrowing Access Strand, 2012 ............................................................. 26 Figure 14: MSME Reasons to Borrow, 2012 ....................................................................... 27 Figure 15: Bank Lending by Sector, %, 2010 ...................................................................... 32 Figure 16: Number of Branches, ATMs and POS per adult, 2009 ....................................... 33 Figure 17: Market Shares for General Insurers based on Gross Premiums in 2009............ 34 Figure 18: Financial Access Strand, 2008 .......................................................................... 46 Figure 19: Financial Access Strand, Rural/Urban Comparison, 2008 ................................. 46 Figure 20: Reasons for Not Having a Bank Account, Unbanked Adults (‘000s) .................. 47 Figure 21: Time and Travel to Banks, Estimated Number of Adults, 2008 .......................... 48 Figure 22: Financial Access Strand, MSMEs, 2012 ............................................................ 49 Figure 23: Financial Access Strand, by Size of MSME, 2012 ............................................. 49 Page iii Acronyms ADMARC Agricultural Development and Marketing Corporation AER Annual Economic Report ATM Auto Teller Machine BAM Bankers Association of Malawi CARE Cooperative for Assistance and Relief Everywhere CDH Continental Discount House CEM Country Economic Memorandum CFE Consumer Financial Education CFSVA Comprehensive Food Security Vulnerability Assessment CGAP Consultative Group To Assist the Poor CISP Comitato Internazionele per lo Sviluppo dei Popoli COMSIP Community Savings and Investment Promotion CP Consumer Protection CPA Consumer Protection Act CPFL Consumer Protection and Financial Literacy CPI Consumer Price Index CUMO Concern Universal Microfinance Operations DEMAT Development of Malawian Enterprises Trust ECLOF Ecumenical Church Loan Foundation FCA Financial Cooperatives Act FDH First Discount House FFI Formal Financial Institutions FIMA Financial Inclusion in Malawi (Project) FINCA Foundation for International Community Assistance FINCOOP Financial Cooperative Malawi Limited FISP Farm Input Subsidy Programme FITSE Malawi Finance Trust for the Self Employed FMB First Merchant Bank FSA Financial Services Act GDP Gross Domestic Product GoM Government of Malawi Human Immunodeficiency Virus/Acquired Immune Deficiency HIV/AIDS Syndrome IAM Insurance Association of Malawi IHS Integrated Household Survey IMF International Monetary Fund IOBM Institute of Bankers in Malawi KOs Katapila Operators MARDEF Malawi Rural Development Fund MANN Malawi Microfinance Network MASM Medical Aid Society of Malawi MFA Microfinance Act MFIs Microfinance Institutions MLF MicroLoan Foundation MNO Mobile Network Operator MRFC Malawi Rural Finance Company Limited MSB Malawi Savings Bank MSE Malawi Stock Exchange MSME Micro Small and Medium Enterprise MUSCCO Malawi Union of Savings and Credit Co-operatives Page iv NABW National Association of Business Women NASFAM National