More household loans, but at what cost?

Reserve Bank of Malawi (RBM) figures show that lending to individuals and households reached K1 trillion in 2025, overtaking commercial and industrial lending which stood at K780.4 billion.

On face value, the growth in household credit could be interpreted as a positive development. Access to credit allows people to finance education, acquire assets, start businesses and meet other financial needs that their ordinary incomes cannot immediately cover.

Granted, there is nothing necessarily wrong with banks lending more money to individuals.

The problem is that this growth is happening at a time Malawi desperately needs more credit flowing towards businesses to finance investment, production and exports.

RBM figures show that individual and household loans increased by K333.7 billion in 2025. The shift had already become pronounced in 2024 when lending to individuals and households increased by K264.1 billion compared with just K13.3 billion for commercial and industrial lending.

This is quite a departure from 2022 when commercial and industrial lending increased by K95.7 billion compared with K80.4 billion for households.

Three years on, households are now borrowing more from banks than commercial and industrial enterprises.

This should concern policymakers.

Malawi has for years been grappling with low industrial production, unemployment, weak exports and perennial foreign exchange shortages. Addressing these challenges requires businesses to invest in productive activities that create jobs, substitute imports and generate foreign exchange.

Yet the businesses expected to make these investments are struggling to borrow.

As it stands now, commercial lending rates range between 25 percent and 37 percent. At such rates, businesses need to generate exceptionally high returns just to cover financing costs before making any meaningful profit.

This is particularly difficult for businesses already grappling with foreign exchange shortages, high electricity costs, expensive transport and weak consumer demand.

Banks, therefore, cannot entirely be blamed for lending more to individuals.

Quite frankly, a salaried employee can sometimes be a safer borrower than a business operating in this environment. Employees have predictable monthly incomes and banks can recover loan repayments directly from their salaries.

Businesses are different.

Their revenues depend on economic conditions, access to foreign exchange, input costs and consumer demand, among other factors. All these increase the risks banks assume when lending to businesses.

On an individual level, therefore, banks are simply protecting their money.

The problem is that what makes commercial sense to banks may not necessarily be good for the national economy.

If more credit goes towards household consumption while businesses struggle to finance investment, Malawi risks increasing consumption without expanding the productive capacity required to support it.

This becomes more problematic where households use these loans to purchase imported goods. Such borrowing increases demand for goods and foreign exchange without necessarily generating additional production or exports.

On top of that, there are concerns that some households are not borrowing to invest at all.

Consumers Association of Malawi executive director John Kapito argues that Malawians are increasingly borrowing to meet basic household expenses because incomes have failed to keep pace with the rising cost of living.

If that is the case, then the K1 trillion in household loans is hardly something to celebrate.

Borrowing for food, rent and other basic expenses may provide temporary relief, but it does not create additional income to repay the loan.

The food will be consumed.

The debt will remain.

Government and the RBM should, therefore, be concerned about what the changing structure of private sector credit says about the economy.

It is difficult to imagine how Malawi will industrialise, expand exports and create enough jobs when businesses cannot afford to borrow while banks increasingly find it safer to lend to households.

Ultimately, the problem is not that banks are lending K1 trillion to households.

The problem is an economic environment that makes lending for consumption more attractive than lending for production.

Unless Malawi can reverse that equation, the country risks financing consumption while starving the very businesses expected to produce its way out of the economic malaise.

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