Assessing Barriers Limiting Access To Formal Banking Services Among Village Savings Loan Members Under Vision Fund Malawi In Phalombe District

Abstract

The Malawi financial sector is characterized by few commercial banks regulated by the Reserve Bank of Malawi. Formal banking services in Malawi usually target the high income earning population mostly residing in urban areas, leaving out the majority of the population with low income based in rural areas. The main objective of the study was to analyze the degree to which demand and supply barriers limit access to formal banking services among Village Savings Loan (VSL) members in Phalombe district. The demand barriers analyzed were irregular income and literacy level, while the supply barriers included distance to the bank and lack of identification documents. Stratified sampling method was used to draw a proportionate sample of 148 VSL members comprising 70% and 30% of female and male respondents respectively from a population of 239 VSL members supported by Vision Fund Malawi. Stratified sampling was ideal because the population had more female VSL members than males because Vision Fund Malawi uses the 70:30 principle in forming VSL groups. A semi-structured questionnaire was administered to148 respondents to gather data on access to formal banking services. The data collected was analyzed in SPSS 23.0. Descriptive and inferential statistics were used to analyze different variables in the study. The key results indicated that access to formal banking services measured on whether a VSL member held a bank account with a commercial bank or had ever accessed a loan from a formal bank, revealed that only 16.2% of VSL respondents had bank accounts with different commercial banks. None of the respondents had accessed a loan from commercial banks, while 93.9% had accessed loans from the different VSL groups they belonged. Furthermore, the results showed that irregular income was the major barrier limiting 58.1% of VSL members from accessing formal banking services in Phalombe district essentially credit facilities, savings and remittances, whereas long distances to the bank accounted for 23.6%. Literacy level and lack of identification documents accounted for 16.9% and 1.4% respectively as barriers limiting access to formal banking services. The study found a slightly positive correlation between holding personal bank account and distance travelled to nearest bank branch among VSL members with “Pearson’s R” correlation of 0.111. Finally, the study results found a weak positive correlation between gender of VSL members and holding of VSL group bank accounts with “Pearson’s R” correlation of 0.106.