FinMark Trust released the results of its 2014 FinScope Consumer Malawi survey today. The survey measures the current levels of financial inclusion in Malawi and tracks the changes in financial inclusion since the launch of the 2008 survey. In the past five years, the financial sector in Malawi saw a number of reforms and the survey also examines the impact of these reforms on the level financial inclusion in Malawi.

Levels of financial inclusion in Malawi

According to the survey, interventions from both the public and private sectors have contributed to enhanced financial services access resulting in an increase in financial inclusion from 45% in 2008 to 54% in 2014. The results indicate that the banked population increased by 14% in the last five years and the growth has been driven by transaction products (public employees that are paid through bank accounts, savings accounts with ATM cards, remittances and the innovative Makwacha PIN protected debit card).

The level of borrowing from formal (regulated) credit providers (mainly banks), has dropped slightly. This trend in borrowing could point to the challenges with either the demand appetite or financial providers’ low appetite for risk taking. The study indicates that 49% of those who are not borrowing fear debts and 27% are scared that they would not be able to pay back the money borrowed.

On the other hand, other formal credit providers (including MFIs) have steadily increased the number of people accessing financial services with an increase from 231 591 in 2008 to 276 366 currently borrowing in 2014. According to the survey, a further 400 000 Malawians claimed to have previously borrowed money from MFIs. The majority of these borrowers borrow from Village Savings Loan Association (VSLA).

Landscape of Access is driven by savings

The landscape of Access of the included population (i.e., transaction products, credit, insurance, remittances and savings) in Malawi is driven by savings products. Of those who are included, savings has increased from 53% in 2008 to 58% in 2014. Saving through banks increased from 14% in 2008 to 17% in 2014. Further 1.2 million (16%) adults save through Village Savings and Loan Associations while those putting money into livestock, farming and/or business as profit making investment has declined sharply since 2008.

Is insurance growing?

The insurance sector in Malawi continues to be a small but growing sector (in absolute numbers). The FinScope survey shows that insurance products in Malawi largely target the needs of those who are salaried, with large disposal incomes and with higher levels of education. Insurance products that are offered on a large scale are the types that would allow low-income individuals and households to better cope with health and funeral expenses and other livelihood risks.

The study shows that illness/medical emergencies) and funeral were the most costly events reported by Malawians, with 1.4 million (19%) individuals from households that experienced one or more deaths in the past 12 months prior to the survey. Microinsurance is an opportunity that could be pursued in this sector as alternative insurance products that would allow low-income individuals and households to better cope with health and funeral expenses and other livelihood risks.

Generic barriers to financial inclusion

The biggest barrier to the uptake of financial products and services is affordability, i.e. insufficient/low/irregular income and fear of having debt or the inability to pay back borrowed money. The lack of knowledge/awareness is another barrier to financial inclusion. Low levels of penetration in the areas of insurance, credit and mobile money uptake occur due to the lack of product education which could change people’s behaviour or attitudes.

Payments system

The payments system in Malawi has undergone significant developments in recent years. The infrastructure support programs reformed the functioning of the financial sector, for example, through Malswitch (a frame relay-based national network infrastructure and transaction) Malawi has managed to link all commercial banks and discount houses onto a common network platform providing a number of electronic-based payment, clearing and settlement facilities. The survey shows that while there has been an increase in the number of adults with the Malswitch card from 35 969 (3%) in 2008 to 216 530 (9%) in 2014, there has been low usage of electronic-based payment through the Malswitch cards – compared to about 500 000 individuals who used Makwacha PIN protected online debit cards to buy goods at the merchant stores.

Mobile money

The analysis indicates that mobile money has a strong potential to become an enabler for financial inclusion in Malawi. However, the lack of information (unawareness) of the mobile money facility poses a challenge. The survey indicates that eight in ten (80%) adult Malawians are unaware of mobile money. Out of 20% (1.5 million) who are aware of mobile money, only 22% (325 000) use it. The majority (43%) of those who are aware of mobile money do not have enough information to be able to use it. Malawi’s enabling regulatory environment and cellphone access rate of 72% (adult individuals) presents a huge opportunity to empower large segments of the cash-based society in Malawi. Mobile money usage (transactions) is similar to that of most other developing countries with use mainly for remote payments (purchase airtime 32%) and remittances (26%). Consumers are using mobile money where there is a very clear, simple ‎value proposition and the differences in the rate of adoption of mobile money services across markets ‎are dependent on what the user regards as being of value.

Livelihoods

Farming and ganyu (piecework) are  two livelihoods strategies that are often related to low levels of income with about two in five adult Malawians earning less than MK10 000 (US$23.8) a month. The survey indicates that Malawians save and borrow for similar reasons; i.e. mainly for living expenses, farming and medical expenses. Evidence from FinScope surveys suggests that this is often the reason why people resort to informal mechanisms. The challenge for the formal sector will be to find ways of leveraging the informal sector (e.g. through providing services to savings groups) without creating usage barriers for those who depend on these mechanisms.

Low levels of financial literacy

The survey results show that low levels of financial literacy is one of many factors that contribute to the low levels of financial inclusion. The majority of adult Malawians do not have enough knowledge on most of the financial-terms used by financial institutions. The findings further reveal that adult Malawians would like to know more (desired financial education) about ‘how to keep money safe; saving products; how credit and interest rates work’. However, there is a gap between ‘the lack of knowledge about used financial terms, desired financial education and their current source of financial advice on how to manage the money. Two in five Malawians do not ask for financial advice, while 52% of those who seek advice on money management depend on family and friends. The usage of financial institutions and financial advisors is notably low. The findings also indicate low levels of education (78% have primary education or lower) among the adult population. The absence and/or poor state of financial literacy can lead to making poor financial decisions that can have adverse effects on the financial health of an individual.

FinScope

FinScope was launched in 2002 by FinMark Trust (www.finmark.org.za).  Its purpose is to establish credible benchmarks on the use of, and access to, financial services.  It is designed to highlight opportunities for innovation in products and delivery. The FinScope survey is a comprehensive and national representative study on financial inclusion, looking at how people source their income and manage their financial lives. It has been implemented in 18 countries (10 in SADC, 5 non-SADC Africa and 3 in Asia).