Most Malawians Locked Out of Bank Loans Because They Work in the Informal Economy, Economist Says

# Overview

# How widespread the exclusion is With nearly all workers in informal arrangements, ordinary income statements, pay slips, and formal tax records are often missing. That means banks cannot apply their usual underwriting processes. The result is that people who earn consistent incomes through informal channels, and small businesses that operate without formal bookkeeping, remain effectively ineligible for normal loan products.

# Concrete barriers to borrowing Short list of the main obstacles described by Chikadza:

• Documentation gap: Many borrowers lack the paperwork banks require to demonstrate steady income.
• Collateral rules: Strict requirements for physical assets shut out households and small enterprises that could service loans but don't hold acceptable collateral.

• Mismatch of cash flows: Investment loans often take time to generate returns, exposing borrowers to repayment obligations before projects start producing income.

# Why mobile money alone isn't enough Malawi has expanded financial access through mobile money and digital banking, and account ownership is growing. Chikadza cautions that holding a bank account or mobile wallet does not equal full financial inclusion if people still lack access to affordable credit products. Account access is necessary but not sufficient for credit inclusion.

# Proposed practical changes Chikadza recommends specific, actionable reforms to widen the pool of creditworthy borrowers:

• Credit guarantee and risk-sharing schemes: These lower the lender's risk when borrowers lack traditional collateral, making banks more willing to extend loans to informal workers and microbusinesses.
• Smarter borrower assessment: Use transaction histories, mobile-money flows, and other digital financial records to evaluate repayment capacity, especially for small-value loans where formal paperwork is impractical.

These changes aim to bridge the information gap without forcing informal workers into costly formalization or requiring unattainable assets.

# Policy context Malawi is actively promoting greater financial inclusion. Chikadza's proposals align with that direction by focusing on practical mechanisms banks can adopt to serve more clients, rather than relying solely on account ownership as the metric of inclusion.

# Bottom line