African woman smiling while using her phone and a point of sale system in a local market/Shutterstock

16 November 2023

Scaling up the use of electronic payments in Malawi

By Charles Marwa, Head, Monitoring & Evaluation, AFI

In the recent past, advances in technology have given rise to innovative payment methods that are quickly replacing cash as a payment instrument. These electronic payment methods offer several advantages over cash, such as safety and security, low transaction costs, and fast transmission, among other benefits. Cash, on the other hand, is seen to be inconvenient and unsafe, with high management costs, and is even suspected to increase the risk of transmission of communicable diseases such as COVID-19.

The Reserve Bank of Malawi (RBM) is cognizant of these technological transformations and is keen to prepare the Malawi economy for the transition to the adoption and use of digital financial services. In this vein, the RBM, in collaboration with the Ministry of Trade, issued Business Licensing Regulations for the deployment and usage of electronic payment channels. The main objective of these Regulations is to make it mandatory for all licensed businesses to deploy and use one or more electronic payment channels for payment of goods and services by their customers.

In addition, the RBM has championed the implementation of several electronic payment products by private sector players, including banks and mobile network operators (MNOs).  Notable payment services that have been implemented on the market to date include the Automated Transfer System (ATS), which is code-named MITASS (Malawi Interbank Transfer and Settlement System), National Switch, Central Securities Depository (CSD), and mobile money services.

Despite these efforts to enhance the adoption and use of digital financial services, the use of cash still prevails in Malawi. Some of the barriers to the uptake of electronic payments on the demand side include low digital financial literacy and awareness among consumers, especially in remote areas. Merchants report that most clients still prefer using cash over digital means of payment. On the other hand, there is also unwillingness by some merchants to accept digital payments for various reasons, including fear of fraud, low awareness of digital financial services and products, and, in many cases, merchants do not have point-of-sale (POS) terminals in their premises.

Further to that, the infrastructure, such as network coverage, is not very reliable in some parts of the country, and this hinders or discourages the use of digital financial services.

In response to these challenges, the RBM, supported by the Alliance for Financial Inclusion (AFI) and the Mastercard Foundation, initiated the “Scale-up and Regulation of Electronic Payments/Digital Financial Services” project in September 2021 to operationalize the Business Licensing Regulations and enable Malawi to scale up the usage of electronic payments. These regulations, once operationalized, would enable consumers to benefit from fast, secure, and convenient digital payments. In addition, the use of digital financial services may help limit the spread of COVID-19 and other communicable diseases. The overall objective of the project is to increase the adoption and usage of electronic payments both on the supply and demand sides through sensitization and public awareness activities.

The project also aims to develop an enforcement framework for the Business Licensing Regulations to maintain the gains achieved by the Regulations. 

The benefits and use-cases of electronic payments would include transfers by the government, businesses, households, and credit to businesses. Small and Medium Enterprises (SMEs) would benefit from secure, faster, and convenient digital payments on their sales. Similarly, households, including those earmarked for welfare benefits, will greatly benefit from increased digital payments.

The project undertook several activities, including sensitization workshops for SMEs in four different regions of Malawi, as well as awareness campaigns in tertiary institutions, reaching about 70 students. The workshops were held between July and August 2022. The project also produced jingles and radio messages on the Business Licensing Regulations, which were aired on four broadcasting stations between July and December 2022. A launch event for the awareness campaign was held on August 16 2022 and attended by the RBM governor and ministers of collaborating ministries, after which a meeting was held to develop the enforcement plan and monitoring framework for the implementation of the Business Licensing Regulations.

The project was deemed to have been successful due to the multi-stakeholder and consultative approach taken by the RBM. In the public sector, the RBM worked closely with the Ministry of Trade as well as with the Malawi Revenue Authority. Collaboration between national and local governments was particularly important, especially when it came to the enforcement of the Business Licensing Regulations. Financial service providers indicated that the RBM had been very consultative and supportive in the development and roll-out of the Regulations. Commercial banks and MNOs indicated that they also undertake their own awareness campaigns, which complement and sustain the efforts of the project.

One of the key lessons learned from the project was the need to consult and engage more with SMEs in preparation for the awareness workshop, and to understand their specific needs and concerns better. This would ensure that the right stakeholders are involved in the awareness sessions and that the information is more targeted to actual needs on the ground.

Another lesson learned is that digital financial literacy needs to take a long-term programmatic approach rather than short-term projects, with strengthened monitoring and evaluation mechanisms to gauge progress and make necessary adjustments to ensure impact. Digital financial literacy is already part of the primary school curriculum, and there are plans to include it in the secondary school curriculum.

AFI is committed to working with the Reserve Bank of Malawi to scale up the usage of electronic payments in Malawi.

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