Malawi: Malawi Finance Profile

Malawi, one of the world’s poorest nations, has faced growing macroeconomic management challenges for several years. Economic increase in 2011 slowed to 4.3% from 6.5% in 2010 due to shortages of foreign exchange and essential commodities such as fuel and inputs for manufacturing and reduced donor inflows and. GDP increase rate is expected to be stable in 2012 with a slight development in 2013 reaching 5.7 %.

The financial sector, relatively shallow, has remained largely stable, helped by the fact that it is largely not integrated into the world economy . The country’s banking sector, which includes 13 commercial banks with over 70 branches across the country, remains well capitalized and profitable. Prudential regulations have limited net foreign exchange exposure and non-performing loans remain low, though spreads continue to be high. The sector is however highly concentrated.

Financial deepening indicators for Malawi are increasing but challenges remain. Total deposit money bank assets amounted to 18.3 % of GDP in 2010, Bank deposits to GDP and bank credit to the private sector to GDP ratios were equally low, below the median for sub-Saharan Africa, at 20.8 % and 14.2 % respectively. As of 2010, the bank credit to deposit ratio stood at 70.9 %.

Only 19% of the adult people uses banking services and the government has provided incentives to encourage mobile banking services. While the passage of legislation to create a private credit bureau should help improve data on credit history, access to credit remains one of the biggest challenges for businesses and particularly the SMEs. There is a huge potential for using Mobile-banking technology to increase access in Malawi where mobile cellular subscription is still low, at 20 %.

Created in 1994, the Malawi Stock Exchange (MSE) started equity trading in late 1996. Malawi’s fixed gain market is in its early stages of development. Government deficit issuance consists solely of treasury bills with maturities of 91, 182, and 273 days. As of March 2013, the country received no long term sovereign rating by any of the three major credit rating agencies.

The supply of fixed gain securities remains rather limited and consists almost exclusively of short term government securities, though one commercial bank has recently introduced bonds in the market. The investor base, for its part, remains small and dominated by commercial banks and discount houses. The secondary market is small and operations are mainly centred on the activities of two discount houses which buy and re-sell Treasury securities. There is currently no derivatives market in the country, though the securities law is currently being revised to potentially allow derivatives trading.

Insurance companies represent small, but at no time-the-less noteworthy buyers of treasury bills. At last count, 13 insurance companies, inclunding 8 non-life insurers, 4 life insurers, and 1 reinsurance company operated in Malawi.