The World Bank says despite their number, business reforms and potential to contribute more to the economy, the micro small and medium-sized enterprises (MSMEs) continue to struggle in their quest to scale up.

In a published blog on the World Bank website www.worldbank.org, the bank’s senior private sector development specialist Efrem Chilima observed that the sector lacks formal financing, forcing members to turn to informal but expensive money sources such as rotating savings and credit associations and loan sharks.

Small-scale businesses faces a number of challenges

This, he said, is in addition to limitations in many areas including business planning and management, book-keeping, financial management, marketing and employee management.

Said Chilima: “Sometimes, they simply do not have the resources to pay for support services that can help business growth and resilience.

“While some business-friendly reforms in the country have been made to address the above challenges, MSMEs continue to struggle in their quest to scale up.” 

He said the impact of the Covid-19 pandemic on private sector businesses in 2020 and 2021, especially on MSMEs, heightened the risks of bankruptcy and insolvency.

To address this challenge, Chilima said the Government of Malawi initiated  the Financial Inclusion and Entrepreneurship Scaling project, with a $86 million (about K86 billion) credit from the International Development Association, a development arm of World Bank.

Through the project, the Reserve Bank of Malawi (RBM) is partnering commercial banks, microfinance institutions and development finance institutions to provide low-cost loans to innovative enterprises, including those hit by Covid-19, support innovative start-ups and establish capable and well supervised investments while enabling them to adopt digital financial services.

“One year into the project implementation, more than $22 million [about K22 billion] has been extended to open lines of credit for MSMEs throughout the country,” said Chilima.

In a separate interview, Chamber for Small and Medium Enterprises Association executive secretary James Chiutsi said small businesses are facing financial challenges due to the Covid-19 pandemic coupled with the electricity challenges.

“All SMEs are affected as prices for raw materials are going up and suppliers have adjusted prices,” he said.

The 2019 Malawi Finscope MSME Survey estimates that there were almost 1.6 million small businesses in Malawi, employing about 1.8 million people.

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