Wide interest rate spreads, any hope for small economies? A look at Malawi

The aim of this paper is to study the trend of interest rate spread in Malawi and establish if any association exists between economic growth (measured by real GDP) and the spreads. The study adds to the existing literature in that it analyses in detail the factors that cause wider interest rate spreads in Malawi and other developing countries, and provides suggestions on alternatives to adopt in order to narrow the spreads. The study further establishes a link between a country’s economic growth and its real interest rate spread as provided by the commercial banks in Malawi. Using a correlation and regression analysis on data ranging from 2006 to 2014 derived from a sample of Malawian banks, the results suggest that in small economies, the banking sector’s over reliance on interest income is significantly correlated with wide interest rate spreads and therefore if commercial banks come up with other revenue generation avenues, other than leaning wholly on interest revenue, the interest rate spread can be narrowed; and that the wider spreads so far recorded have a reasonable contribution to the malfunctioning economy. The study finds a strong relationship between inflation rate and interest rate spreads but fails to establish a strong and significant relationship between interest rate spread and GDP growth. Key words: interest rate spread, inflation, banking sector, liquidity reserve requirement, GDP

An analysis of bottlenecks to SME growth in developing countries: A case of Malawi

Trade and industry have been key and crucial aspects of economic growth in every country and in most economies that are matured and self reliant, overall productivity has been realised mostly from trade activities. The most important question entrepreneurs struggle to address is where their businesses would be after some period of time, that is, whether the entities will grow substantially as anticipated by the owners on the onset. A lot of challenges exist that suffocate business especially those in the SME category and the lucky ones among many remain stagnant in size, profitability and efficiency.   This paper investigates the key challenges faced by small businesses which hinder most of them from growing to the expected levels with particular emphasis on developing African economies which are mostly donor dependent. Through a questionnaire survey, the study reveals that the SME challenges are multifaceted ranging from basic management skills to access to finance.  The findings of this study will assist firstly, the policy makers in the economy to create an environment conducive to the growth and consistent outstanding performance of SMEs in any economy; and secondly the entrepreneurs themselves will be able to identify any self made challenges in their operations and avoid recurrence of the same. Key words: Small and Medium Enterprises, economic development, business growth, SME financing, entrepreneurshi

Liberalization of Utility Services in the Developing Countries: A Panacea to Economic Development? An Analysis on Malawi Power Sector

Economic development is a compound outcome arising from a combination of many factors which may include among others, good governance; educational levels of the citizenry; effective political and administrative systems; availability of production resources; as well as availability of utilities such as reliable electricity and clean and potable water. Holding all other factors constant, the paper discusses the impact of reliable accessibility of utilities on economic growth and whether it is necessary or not to privatise or liberalise the utility sector, especially the electricity sector to enhance power access in promoting economic growth in developing countries like Malawi. Most developing countries in Africa face a lot of challenges in power generation and supply and the paper is focusing on establishing whether these challenges are a significant cause for stunted growth in GDP per capita in these countries, and whether liberalisation could be a way out of persistent power shortages affecting the economy. The study findings reveal that there is a direct relationship between electricity consumption and growth in GDP per capita and that most developing countries struggling to improve their economies share the same challenge of power supply for effective productivity. The study further finds that liberalization of the power sector can invigorate the country’s productivity and hence improve the GDP per capita