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    SEPTEMBER 2009

    Established in July 2007, the Financial Inclusion in Malawi (FIMA) Project is currently jointly funded by UNDP, UNCDF, CORDAID, and the Government of Malawi itself. So far, a total of USD 5.7 million has been mobilized. But there is still a huge resource gap, especially now that many opportunities for financial inclusion in Malawi through innovations in technology, new products, and new service delivery channels are just emerging1.

    FIMA aims to expand access to finance in Malawi as part of the Government of Malawi's efforts to halve poverty by 2015 and spur a pro-poor private sector led growth. Since 2000, financial inclusion has featured prominently in all Government of Malawis major policy documents as one of the strategies towards achieving a broad-based economic growth.

    Based on the experience in building inclusive finance systems elsewhere, FIMA is designed to address the needs of the microfinance sector at three different levels:

    Support development of policy and regulatory framework that is conducive for microfinance to grow and blossom;

    Support the development of industry infrastructure; and,

    Build capacity of institutions directly involved in the provision of microfinance and support innovations that will improve access to financial services.

    By 31 December 20112, when it is initially planned to close, the FIMA project hopes to have generated the following results and outcomes:

    Capacity of institutions operating in financial sector strengthened to increase outreach and sustainability of the sector

    The number of poor households with access to savings products increased from 283,000 individuals to at least 764,000, of whom 50 percent will be women.

    1 Examples include Government of Malawis Letter of Intent and Memorandum of Economic and Financial Policies to the International Monetary Fund (IMF) in September 2003, Malawi Growth and Development Strategy Paper (MGDS), and Poverty Reduction Strategy (PRSP), etc. 2 See UNDP Malawi CPAP 2008- 2011

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    The number of poor households with access to credit products increased from 183,000 to 494,100, of whom at least 50 percent will be women

    Enhanced gender equality and womens empowerment resulting from the formulation of necessary policy, institutional capacity and systems, which improves or increases womens access to financial services and markets.

    Linkage and access to markets and financial institutions for agro-sector increased by 33%

    Strengthened capacity in Government to coordinate and manage development assistance in line with the Paris Declaration on Aid Effectiveness.

    Other positive project outcomes at its planned close will likely include:

    Increased flow of equity investment in and local currency lending to MFIs

    Table 2 below shows the link between the Projects different components, current microfinance sector challenges or shortcomings, and its targeted results and outcome to 31 December 2011. As reflected in the table, further action is needed to create favorable conditions for microfinance to grow and thrive.

    Table 2. FIMA Focus Area, Market Challenges, and Specific Objectives

    Focus Area Baseline Market Situation

    Key Results Areas

    Specific Objectives

    Facilitating policy dialogue among stakeholders

    Unfavorable policy and microeconomic environment for microfinance; Perceived over involvement of the public sector in microfinance Limited or poor coordination of the sector;

    Favorable policy and operating environment

    Enhance the understanding of opportunities and policy-related constraints to developing an inclusive financial sector in Malawi; Improve coordination, establish standards and create incentives for investors (protect consumers)

    Supporting innovation in the financial markets

    Limited outreach, poor institutional performance, and weak or lack linkages between the large and well-established intermediaries with the smaller FSPs that reach mostly the poor ; Lack of well trained manpower for the sector

    Increased availability of financial products and services that are suited to rural communities and poor households; Improved efficiency in service delivery;

    Improve efficiency in the delivery of financial services to the poor, enhance institutional performance of FSPs, and scale-up outreach

    Limited products and services; other

    Improved proximity of

    Strengthen the performance of FSPs

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    than microcredit, there is limited offering of savings facilities

    services closer to the rural population and low-income urban neighborhoods

    through better-trained manpower and efficient use of technology

    Absence of FSPs in rural areas, particularly small holder farming households; High interest rates and transaction fees for financial services

    Improved financial and non financial capacity

    Building the capacity of key market development institutions

    Lack of essential market information, i.e., financial performance of FSPs, quality of loan portfolios, , outreach, socio-economic profile of clients, etc

    Availability of market information and improved transparency; better measures and procedures for comparing MFIs effectiveness

    Develop standards; Build institutional and human capacity; improve sector coordination; and encourage cooperation and formation of strategic alliances

    Building capacity and supporting Financial Service Providers (FSPs)

    Weak institutional capacity for intermediation; Lack of well trained manpower for the sector; and limited supply of loan capital; basic tools and equipment is lack, weak or poorly working Management Information Systems (MIS),etc

    Increased accountability for results Better governance and oversight of operations

    Enhance performance and sustainability of FSPs; Develop Managers and industry leadership; strengthen institutional governance

    Availability of appropriate technology

    Reduced transaction costs

    In terms of action in this area, FIMA provides the platform and also resources, i.e., both technical assistance and capital, to enable the GoM and other stakeholders formulate appropriate legal, regulatory, and supervisory framework for microfinance as recommended in the 2002 National Microfinance Policy. From facilitating dialogue on the requirements of the sector to grow and expand, enhancing capacity for representation and coordination of the industry, to enabling the dissemination of good practices and creating fundamental awareness of the said framework, FIMA has mobilized modest funds to ensure the success of the strategy.

    Furthermore, the table above also shows that by providing funds to facilitate market research and product development, as well as enable innovations in service delivery, the Project hopes to improve the efficiency of MFIs and thus overcome the current limitation of existing financial products and urban-centered outreach.

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    At the micro-level, where much of the Projects efforts are directed, FIMA is responding to a range of capacity building issues such as the continued absence of MFIs in the rural areas, lack of capital to meet demand for services and expand outreach, as well as the noted lack of an adequately trained manpower for the industry. All in all, as of 30 September 2009 and notwithstanding the considerable delay in taking off, the FIMA project had achieved considerable results in all the three areas of interest (see Table 3 below), including supporting the Reserve Bank of Malawi (RBM) to enhance its capacity to regulate and supervise microfinance institutions, facilitating innovations in service delivery, and strengthening the capacity of seven service providers.

    A.1. Building retail capacity and enabling innovation

    Between June 2008 and September 2009, FIMA received 25 funding requests from service providers, appraised 21, and approved support to seven. Of the nearly USD 2.3 million funding approved, USD 820,000 had been disbursed. This means that in its first full year of activity, the Project would have disbursed about USD 2.3 million in support of MFIs and key market institutions.

    MFI/ Partners

    Date approved

    Amount Approved/ Obligated

    Amount Disbursed

    Pending Disbursement

    Investor/ Donor

    NBS Bank Grant

    30-Jun-09 $199,976 $199,976 $0 UNCDF

    Funding by Instrument at December 2009

    CUMO grant

    30-Jun-09 $133,000 $133,000 $0 UNCDF

    Obligated Disbursed Percent

    MLF Grant

    30-Jun-09 $28,000 $0 $28,000 CORDAID

    Grants $1,666,982 $1,256,106 74%

    MUSCCO Grant


    $185,350 $185,350 $0 UNDP

    Loans $600,000 $300,000 26%

    MUSCCO Loan


    $300,000 $300,000 $0 CORDAID

    Total $2,266,982 $1,556,106 100%

    FINCA Malawi - Grant


    $199,904 $199,904 $0 UNDP

    FINCA Malawi - Loan


    $300,000 $0 $300,000 UNDCF

    Funding by Source at December 2009

    MRFC Grant

    12-Nov-08 $200,000 $200,000 $0 UNCDF

    Obligated Disbursed Percent

    MAMN Grant

    1-Oct-08 $102,876 $51,438 $51,438 UNCDF

    UNCDF $927,852 $669,414 41%

    MAMN Grant

    1-Oct-08 $102,876 $51,438 $51,438 CORDAID

    UNDP $758,254 $460,254 33%

    RBM Grant

    1-Jan-08 $125,000 $85,000 $40,000 UNCDF

    CORDAID $430,876 $351,438 19%

    Pride Malawi - Grant

    1-Jul-06 $150,000

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