UNCDF and Partners to provide $6 million boost to Microfinance in Malawi
A client of PRIDE Malawi, a microfinance institution, reimburses a loan he took out to start a small business making household furniture. Photo by Adam Rogers
LILONGWE, 20 June 2007 - The Government of Malawi and two United Nations organizations yesterday launched a new $6 million programme that is expected to contribute significantly towards poverty reduction by increasing access to financial services that service poor and low-income population groups. The programme is being called Financial Inclusion in Malawi (Fima).
In Malawi, only three percent of the population has access to saving services while a marginal one percent access credit. Insurance services are virtually absent, and the percentage of poor families with access to any financial services in rural areas is even lower.
The United Nations Capital Development Fund (UNCDF) and the UN Development Programme (UNDP) are addressing this challenge through the development of an inclusive financial sector in Malawi. Through this latest initiative, each are contributing US$2 million to a $ 6 million basket-fund, which will run from 2007 - 2011.
Speaking at a signing ceremony on 19 June, Malawi's Minister of Finance, Goodall Gondwe, said deepening the financial sector by providing credit facilities to more people - especially poor and vulnerable communities - can only bring good news for the economy. He added that lack of access to credit is a major stumbling block in increasing production and this facility will enormously alleviate this problem and realise a meaningful change in the lives of many Malawians, especially women.
Henri Dommel, the director of UNCDF's Inclusive Finance Practice Area said the project is a response to the growing demand in Malawi for financial services, including loans, savings, payment services, money transfers and insurance for poor and vulnerable people. "We expect the project to cause a substantial increase in the number of household savers," he said, adding that savings is as important as credit as it provides a cushion for the client in the event of difficult times. Moreover, savings create a capital base from which microfinance institutions can operate sustainably.
Michael Keating, UN Resident Coordinator and UNDP Resident Representative said that the UN strongly advocates for inclusive finance as one of the best tools in alleviating poverty and contributing to the achievement of the Millennium Development Goals . "More than 80 per cent of Malawi's population lives in rural areas," he said. "People need access credit and other financial services to improve their standards of living, open businesses and to participate in and benefit from economic growth of this nation. Women in particular, will be targeted by initiative."
The Financial Inclusion in Malawi (FIMA) project will focus on three areas: a) nurturing dialogue among stakeholders; 2) supporting innovation in financial markets that deepen and broaden access; and 3) building the capacity of key institutions supporting micro, rural and agricultural finance.
The project aims to build an inclusive financial sector characterised by numerous microfinance institutions that will provide innovative and varied financial services in a competitive environment while operating through a legal framework that is conducive for business accountability and development. Market innovations that increase the supply of savings services will be encouraged through a network of partnerships - nationally, regionally and internationally.
The project will be implemented by the Ministry of Finance and UNCDF. Primary partners include the Ministry of Finance, Ministry of Industry, Trade and Private Sector, Ministry of Agriculture, the Reserve Bank of Malawi, Malawi Microfinance Network and donors.
Bill Chanza, UNCDF Programme Officer in Malawi, said some remarkable economic recovery is being realised in Malawi but its economic performance is still fragile due to a high dependency on a limited set of export crops and a strong dependency on foreign aid inflows. "Many donors are actively supporting the government to implement the Malawi Growth Development Strategy (MGDS) in the areas of education, water development and energy," he said.
Malawi's financial sector, however, lacks microfinance institutions for smallholder farmers whose production of maize and tobacco make up the bulk of the country's supply of staple foods and contribute to the majority of the country's export earnings and potential entrepreneurs in the rural areas with no savings facilities or collateral for loans.
Links:
UN to pump K560m for microfinance project, by Gedion Munthali, National News of Malawi.
http://www.dailytimes.bppmw.com/article.asp?ArticleID=5243
UNCDF Malawi webpage.
http://www.uncdf.org/english/countries/malawi/index.php
