The Implications of Adaptations in Organisational Capacity and Cultures for the Provision of Microfinance In Malawi

The overarching Millennium Development Goal of reducing the global level of poverty by half by 2015 requires a concerted effort by all actors for it to be achieved - governments; the private sector; multi-lateral and bilateral agencies; civil society and the poor themselves. The potential contribution of pro-poor sustainable economic growth to this goal cannot be overemphasised. Microfinace, the provision of financial services, including loans, savings, insurance, remittances and other financial services to middle and low income categories has an importance role to play to achieve pro-poor sustainable economic growth.

What is the role for microfinance organisations? I have examined the implications of adaptations in organisational capacity and cultures of microfinance organisations (MFOs) in Malawi through an extensive research study. The premise of the study was based on three main turning points which impacted on the microfinance environment. First, ensuing macro-economic reforms following the adoption Structural Adjustment Programmes (SAPs) in Malawi in 1981; Second, political changes following the adoption of a multi-party democracy in 1993/94, and third, a new global paradigm shift towards commercialisation of microfinance.

A case study approach was used to study three different types of MFOs: a Government owned company - the Malawi Rural Finance Company (MRFC) originally the Smallholder Agricultural Credit Administration (SACA), an NGO - FINCAMalawi and a member owned credit union - the Malawi Union of Savings and Credit Co-operatives (MUSCCO). Using the concept of the cultural web, the study analysed the paradigm shift towards commercialisation among the three case study MFOs and its impact on micro and small enterprises (MSEs).

Changes in the macro-economic and political environment manifested by a competitive market and a pluralist political system triggered the dissolution of SACA due to its inefficiency, mismanagement and heavy politicisation. This led to the formation of MRFC. Whereas SACA pursued a 'welfarist' approach to financial service provision, MRFC adopted an 'institutionist' approach characterised by commercialisation of financial services. FINCA Malawi also pursued an 'institutionist' approach and continued to promote the "Village Banking" (VB) model. MUSCCO however, combined principles of both the 'welfarist' and 'institutionist' approaches. The study concludes with some learning points in the three MFOs' differential adaptations and commercialisation process: a government owned MFO shook off the image of its heavily politicised predecessor; an NGO operated as a "parallel" system to reach out to poor women, and a member owned MFO, coped with the changing environment by combining social and business principles. Therefore, provided there is a right balance, the culture of service and understanding of the poor, and banking can be complementary to each other for successful provision of microfinance services for the poor. However, the way this balance can be achieved may vary significantly according to the type of MFO and the context within which it is operating.

Kennedy Lweya, PhD