Recently, Malawi has witnessed an increase in unregulated money lenders, popularly known as “Katapila”. These informal lenders, mostly operating outside the range of the Reserve Bank of Malawi (RBM) and other financial regulators, have gained foundation in communities, attracting desperate borrowers with quick cash but hindering them with excessive interest rates.
Unlike formal financial institutions, Katapila lenders operate without clear guidelines or governance. According to some flyers that Investas Insights has seen all over social media, borrowers are often required to repay loans with interest rates as high as 50% per month, in vernacular it is called “mwala ku mwala”.
What does the RBM say?
According to Microfinance ast no. 26 (1) of 2010, no person shall carry on business as a microfinance service provided he is
(a) registered as a microfinance agency,
(b) licensed as a non-deposit taking microfinance institution or
(c) licensed as a deposit-taking microfinance institution, under the financial services act
Any person who contravenes to this, commits an offense.
And for one to have a microfinance institution;
The RBM mandates a minimum capital of 100 million Malawi Kwacha for all categories of microfinance institutions.
- A non refundable application fee of MK200,000
- A business plan as well as a projection of finances for at least 3 years
- The other requirements include licensing and registration of the institution.
For a lot of Malawians, Katapila is both a life line and a curse. Borrowers like John Mavuto (not real name), a small-scale trader in Dowa, describes the Katapila experience as tormenting. “I borrowed MK100,000 to restock my shop, I failed to pay back on time and the loan interest kept doubling until they came and took my household items, including my gate, yes! My gate,” Mavuto lamented.
The rise of Katapila perpetuates a cycle of poverty, as borrowers fall into debt traps of borrowing again somewhere else just to repay their loan. Many like Mavuto are losing property including household items, land and even livestock after failing to repay
According to flyers from most katapila operators, accessing a loan requires a valid national ID, collateral, and a next of kin or witness. In case of inconveniences, these loan sharks typically avoid involving authorities like the police, as they are often unregistered. Instead, they hire local bouncers or strongmen to recover their money, offering them a portion of the amount collected as compensation.
As the rise of Katapila continues to destabilize lives and Threatens the financial sector, it is evident that swift action is needed. The RBM, government, financial institutions and stakeholders, could provide long-term solutions to lighten the adverse effects of unregulated lending.
Until then, the attraction of quick cash will continue to overshadow the severe consequences that come with it, leaving many Malawians vulnerable in the pursuit for financial relief.
