Malawi: 9 in 10 Malawians Shut Out of Bank Loans Because They Work in 'Shadow Economy' - Economist

A leading economist has warned that a staggering 92.6 percent of Malawians are unable to secure formal bank loans due to their employment within the informal sector. Dr Bertha Bangala Chikadza, President of the Economic Association of Malawi (ECAMA) and a senior macroeconomics lecturer at the University of Malawi, highlighted the challenge banks face in verifying the income and risk levels of those who work informally.

Chikadza emphasized that the lack of formal financial documentation and assets also hinders their ability to obtain credit from traditional lenders. High interest rates exacerbate the problem, making borrowing even more unaffordable for small businesses that rely on loans for investment and growth. Chikadza criticized the strict collateral requirements imposed by banks, which exclude many Malawians who are financially capable of repaying loans but lack the necessary assets.

However, she acknowledged that Malawi has made progress in expanding financial services, particularly through the widespread adoption of mobile money and digital banking. Chikadza stressed that merely having a bank account or mobile wallet does not constitute true financial inclusion; it must include access to affordable credit.

She called for the expansion of credit guarantee schemes and the adoption of alternative risk assessment methods, such as transaction histories and digital records, to include more creditworthy borrowers currently excluded from the formal financial system. Her recommendations align with the ongoing efforts of the Reserve Bank of Malawi to promote financial inclusion and bring more Malawians into the formal economy.