Malawi, ranked as the fourth poorest country in the world, saw seven in 10 Malawians living below the international poverty line in 2019. Poverty disproportionately affects people in rural communities, 77% of whom are poor, compared to 30% of those living in urban areas. These persistent inequities necessitate comprehensive solutions, one of which is improving rural finance in Malawi. This article describes how the government and private sector are working together to uplift Malawi’s poor with FARMSE, the Financial Access for Rural Markets, Smallholders and Enterprise Development program. 

Rural Finance in Malawi: Why Does It Matter? 

Agriculture accounts for over 25% of Malawi’s total gross domestic product and most rural families rely on farming for their livelihoods. However, climate shocks like floods, droughts and cyclones pose major risks that poor farmers do not have the capital to shoulder. If they are to thrive, enhancing financial literacy, building market readiness and bolstering access to financial services will be imperative. With increased financial know-how and the capacity to work outside of the agricultural sector, many Malawians stand a better chance of breaking poverty’s shackles.

Unfortunately, financial service providers often shy away from rural areas where low population density, limited infrastructure and small average transaction amounts make operating more costly. Many poor Malawians must travel long distances just to open a bank account or apply for a loan, making it impossible to save for a family, never mind a successful business. Therefore, strengthening Malawi’s rural finance infrastructure is key to reducing poverty in the long term. 

What is FARMSE? 

FARMSE is a partnership between the government, private and nonprofit sectors aiming to revive rural finance in Malawi and boost rural households’ livelihoods and resilience. Spanning 2018 to 2025, FARMSE has three strategic branches: graduating ultra-poor households from poverty, strengthening community-based financial organizations and increasing financial service providers’ presence in rural areas.

• Project 1: Building the Foundation of Poverty Graduation – Financial literacy training is foundational to growing individuals’ money management skills and empowering them to break out of poverty. Collectively, FARMSE’s partner programs have coached almost 20,000 ultra-poor households in personal finance first principles such as setting goals, budgeting and saving sustainably. Many programs go a step further, providing market-relevant skills training and startup capital. This enables ultra-poor individuals to become active participants in their local economies. 
• Project 2: Community-Based Financial Organizations Paving the Way Forward – Community-Based Financial Organizations (CBFOs) are groups where participants gather their savings to create a pool of funds from which members take loans. They range from small, informal groups of neighbors, to larger, semi-formal institutions with many contributors. In addition to providing capital, CBFOs foster trust by being community-run and encourage a savings culture even amongst unbanked individuals. FARMSE and its partners have committed to opening almost 5,000 new CBFOs and strengthening over 10,000 existing ones before 2025. It estimates that several million rural Malawians will benefit from the lending power of these institutions. However, CBFOs often suffer from high interest rates, weak governance and a limited pool of savings, making them an insufficient overall solution for rural finance in Malawi. Therefore, in Project 3, FARMSE expands the capacity of banks and credit cooperatives to increase rural Malawians’ access to formal financial service providers (FSPs).
• Project 3: The Role of FSPs – Equitable access to formal financial institutions such as banks and credit cooperatives forms the bedrock of empowerment for poor Malawians. Therefore, FARMSE partners with FSPs to expand their reach into rural, predominantly poor and unbanked regions. For example, after partnering with FARMSE in 2019, NBS Bank committed to opening 50,000 new accounts in remote and rural areas. This is a crucial step forward for poor Malawians who previously had to travel long distances to access basic banking services. At the same time, partner credit cooperatives launched an initiative to connect local CBFOs to more established lenders and help 40,000 enrolled Malawians save more effectively and access microinsurance.

Rural Finance in Malawi Going Forward 

As the world grapples with global socio-political crises and an unpredictable climate, building a robust ecosystem for rural finance in Malawi becomes pivotal for long-term poverty alleviation. FARMSE is at the forefront of this change, addressing the educational and institutional needs of all Malawians. Through financial literacy, inclusive institutions and strategic partnerships, FARMSE is guiding rural communities to the resilient and prosperous future they deserve.

– Faye Crawford
Photo: Flickr