Financial Crime World

Banks and Non-Bank Financial Institutions Eye Digital Financial Services Market

Malawi’s financial landscape is poised for growth as banks and non-bank financial institutions (NBFIs) eye the digital financial services (DFS) market. Despite several challenges, the sector has shown promise, with a significant uptake of DFS in recent years.

Regulatory Environment

The Reserve Bank of Malawi (RBM) has played a crucial role in creating a conducive regulatory environment for the DFS sector. The country’s payment systems regulations, Payment Systems Act, and Payment Systems Interoperability Directive provide a framework for mobile banking and mobile money services. Additionally, the Guidelines for Applicants for E-Money schemes were issued in 2019 to regulate e-money schemes.

Gaps and Challenges

Despite these efforts, the DFS sector faces several challenges:

  • Low Digital Literacy: Limited understanding of digital financial services among the population.
  • Limited Electricity Supply and Network Coverage Issues: Rural areas often lack reliable electricity supply and network coverage.
  • High Mobile Money User Fees: High fees for mobile money transactions can be a barrier to adoption.
  • Resistance from Merchants: Fears of business taxes may discourage merchants from accepting DFS.
  • Lack of Fintech Companies and Innovation: Limited innovation in the fintech sector hinders growth.
  • Slow Turnaround Times for Transaction Corrections: Delayed correction of transaction errors can be frustrating for customers.
  • Cybercrime: Fear of cybercrime may discourage consumers from adopting mobile money.

Opportunities for Market Growth

Despite these challenges, there are several opportunities for market growth in Malawi:

  • Digitization of Civil Service Salaries: A significant uptake of DFS has been driven by the digitization of civil service salaries.
  • Conducive Regulatory Environment: The RBM’s regulatory framework provides a supportive environment for DFS growth.
  • Introduction of Biometric National Registration and Identification System (NRIS): The NRIS can support customer due diligence and e-KYC.

Actionable Opportunities

To leverage these opportunities, there are several actionable steps that can be taken:

  • Increase Volume and Value of Digitized Government Payments: Encourage the government to increase its use of DFS.
  • Promote Digital Literacy through Education Programs: Educate the population about digital financial services.
  • Introduce Digital Financial Services for Agriculture: Develop products tailored to the agricultural sector.
  • Develop Specific DFS Products: Create products such as overdraft facilities for agents and micro-load products for Mobile Money Agents.
  • Improve Data Automation: Enhance reporting templates and processes through data automation.
  • Partner with Banks, MFIs/MNOs: Collaborate with banks, microfinance institutions (MFIs), and mobile network operators (MNOs) to develop low-KYC products and loans to Micro, Small, and Medium-Sized Enterprises (MSMEs) and Small and Medium-Sized Enterprises (SMEs).

Conclusion

Malawi’s DFS sector has shown promise, but there are several challenges that need to be addressed. By leveraging the opportunities presented by the regulatory environment, digital literacy programs, and product development, banks and NBFIs can drive growth in the sector and enhance financial inclusion for underserved populations.