UN/Malawi signs pact to develop micro-finance sector
The government of Malawi, the United Nations Development Programme (UNDP) and the United Nations Capital Development Fund (UNCDF) have signed an agreement to support the development of the micro-finance sector in Malawi under a project known as Financial Inclusion in Malawi(FIMA).
Director of Finance in the treasury, Dr. Perks Ligoya, said the main objective of the FIMA project is to increase sustainable access to financial services to the poor and low-income people.
“In so doing we will be contributing to the achievement of the Malawi Growth and Development Strategy and Millennium Development Goals, particularly goal number one of halving poverty by 2015,” he said.
According to Dr. Ligoya, under FIMA project, a virtual fund, known as the FIMA Fund, has been established to support innovations and expansion in reaching out to the poor in rural areas through investments in financial service providers (FSPs).
Initial investors in the FIMA Fund are the UNDP, UNCD, CORDAID (Catholic Organisation for Relief and Development AID) and USAID (United States Agency for International Development).
The government economist explained that the FIMA Fund will support innovation in financial services to the poor in the following areas: agricultural finance, savings mobilisation in the urban, rural and peri-urban markets, electronic banking services and new lending methodologies (products and delivery mechanism).
“FIMA Fund will also fund capacity building activities and provide loans and guarantee mechanisms to strengthen the financial base of the FSPs,” he added.
Government of Malawi is calling upon all registered or licensed FSPs, that have the capacity to expand, to reach out in relevant areas through innovative methodologies of delivering financial service and/or strengthening the existing financial base and performance. All applicants must have been in operation for at lest two years in Malawi.
Dr. Ligoya explained that FIMA has four types of funding available, namely; seed capital, capacity-building grants, market-based loans, and credit guarantee mechanisms.
The seed capital funding is a long sub-ordinated zero-interest liability that would be converted into equity after certain conditions have been met, targeting institutions that are start-up and emerging FSPs that need to create an equity base and have funding needs for investments in fixed assets and or part of their loan portfolio. The maximum amount that can be provided under this facility will be US$300,000.
Under the capacity-building grant, the funds provided would be aimed at strengthening the capacity of the existing operations, particularly towards improving transparency and accountability.
“It will also be used to support innovative projects that test new products and new ways of delivering financial services and the maximum amount that be provided under this facility is US$200,000,” Dr. Ligoya said.
Market-based loans will be provided at or near market rates for activities that strengthen the financials base and performance of the FSP. The maximum amount that can be provided under this facility is US$300,000 for a maximum duration of three years.
The credit guarantee mechanism facility has been tailored to cater for FSPs that require funds beyond the limit of FIMA loans, but qualify to obtain such loans from the commercial banking sector with the exception that they lack collateral. All what will be required from the financial service providers under this facility would be to demonstrate that it can service the commercial loan from its operations and the maximum amount provided will be US$500,000.
