Despite innumerable challenges, Malawi has experienced strong growth in uptake and usage of digital financial services (DFS). While this growth is still lower than Uganda and Tanzania, it is comparable to levels of growth being experienced in Zambia.

In this blog, UNCDF and Reserve Bank of Malawi (RBM) would like to highlight some of the exciting changes happening in the market now that are helping accelerate adoption and usage of DFS in Malawi. There are clear signs that given appropriate investments in Malawi DFS ecosystem, forging of necessary partnerships and commitment by all stakeholders, the country is heading towards being the next Digital Economy success story in Africa.

Having launched the first mobile money pilot in 2012, Malawi has seen number of adults using DFS leapfrog from 1,000 to 2.3 million active users (90 days) as of June 2018 representing 25% of the adult population. This tremendous growth has been highlighted in the 2017 Global Findex, released by the World Bank in April 2018.

The Reserve Bank of Malawi has played an important role in creating a conducive regulatory environment that has fostered private sector led innovation and growth. RBM permits both banks and nonbank financial institutions to offer DFS. There are critical laws passed by parliament in 2016 including Payment Systems Act, E-Transactions Act and Communications Act that have provided to guide further development of the DFS market. Following the Payment Systems Act, RBM issued a directive in September 2017 mandating interoperability of DFS through the National Switch.

Key Developments in 2017-18.

A new biometric ID changes the financial inclusion landscape. Malawi has introduced a biometric National Registration and Identification System (NRIS). Having successfully rolled out the system in 2017 with over 9.1 million adult citizens registered and possessing new biometric identification cards, Malawi is ready to leverage the NRIS infrastructure to further accelerate attainment of financial inclusion through innovative mechanisms. Through the system there is an opportunity to significantly reduce cost of financial services and more easily expand financial inclusion. This transformational rollout has been co-led by the Malawian Government’s National Registration Bureau and the United Nations Development Program, and funded by Government of Malawi, UKaid, EU, Irish Aid, Norwegian Embassy, USAID and UNDP.

RMB giving a regulatory nudge on leveraging the new national ID. To this end RBM has been a supportive regulator in discussions with Bankers Association of Malawi and other financial services providers with the National Registration Bureau and UNDP, to put in place MOUs that will facilitate the necessary integration of providers to the NRIS. These MOUs help make the important arrangements of the cost and technical integration protocols with the banks to the system. This is the first step to include the entire DFS Ecosystem (including others – like MNOs, and 3^rd parties) to integrate into the system.

Malawi has also achieved what is to be considered the “dream” of many countries interoperability is now a reality between MNOs. Both Malawian MNOs have integrated with the National Switch, which is critical for Malawi to achieve meaningful interoperability of the financial system with potential to include more Malawians in the formal financial system. Malawians are now able to send money from Airtel Money to TNM Mpamba and vice versa in real time through the National Switch platform.

In another first, RBM has also in consultation with DFS ecosystem stakeholders developed a regulation that mandates MNOs to return interest earned from trust funds to customers. A trust account is a bank account which maintains customer funds equivalent to e-money issued to facilitate customer transactions. Earning interest will likely motivate Malawians to use e-wallets as a safe place to keep money and contribute to their financial inclusion.

Furthermore, RBM has recently in collaboration with the Ministry of Industry and Trade issued a directive mandating all businesses to allow payments through at least one digital channel. Merchant payments is one key DFS use case that has lagged behind in Malawi. This directive will therefore significantly contribute in the achievement of the digitization agenda which encourages transition to electronic payments and move Malawi to a cashlite economy. Customers will benefit in having a cashless transaction method that will reduce the need for finding exact change and hopefully will “keep e-money in the system”, a goal of most DFS providers and the RBM.

The RBM is sharing the responsibility of DFS Sensitization. A National Taskforce on Electronic Payments (NTEP) was established among other things to coordinate sensitization activities and directly engage key stakeholders in the payments ecosystem. NTEP is chaired by the RBM and draws membership from Government (Ministry of Finance through the Accountant General’s Office and the Ministry of Civic Education, Culture & Community Development), Bankers Association of Malawi, mobile network operators, Financial Intelligence Authority, Competition and Fair Trading Commission, Malawi Communications Regulatory Authority, Institute of Chartered Accountants in Malawi and Insurance Association of Malawi. While meaningful awareness of DFS, and why it is useful to everyday Malawians is still a large barrier to the uptake of DFS, the impact of the sensitization campaigns has been acknowledged as helpful, showing the impact of the communication by the private sector with the backing of the Government and RBM.

There are indeed exciting things happening in the Malawi DFS ecosystem. While Malawi is constantly learning from peers across the world and in the region, we believe much is to be learned from some of Malawi’s advancements in recent years.

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For a video account of our work in Malawi please watch this interview of Nandini Harihareswara https://www.youtube.com/watch?v=1LPHU343crM&t=1s