Saving or losing? Malawian banking reality check

By Victor Ogotomelli Ntaukira

Banks are traditionally presented as custodians of financial security. They are institutions where citizens are assured that their hard-earned money will not only be protected but also grow through interest.

In theory, banking rests on trust. Customers entrust their money to financial institutions and in return, banks safeguard it and ought to give interests. In Malawi, this relationship is strained.

The Illusion Of Saving

These days, a customer can deposit, for instance MK100 000, into a bank account and leave it there for two years.

The expectation is that the amount will remain intact or slightly increase due to interest.

But upon checking the balance later, they find less than what was deposited. This is as a result of deductions which are euphemistically called “service fees. These deductions seem small in isolation, but over time, they accumulate into significant amounts. Thus, the customer who believed they were saving ends up losing.

According to the Reserve Bank of Malawi (RBM), average monthly account maintenance charges or service fees range between MK1, 500 – MK3, 000, while interest rates on basic savings accounts hover below 3%, far below the inflation rate which has averaged 28% in recent years.

This means that savings not only fail to grow but lose real value annually.

For small savers, who form the majority in Malawi, this is not just an inconvenience but a betrayal. Saving money requires discipline and sacrifice.

To see that effort being eroded not by inflation or personal financial indiscipline, but by the very institution meant to protect it, is deeply disheartening.

The Business of Banking: Whose Money Is It?

Banks do not simply store money but also use it. Customer deposits are the lifeblood of banking operations.

When customers deposit their money, banks invest the money in several avenues that generate substantial returns.

For instance, the money is lent to individuals, businesses and government at interest rates far higher than what depositors receive.

For instance, the interest rate on loans is currently at 24%. This is how banks generate their huge profits.

Making a profit is legitimate in any business. With banks, the imbalance arises in how the benefits are distributed.

Customers, who provide the capital banks use, often receive little or no interest on their deposits.

At the same time, these customers are subjected to various charges for keeping their money in the banking system.

Thus, instead of reward, customers encounter penalties, on their own money. This enables banks to profit from two fronts: They earn from lending the deposits while also collecting fees from the same depositors.

As a result, banks that were seen as saving tools are now perceived as exploitative.

This makes sense because customer deposits drive bank income, so deducting service charges from their accounts feels unfair.

This raises a moral and economic dilemma. If customers are technically ‘lending’ their money to banks, why are they not adequately compensated? Why are they, instead, rewarded with punitive charges that diminish their savings?

Financial Inclusion or Exploitation?

Malawi has made significant strides in financial inclusion. More citizens are using banks.

By 2011, the government shifted all civil servants from cash to bank-based salary payments to modernise the payment system, reduce fraud and make salary distribution more efficient.

While this improved accountability, it created new financial burdens.

With bank payments, salaries pass through accounts where withdrawal charges, monthly maintenance fees and other deductions are taken out.

This burden hits hardest on civil servants, most of whom live hand-to-mouth hence make frequent withdrawals, paying fees each time.

For instance, a teacher earning a monthly salary of MK300 000 may lose MK5000 – MK7000 monthly to bank charges. Even small deposit amounts like MK20 000 here and MK50 000 there, are quickly eroded by flat fees and monthly charges.

Instead of building financial resilience, workers find their savings depleted. Unfortunately, these workers have no choice but to use banks in order to access their salaries, and pay the price for it.

This discourages saving and pushes many toward informal alternatives such as village savings groups or keeping cash at home. Why deposit money in a bank if it shrinks over time? While these methods offer flexibility, they remove liquidity from the formal financial system.

The World Bank estimates that over 60% of Malawians remain outside formal banking, partly due to mistrust and high costs.

While these methods have merit, they lack the security and scalability of formal banking. More importantly, they pull money out of the financial system.

For example, whe MK100 million sits in boxes at home instead of in banks, it cannot be loaned to businesses, farmers or students. Banks have less to lend, and national economic growth becomes weaker.

Thus, a system meant to bring people into formal finance ends up pushing their money to the margins, where it helps neither them nor the economy.

The RBM relies on the banking system to manage money supply and control inflation. But when large amounts of money stay outside the banking system because people fear bank charges, it becomes hard for the RBM to accurately track liquidity. Inflation control also becomes difficult and eventually, economic planning becomes less reliable.

This undermines the RBM’s ability to manage money supply and inflation, weakening national economic planning. If financial inclusion is to deliver real benefits, the cost of using banks must be fair to both the depositor and the economy.

The Ethics of Beneficence

The ethical principle of beneficence, ensuring mutual benefit, appears absent in Malawi’s current banking model. In the current system, the sole beneficiaries are the banks and their shareholders, not the depositors.

This is how the system works. Banks use pooled deposits to create credit, invest in treasury bills and fund profitable business ventures. These activities generate substantial returns.

Yet the depositor, whose money made it possible, receives almost nothing. Interest on basic savings accounts often hovers below inflation, meaning the real value of savings declines yearly.

At the same time, banks charge for every service, from maintaining the account to sending a statement.

This creates a one-sided relationship. Customers provide the capital that allows banks to thrive, but they do not share in the gains. Instead, they pay for the mere privilege of participating.

Of course wealthier clients with large balances may negotiate lower fees and access better interests, but the average Malawian does not have that leverage.

In effect, the current system transfers value upward. The poor subsidise the profits of banks while receiving little or no value in return. Small deposits from civil servants, farmers and market vendors are aggregated into large pools that generate profit for the institutions.

The benefit flows to shareholders through dividends, to executives through bonuses and to the bank itself through expanded lending capacity. Meanwhile, the original owner of the money is left with less than they started with.

That is not mutual benefit. This is extraction. Exploitation. A system that relies on the savings of the many to enrich the few cannot claim to serve the public good.

This raises critical ethical questions. Should banks be allowed to profit from inactivity, charging customers simply for keeping their money? Shouldn’t there be minimum thresholds below which fees are waived? What does the customer benefit from saving with banks when their money shrinks for the benefit of banks who annually celebrate billions of profits?

And most importantly, what responsibility do banks have towards the communities they serve? If banking is to be ethical, the gains from deposits must be shared more fairly with the people who provide them.

Call for Reform

The current system risks driving away the very people it is meant to serve. Reform is both possible and necessary. Several reforms could help restore fairness and rebuild trust:

Zero-fee basic accounts: RBM could make mandatory entry-level accounts with no maintenance fees, specifically designed for low-income earners. This would ensure that saving does not result in loss.

Tiered fee structures: Charges could be proportional to account balances thereby protecting small savers from disproportionate costs.

Fair interest on deposits: Even modest interest returns above inflation would make a difference, especially for long-term savers. Banks should not profit from deposits without offering meaningful compensation to depositors.

Financial Literacy and Campaigns: Customers must understand the true costs and benefits of banking. They should actually understand what they are signing up for, not just getting pushed into accounts.
Terms and conditions must be clear and simple, not buried in small font. Clear communication would empower informed choices.

Fee caps and regulatory Oversight: RBM should set limits on fees, particularly for small accounts.

Charges must be reasonable enough not to wipe out small deposits from low income-savers. Some bank charges need to be removed entirely. South Africa’s “Mzansi Account” model, introduced in 2004, offers a precedent for low-cost banking.

Greater competition: Malawi needs to encourage new entrants and support alternative financial providers such as well-regulated SACCOs.

If worst comes to worst, civil servants could even receive their salaries through SACCO accounts that charge no service fees, hence are able to receive their full salary.

This would protect workers who do not want to use banks but are pushed to the current system that requires salary payments through banks.

More options would force existing banks to lower fees and offer better interest rates to retain small depositors. However, competition must be paired with strong consumer protection, or it risks replacing high fees with hidden charges.

Rethinking Trust

Policy alone will not fix the problem. Banking runs on trust. Without it, the entire banking system collapses. Customers must trust that their money is safe and that the institution holding it has their best interest at heart. Once trust erodes, restoring it is not easy.

When citizens see their savings diminishing, they question the very purpose of banking. They feel neither served nor saved, but exploited. Banks must recognize that their long-term success depends on the well-being of their customers. A system that enriches institutions while impoverishing individuals is neither just nor sustainable.

A System at a Crossroads

The frustration many Malawians feel towards banks is not unfounded. It is rooted in lived experiences of depositing money with hope, only to watch it slowly disappear. While banks are not inherently predatory, the current structure can certainly feel like one for those bearing the cost.

Malawi’s banking sector faces a stark dilemma: persist on its current path, extracting value from small savers and eroding trust, or embrace reform that prioritises fairness, transparency and mutual benefit.

Will banks continue eroding customer savings, or will they reclaim their role as trusted partners in the financial lives of Malawians?

Until that role is reclaimed, one question will keep lingering: are banks truly safeguarding our money, or quietly taking it away?

About the author: Ntaukira teaches at Dombole Secondary School in Ntcheu but writes in his personal capacity

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