Access to credit and its impact on welfare in Malawi

This research report uses an econometric analysis to determine smallholder access to and participation in informal and formal credit programs in Malawi, as well as the marginal impacts of access to formal credit on farm and nonfarm incomes, household food security, and nutritional status. The credit programs studied are: the Malawi Rural Finance Company (MRFC), a state- owned and nationwide agricultural credit program; Promotion of Micro-Enterprises for Rural Women (PMERW), a micro-credit program targeting women engaged in non-farm income-generating activities; the Malawi Mudzi Fund (MMF), a replica of the Grameen Bank; and the Malawi Union of Savings and Credit Cooperatives (MUSCCO), a union of local institutions. Surprisingly, the report finds that farmers who participated in the various credit programs ended up with less net crop income than those who did not. These results make clear that the conditions surrounding credit programs must reflect the actual opportunities and constraints faced by poor farmers if credit is to work effectively. For example, credit is not of much use if farmers have little access to roads, markets, health care, and communications infrastructure and are subject to drought that can wipe out their crops, as is the case in Malawi.