Katapila moneylenders and informal financial markets in Malawi

The country"s informal financial market is also limited, lacking many institutions found in other developing countries (e.g., market banks, deposit collectors, money guards, finance companies, and pawnshops). After a brief survey of the country"s formal and informal financial markets, this paper focuses on one of the few sources of informal credit -- the urban moneylender, or katapila. The paper details the operations and character of one of Lilongwe"s most prominent katapilas on the basis of an extensive interview. An important finding is that the katapila"s interest rates (about 40%) are far too high to be justified by his business costs. A conservative estimate of the interviewee"s economic profits is in excess of 100% per annum. Borrowers appear to take on katapila loans because they can be arranged promptly, involve low transactions costs, and bear no restrictions on the use of funds. It is believed that most of these loans are used for emergency needs rather than for productive investments. Policy implications for promoting more efficient informal finance are addressed.