“Small businesses can become a catalyst for accelerated economic development for Malawi” – John Bande, Trade Minister
LILONGWE, May 17, 2012—Malawi has about 760 000 small business owners generating an annual revenue of about US$2billion, but 60 per cent of whom do not use financial services. The 2012 Malawi financial scoping survey of micro, small, and medium enterprises (MSME) launched today by the Minister of Industry and Trade also shows that small business owners in Malawi are relatively young with an average age of 31 years, with 70 per cent of them having just primary education. The MSME sector creates employment for just over a million people.
The MSME survey is a nationally representative survey focusing on small businesses and their financial services needs. The survey provides evidence based information to enable government develop policies supportive of the MSME sector according to its real needs. Micro businesses are defined as those that employ one to four people, small businesses have five to 20 employees, and medium ones have 21 to 100.
“No country can hope to achieve sustainable economic growth without expanding and diversifying trade with small businesses. A vibrant small and medium enterprises sector can become a catalyst for accelerated economic development for Malawi,” said Industry and Trade Minister Honourable John Bande. “With these survey results, the Ministry of Trade and Industry will be able to develop a robust MSME Policy and Strategy for Malawi," he added.
The Malawi Government is reviewing its MSME policy. Findings from the survey will inform the policy on the current environment in which MSMEs are operating, their competitiveness, and challenges affecting growth and profitability of MSMEs, including access to financial markets.
The survey establishes that the smaller the business in terms of number of employees the less likely that the owner has or uses banking services to manage the finances of their business. To manage business finances, most of the small business owners keep their money at home. Only 22 percent have or use products or services offered by a commercial bank, while 13 per cent use formal but non-bank financial institutions. On savings, about 66 per cent do not have or use savings products or services, with 13 per cent relying on informal mechanisms such as savings groups, while less than one per cent keep all their business savings at home. Half of the SMME owners save mainly to expand their business and a quarter save just to have money when needed.
Three quarters of small business owners do not borrow because they are wary of their ability to repay the loan. The largest source of credit for small businesses is friends and family, followed by village bank or a cooperative. Only 2.6 per cent rely on informal mechanisms such as informal money lenders, and another two per cent have loans offered by a bank. Business owners mainly borrowed to pay back debts (71 per cent) and 54 per cent borrowed to grow the business.
Risk and insurance cover is very uncommon among these business owners. Only two percent have financial products to cover their risks. The main risks are natural disasters (40 per cent), illness or death of the owner (32 per cent), and theft of business stock, equipment or livestock (31 per cent). About a third of the MSMEs are agriculture based making them more vulnerable to natural shocks. Most of them do not have a coping strategy should disaster strike. More than 40 per cent of business owners do not market their enterprises or rely on word of mouth. Only about three per cent of them are registered while eight per cent are licensed. Medium sized businesses are more likely to be licensed.
Fifty-four per cent of MSMEs owners are males, while 46 per cent are females. Close to 20 percent of the business owners have a secondary education. Less than half a per cent have a university degree and less than one per cent have a technical diploma or apprenticeship.
The MSME survey was commissioned by the Ministry of Industry and Trade with support from UK’s Department for International Development, European Union, United Nations Development Programme, and the World Bank. FinMark Trust and the National Statistical Office provided technical expertise.