Malawi continues to improve its trade financing systems. The economy is largely cash-based, but there are gains made in usage of credit and debit cards. The economy is liberalized, but the Central Bank intervenes, when necessary, mostly in the foreign exchange (forex) market. The banking sector is profitable and most of the country’s eight banks consistently register profits after tax. The Central Bank is the custodian of regulations and policies in the financial sector.
Methods of Payment
Imports into Malawi are primarily financed through letters of credit (LCs). Commercial banks require importers to provide cash up front to secure the LCs to hedge against the risk of possible foreign exchange losses. Money is then transferred to foreign suppliers through correspondent banks. The Central Bank Payment System office issues regulations and manages payment systems. Most companies pay each other through checks and bank transfers.
The retail economy relies on cash, but credit and debit cards are slowly entering the market as payment mechanisms. Mobile phone-based money transfers are an increasingly popular payment method. Both major mobile phone companies offer phone-based money transfer, and many retailers and most of the major banks participate in one or both networks.
In 2020, the Reserve Bank of Malawi issued the Business Licensing (Deployment and Usage of Electronic Payment Channels) Regulations, 2019 to mandate licensed entities to deploy and use one or more electronic payment channels for payment of goods and services to provide a convenient, safe, and efficient experience for customers. Regulations require entities to register and mandate the use of electronic fiscal devices under the Value Added Tax Act or businesses with annual revenue turnover over mkw 10 million (US$9,670) must deploy Point of Sale (POS) devices at their premises. All other business entities are required to have at least one electronic payment channel of their choice, such as mobile money, mobile banking, or internet banking.
Some companies offer negotiated payment schedules to well-established companies in business-to-business transactions and to the government, which frequently requires flexible payment terms due to cash flow issues. Widespread lack of confidence in the Malawi government’s management of resources affects Malawi’s credit rating.
For more information about the methods of payment or other trade finance options, please read the Trade Finance Guide.
Banking Systems
Malawi has a generally sound banking sector, overseen and regulated by the Reserve Bank of Malawi (RBM). According to the Institute of Bankers in Malawi, only 25 percent of the adult population in Malawi use banking services. Access to credit remains one of the biggest challenges for businesses and particularly SMEs, mostly due to the cost of credit. The base-lending rate in June 2022 was 13.8 percent. There are eight full-service commercial banks. The four domestic, privately-owned banks manage 55 percent of total net assets in 2020, down from 57 percent in 2019. The remaining four banks are foreign owned and managed 44 percent of total net assets in 2020, up from 43 percent reported in 2019. The National Bank of Malawi and Standard Bank of Malawi dominate the sector with a combined market share of 46 percent for total assets and 47 percent for total deposits as of December 2021. These top two banks also account for 56 percent of total loans and 58 percent of total equity capital. In December 2020, the total net aggregate of bank assets reached mkw 2.253 trillion (US$2.2 billion).
Malawi neither has nor requires depositor insurance, but the RBM enforces safeguards and capital requirements. The RBM has guidelines on capital adequacy and liquidity ratio and adopted Basel II standards in January 2014. International accounting standards adopted by the Institute of Chartered Accountants in Malawi (ICAM) apply to all banks in country. Bank financial statements follow these standards and are audited by internationally recognized firms including AMG Global, Ernst & Young, and Deloitte. More information is available on the RBM website.
Foreign Exchange Controls
Although foreign exchange markets operate freely, the RBM has a mandate, as does any other central bank, to manage the exchange rate to maintain a sustainable balance of payments position, attain stable domestic prices, and foster growth in real income. The kwacha freely floated from 2012 until early 2022 with periodic interventions from the RBM to stabilize values. Players in the financial sector suggest RBM continued to exert influence on the rate, making it difficult for market forces to determine the official rate. The official exchange rate is usually below the black market and bureau rates tend to price kwacha at a slight discount to the USD. Foreign exchange pressures resulted in a 25 percent devaluation of the kwacha in June 2022, followed by several smaller devaluations throughout 2023. One of the conditions of the IMF’s proposed Extended Credit Facility (ECF) negotiations is the narrowing of the parallel market rate and official exchange rate. Malawi’s foreign reserves (forex) are critically low, resulting in shortages of essential, imported commodities such as fuel, fertilizer, and medicine. In an attempt to mitigate forex shortages, the government mandated thirty percent of all money generated though exports must be sold to the RBM at the official rate before any funds can be externalized. Critically high inflation is expected to continue to rise, leading to cost of living concerns. Legislation regarding exchange controls and updated percentages required to be sold to the RBM can be referenced at RBM Exchange Control.
The primary sources of foreign exchange in Malawi are the tobacco companies, the foreign exchange bureaus, donor inflows, foreign direct investments, and sugar, tea, and pulses exports.
To access Malawi’s ICS section on financing, visit the U.S. Department of State Investment Climate Statement website.
U.S. Banks and Local Correspondent Banks
Malawi has eight domestic banks: CDH Investment Bank Ltd; Ecobank Malawi Limited; FDH Bank Plc; First Capital Bank Malawi Plc; National Bank of Malawi Plc; NBS Bank Plc; MyBucks Banking Corporation Limited; and Standard Bank Malawi Plc. There are no U.S banks in the market. The two largest banks, National Bank of Malawi and Standard Bank, maintain banking relationships with several foreign banks, including: Citibank New York: Standard Chartered Bank of London: First National Bank of South Africa: Standard Bank of South Africa: ABSA Bank Limited of South Africa: Citibank of South Africa: Standard Chartered Bank Ltd: Bank of Montreal: Standard Chartered Bank Ltd: Danske Bank: Skandinaviska Enskilda Banken AB: Standard Chartered Bank Botswana Ltd: Standard Chartered Bank Kenya Ltd: Standard Chartered Bank Zambia Ltd: Nedbank Swaziland Limited: Deutsche Bank AG: Deutsche Bank Trust: Citibank: Chemical Bank: Bank of New York Mellon: Bank of America: Equator Bank: and Bank of China. Banking services include demand-deposit accounts, telegraphic transfers, and travelers’ checks. The other six banks also maintain banking relationships with several international banks including Citibank, ABSA Bank of South Africa, Natxis Bank of France, and DCB Bank of India. Banking services include demand deposit accounts and telegraphic transfers.