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(NYASATIMES, MICROFINANCE.ORG) Govt urged to rethink on microfinance institutions

Govt urged to rethink on microfinance institutions
13 January, 2009 01:56:00

Gondwe: Government would no longer act as collections agent for loans

Civil Servants Trade Union (CSTU) has asked Malawi government to rethink its recent decision to cease guaranteeing loans obtained from microfinance institutions (MFIs) or to increase loan facilities to its employers.

The government made the decision in December 2008, stating that MFIs were charging “exorbitant” interest rates increasing poverty among civil servants in the country.

Blue Financial Services and Izwe were specifically referenced under this accusation.

Finance Minisister Goodall Gondwe made the announcemrent and is reportedly adamant that the government would no longer guarantee or act as a collections agent for loans obtained from microfinance institutions.

It is unclear from the various reports whether this will pertain to all MFIs or just to those deemed to be unfairly exploiting civil servants.

There are currently nine MFIs in Malawi which report to the Mix Market, but Blue Financial Services and Izwe were not listed.

The lending rates of these institutions are not available on their websites, however it was reported in The Nation that Blue Financial Services offers credit at approximately four percent interest per month, or 48 percent per annum, while Izwe offers credit at 3.3 percent interest per month or 39.6 percent per annum.

“The Government cannot be used as an agent to reap off Malawians. We, therefore, have decided to part ways with the institutions,” Gondwe was quoted as saying.

CSTU president Elia Kamphinda Banda has suggested that, in response to this decision, the government should increase funds allocated to the loans advance facility in all ministries.

In a recent article on microfinance, the BBC commented that the flood of investor money into microfinance has caused concern that poor people will be taken advantage of by institutions seeking aggressive profits.

In the same article, Peter Ryan, founder of the Microloan Foundation which operates in Malawi, stated that for-profit loan providers in Malawi do not target the poorest of the poor and do not provide business training.

As of 2004 in Malawi, fewer than six percent of small and micro-enterprises had access to credit, while the Malawian microfinance industry was described in 2006 as being “in its infancy stage, relatively underdeveloped, and operating with limited outreach”.

Blue Financial Services is an African financial services company, founded in 2001.

For the fiscal year ending February 29, 2008, company assets (p. 136) totaled R 820.2 million (USD 109.6 million). On page 74, Blue states that its loan book increased by 133 percent to R 481.9 million (USD 64.4 million) from R 207 million (USD 27.7 million) in 2007.

As of January 9, its return on assets was 7.97 percent, and its return on equity was 14.81 percent. Total debt-equity ratio was 0.0365. Blue Financial Services Ltd. currently operates five branches throughout Malawi.

It currently offers personal and corporate life insurance, as well as one short-term loan product in the form of a salary advance and one personal loan product.

The terms of the loans were unavailable online and Blue Financial Services small, medium and micro-enterprise loans are not available in Malawi.—Microcapital.org

Labels: CSTU, MICROFINANCE

posted by MrK @ 8:05 PM