Do public microcredit schemes enhance small-scale enterprise development? perspectives of selected borrowers in Lilongwe, Malawi

Abstract

Since the 1980s, microcredit schemes have increasingly become a popular policy instrument for supporting small-scale enterprise development agendas in developing countries. This notwithstanding, the efficacy of public sector intervention in microcredit provision has not received much scholarly attention in Malawi, as existing studies have focused on actions by private microcredit institutions (MCIs). Thus, while policymakers highly regard the perceived efficacy of public MCIs, the subject is rarely exposed to empirical questioning. This paper reports on a study that used a welfarist approach to assess whether public MCIs enhance small-scale enterprise development. The study used Q methodology to collect and synthesise primary data from 21 National Economic Empowerment Fund loan clients in Lilongwe District. Findings revealed that smaller loan sizes, absence of grace period, diversion of loan proceeds towards spending on household necessities, physical collateral requirements, and other often-not-documented costs negate the envisaged enterprise development claims of microcredit schemes. These findings suggest the potential failure of public microcredit to achieve the intended enterprise development goals because similar access barriers existing in conventional private credit markets remain rooted in current public microcredit schemes. The paper calls for practical policy action addressing these bottlenecks that alienate the very people who require financial inclusion.