Malawi: 9 in 10 Malawians Shut Out of Bank Loans Because They Work in 'Shadow Economy' - Economist

What the report says

A Malawian economist is warning that most people and small businesses in the country remain effectively excluded from formal bank borrowing because they earn their income in the informal, or “shadow,” economy. The report, published by Nyasa Times and distributed by AllAfrica, quotes Dr. Bertha Bangala Chikadza, president of the Economic Association of Malawi and a University of Malawi lecturer, as saying that 92.6% of the population works in the informal sector, making it difficult for lenders to verify income or assess credit risk.

Chikadza said small and medium-sized enterprises face similar barriers because they often lack the paperwork, fixed assets, or collateral banks typically require. She also pointed to high interest rates as a further obstacle, arguing that they make loans expensive and can leave borrowers repaying debt before new investments generate returns.

At the same time, she said Malawi has made progress in financial access through mobile money and digital banking. But she stressed that owning a bank account or mobile wallet is not enough if people still cannot obtain affordable credit. Her suggested remedies include wider use of credit guarantees and other risk-sharing tools, plus better lending assessments that draw on transaction histories and digital records rather than only traditional documents.

The comments come as the Reserve Bank of Malawi continues to promote broader financial inclusion. In general terms, the issue matters because access to credit can shape whether households and businesses can invest, expand, and manage shocks.