According to recent reports, only 12 percent of households in Malawi have access to credit. With 65 percent of the population living under the poverty line, the rural population is especially vulnerable to the limitations of credit. As a result, Malawians are desperately seeking saving facilities, payment services, and access to credit in order to build assets and increase their income. However, many barriers impeded their path.

What Prevents Access to Financial Services

Malawi’s rural poor are excluded from formal financial sectors for many different reasons. Addressing some of these issues can help determine the path forward.

• Lack of Physical Access:One of the biggest problems is that financial institutions are centered in urban cities. Since there are few roads and insufficient transportation in rural areas, it is physically impossible for some Malawians to get to physical banks or financial service centers.
• High Interest Rates:The cost of financial services is one of the major obstacles that impede access to credit. Interest rates on commercial loans in Malawi are much higher than in the Southern African Development Community region. Estimates for rates range from 20-40 percent and some quote it as high as 55 percent. These rates are too high for the average Malawian farmer.
• Lack of Information:There is a lack of information to alternative financing options across the population. Therefore, many people in rural areas are not aware of any other ways to access credit or to increase their credit score.

What Can Be Done

In today’s modern age, a physical bank is no longer needed to conduct financial services. Virtual and automated banking is expected to replace 30 percent of bank roles in the next ten years. These virtual banks even the playing field for Malawians by allowing consolidated rates, 24/7 access to services, and a location for information about other services. Some of these alternative, virtual services include:

• Personal Loans:These loans have better payment schedules and can sometimes have lower interest rates than financial institutions. Personal loan lenders can also report your payment history to credit reporting agencies so that you can also build your credit score while paying off the loan. With a definitive schedule for repaying a loan, personal loans can even be more manageable than credit card debts. To find a personal loan, Malawians can use search sites such as this example from Finland.
• Peer to Peer Loans:Rather than receiving a loan from a financial institution, peer to peer loans allow people to receive a loan directly from an individual financer. In order to apply for a loan, you must visit a peer to peer lending platform such as Prosper or Perform, and the online marketplace will match borrowers and lenders. Although the site still uses credit scores, individuals may have more sympathy towards you and your situation as opposed to a national bank.
• Crowdfunding:Another way to finance an opportunity is through crowdfunding. Crowdfunding is a fairly recent innovation that utilizes crowdsourcing as a way to raise funds for a project or business. In order to crowdfund, you simply outline your project or business and start a campaign on a crowdfunding site such as Kickstarter or Indiegogo.

The change in financial technologies in the coming years will have a great impact in Malawi, and create more access to services for the entire population.