Access to credit, which can be a true lifeline for micro, small, or medium sized businesses, remains one of the key challenges that individuals and small companies face in Malawi.
RBM Governor Dalitso Kabambe ICF's Madalo Minofu (2nd right) Kapito (2nd left) stressing a point during the panel discussion
This was said by World Bank Group's International Finance Corporation's Resident Representative for Malawi and Zambia, Madalo Minofu at the launch of the 2019 Credit Awareness Week graced by the Governor of the Reserve Bank of Malawi, Dalitso Kabambe, who is also the Registrar of Financial Institutions.
With support from the World Bank, the initiative is to increase the general public and specific target groups' awareness and understanding of the merits of accessing and borrowing money from licensed or registered lending institutions including banks, microfinance institutions and savings and credit cooperatives (SACCOs) as opposed to borrowing from informal lending institutions.
Minofu said if a business can access credit, it can grow and create jobs, leading to a stronger, more productive economy and a better quality of life.
"As we are gathered here today to launch the credit awareness week in Malawi, I would like to re-iterate the World Bank Group's continued commitment to helping Malawi develop a strong and sustainable financial sector, including through credit infrastructure," Minofu said.
"Credit infrastructure is one of the building blocks that allows financial institutions and other lenders to grow their portfolios -- increasing access to credit and, at the same time, maintaining financial stability.
"It protects the interests of financial institutions and lenders, and it also protects the rights of borrowers."
She observed that over the past years, Malawi has made incredible strides in enhancing its credit infrastructure -- including through its well-functioning and modern collateral registry and improving its credit reporting system.
One of the partners to the awareness campaign are credit reference bureaus, that will be sharing with the public their importance in order to access credit facilities from financial service institutions.
Credit reference bureaus provide a potential loan borrower's credit history that is passed on to financial institutions for them to make informed decisions whether to award the loan or not.
This is one other system that clients can use their credit reputation as collateral apart from using moveable collateral.
Minofu said for credit to truly have a positive effect on the lives of Malawians, credit providers and consumers alike need to better understand their rights and obligations when it comes to lending and borrowing.
"For this reason, initiatives like this credit awareness week are critical; by spreading financial education and awareness to communities, workplaces, and places of worship, you are helping all Malawians take control of their financial future.
"Malawians should feel empowered to use their credit history as a tool to access credit with better terms and conditions; understand how credit works and borrow responsibly; and feel confident that their rights as consumers are also protected in the process.
"It is also our hope as International Finance Corporation that all Malawians -- whether a small business owner, an entrepreneur, a salaried employee, or even a student -- will become financially healthy and check their free credit report once a year."
She congratulated the Reserve Bank of Malawi for organizing the credit awareness week and for Kabambe's steadfast partnership with IFC and dedication to improving access to finance in Malawi.
One of IFC's financial partner, the Kingdom of Denmark, is supporting the credit infrastructure work in Malawi.
There was also a panel discussion at the launch that involved Kabambe himself, Consumer Association of Malawi executive director, John Kapito; Bankers Association of Malawi president, Kwanele Ngwenya (who is also chief executive officer for NBS Bank); Malawi Union of Savings & Credit Cooperatives (MUSCCO) CEO Fumbani Nyangulu and Rogers Lungu, representing credit reference bureaus.
They all touched on the importance of understating credit terms and conditions such interest rate, repayment period, short term or long term loan, consequences of default before signing a credit agreement between a lending institution and a borrower.
They also talked on consumer rights and obligations when accessing credit and the benefits of accessing and using credit history reports from credit reference bureaus for informed financial decision making.
Kapito asked the RBM Governor if the commercial banks and other lending institutions must always civic educate clients before they sign loan forms on some of the conditions that are always attached but presented in fine print, which are not always known by the client.
"Some people have fallen into credit traps because they did not know of some of the loan conditions which were written in fine print," Kapito said.
"After a client has been paying for a while, and thinking that they have completed the loan, they discover to their horror that what they have been repaying was the interest and that they need to start repaying the premium.
"The banks need to sensitise the clients on all conditions attached because in most cases people needing a loan are always desperate for the money and don't have the patience to go through the fine print," he said.
Kapito said the awareness campaign should also sensitize people that they should not borrow when there is a need only but when they identify an opportunity for that loan to make more money.
Kabambe, who said it is unfortunate that out of the Malawi's total population, only 3 percent are accessing credit facilities because of financial illiteracy, which the awareness campaign aims at addressing.
He said others opt to borrow from loan sharks (katapila), which does not protect the interest of the borrower and in most cases, they fall into credit traps that end into seeing their property confiscated.