The Malawi Capital Markets Development Plan 2021–2025 is a simple and clear guide to help grow Malawi’s capital markets. It aims to support long-term economic growth by making it easier for people, investors, and businesses to raise capital and invest in the country and its regions. 

The plan focuses primarily on three main areas: improving access, building stronger systems, and making sure rules and laws work well. It also looks at the current state of the market, what is needed to grow, and the actions to take. This plan is an opportunity for everyone to help build a better economy. 

This article will dive deep into Malawi’s capital markets development plan 2021–2025 and how it benefits the capital markets.

1. Current State Of Malawi’s Capital Markets

• Debt Securities Market

             a. Government Debt Securities Market

             b. Quasi-Government Debt Securities Market

             c. Private Sector Debt Securities Market

• Equity Security Market
• Current State Of Malawi’s Capital Markets
• Derivatives
• Alternative And Other Structured Investments

2. Required Preconditions

• Macroeconomic Policies
• Tax Policy
• Financial Reporting, Auditing, And Corporate Governance Preconditions
• Information And Communication Technology Preconditions
• Market Intermediation Precondition

3. Recommendations And Actions

• Theme 1: Improving Access To Capital Markets To Support Economic Growth And Development.

                 1.1. Helping Local Issuers Get Long-Term Funding From Capital Markets

                 1.2. Making It Easier For Local Investors To Invest In Capital Markets

                 1.3. Attracting More Foreign Investors To Malawi’s Capital Markets

• Theme 2: Strengthening Overall Market Performance, Infrastructure, Intermediation, And Trust.

                2.1.  Improve Debt And Equity Market Performance

                2.2. Improve Market Liquidity

                2.3. Improve Market Efficiency And Information Flow

                2.4. Promote Alternative Investments

• Theme 3: Enhancing The Legal, Regulatory, And Policy-Making Environment.

                3.1. Strengthen Laws, Rules, And Policy Making

                3.2. Improve Governance And Financial Reporting

                3.3. Protect Investors From Malpractice

Malawi’s capital markets are still at an early stage and not yet developed enough to fully support the country’s long-term financing needs. At the moment, these markets are unable to perform their main role of directing national savings into long-term investments that drive real economic growth. 

There is a clear shortage of financial instruments in both the money and capital markets, meaning that the demand for investment options is much higher than the supply. This gap makes it difficult for businesses and the government to access the capital they need for development projects. It also raises the risk of slower economic growth and weaker market stability.

One of the biggest issues is the high cost of raising long-term finance. This is due to the small scale of market intermediaries and past macroeconomic instability, which keeps the cost of borrowing high. Nonetheless, Malawi is making good progress. It has many reputable institutions and organizations like the Malawi Stock Exchange, a central securities safe vault, and various investment advisors and brokers have been established. This growing rate of improvements shows lots of rich results. 

With the right policies and reforms, Malawi’s capital markets can become a strong source of long-term finance, creating new investment opportunities for both local and international investors.

A. Debt Securities Market

a. Government Debt Securities Market: Malawi’s debt securities market is mainly driven by various government instruments. These include Treasury Bills (91 days, 182 days, and 364 days) and Treasury Notes (2 years, 3 years, 5 years, 7 years, and 10 years). As of June 2020, total outstanding Treasury securities were valued at K2.4 trillion, equal to 29% of GDP. Treasury Bills made up 3.2%, and Notes 25.9%. Although 24 notes were listed on the Malawi Stock Exchange by November 2020, secondary market trading was minimal, with most activity happening over the counter. Commercial banks held 46.2% of the securities, foreign investors 32.5%, insurers 12.2%, pension funds 5.3%, corporates 1.9%, and households just 0.1%. While macroeconomic improvements and better results have increased the appeal of longer-term borrowing, the market still needs a deeper understanding, more maturity profiles, and a more active yield curve to attract larger investments. 

Retail is still low due to limited and small amounts of income, financial literacy, and a lack of user-friendly investment platforms. 

With the right reforms, this market holds real potential for both local and international investors.

b. Quasi-Government debt securities market: Local governments and parastatals have issued very few fixed income securities so far. Those that did mostly used private placements. 

Poor corporate governance remains a major issue and needs to be improved for these institutions to fully benefit from raising long-term funds through the capital markets.

c. Private sector debt securities market: The corporate bond market in Malawi is still very small. Public offerings are rare. So far, only one company has listed a series of corporate bonds on the Malawi Stock Exchange. These bonds are expected to mature by 2022. 

As of June 2020, the total value of outstanding corporate bonds was K15.4 billion. This is just 0.2% of the country’s GDP. 

However, there is some activity through private placements of commercial paper and corporate loans with terms of up to 7 years. This part of the market has grown mainly because professional investors are looking for more investment options. This shows there is room for the corporate bond market to grow. 

As the government securities market continues to develop and provides a benchmark yield curve, the corporate bond market is likely to expand naturally. This connection is important because corporate bonds are often priced based on government securities.

B. Equity Security Market

Equity market performance in Malawi has remained small in recent years, with limited capitalization and turnover on the Malawi Stock Exchange (MSE). 

As of June 2020, total listed stock capitalization stood at K1.5 trillion (US$2.1 billion), around 19.1% of GDP. In 2019, turnover was 0.78% of GDP, and traded value to market capitalization was 3.25%. 

After 11 years of stagnation, ICON Properties Plc. listed on 21 January 2019. Two firms had earlier delisted- in 2011 and 2016. In 2020, FDH Bank Plc. listed on the 3rd of August and Airtel Malawi Plc. on the 24th of February. This brought the number of listed companies to 16 and market capitalization to K1.7 trillion (21% of GDP) by October 2020.

Low listing activity is due to a small, family-run private sector, low issuer awareness, high issuance costs, and economic volatility. Daily trades averaged just 12 in 2019 and in early 2020. 

Most of the shareholders hold 50-75% equity, lowering public float to under 10% of GDP. Price discovery is weak mainly due to the lack of market makers. The MSE is automated, with dematerialized shares and an active equity module in the CSD. 

Owned 99% by RBM and 1% by the Ministry of Finance, the MSE is expected to benefit from structural reform, demutualization, and renewed focus on SME listings.

C. Derivatives

Derivatives can strengthen capital markets by helping investors manage risk. In Malawi, however, only a few financial institutions use hedging tools like forwards and swaps. 

Trading of derivatives is very low because there is limited activity in the assets they are based on, such as bonds, equities, or currencies. Another problem that presents itself is the lack of proper legal and regulatory frameworks for derivatives. For example, Malawi  has not yet implemented an international standard contract like the ISDA master agreement. This makes it a bit harder and tense for institutions to trade with confidence.

In addition, there are no official reference rates in place, which makes it difficult to price interest rate-based derivatives. To improve this market, Malawi needs to put in place clear laws and rules for derivative trading, introduce reliable reference rates, and focus on developing the main assets that derivatives depend on. These steps will help increase usage and build investor confidence.

D. Alternative and Other Structured Investments

Alternative investments in Malawi include financial products based on real estate (like mortgage-backed securities), commodities (such as forwards and futures), private equity (venture capital and buyout funds), and Islamic finance. These products give investors more ways to spread risk beyond traditional bonds and stocks. They also help businesses raise money in ways that match their needs. 

Growing these markets would support the mortgage and commodity sectors, helping the wider economy. Some trading happens through platforms like AHCX and ACE AFRICA, but these markets are still very new. Mostly, other alternative investments are private, not standardized, poorly regulated, and hard for the average person to access. 

To improve this, Malawi needs stronger and better legal and regulatory frameworks, clear operating rules, and better systems for trading, settling, and sharing information. There is also a need to build local expertise, increase competition, and set up new institutions that focus on developing these types of investments.

For capital markets to grow and support economic development, certain conditions must first be met. These are long-term policy commitments that help create a supportive environment for market growth. 

The key areas where these conditions are needed include macroeconomic policies (such as fiscal, monetary, macro-prudential, and exchange rate policies), tax policy, financial reporting, auditing, corporate governance, market infrastructure, and market intermediation. Each of these plays an important role in building strong and stable capital markets and is briefly explained below.

A. Macroeconomic Policies

Macroeconomic stability is a very important topic for developing strong capital markets. When the economy is unstable and hard to control, long-term investments become risky. This slows down capital market growth. To support development and growth, Malawi needs stable inflation, grow the economy, and build a strong government debt market through smart fiscal policies. Low and stable inflation, good budget management, and a strong financial system help lower the cost of financing and boost investor confidence.

The Reserve Bank of Malawi (RBM) is already working on reforms to improve monetary policy and control inflation expectations. It is also crucial to mention fiscal, monetary, and macro-prudential policies. Public finance reforms, debt control, and the use of the Basel 2 framework will help lower the chances of any type of financial crisis. These steps will support economic growth and create a better environment for capital market investment. 

Ongoing coordination among policies is also key to building a stable, credible economy. This will encourage both local and foreign investors to take part in Malawi’s growing capital markets.

B. Tax Policy

Tax policy plays a key role in how much return investors receive from their projects. If the tax system is too heavy, it reduces profits and discourages businesses from investing in long-term projects. 

In Malawi, certain taxes on capital market instruments make them less attractive compared to other options. Investors and issuers often point to tax issues as a major barrier to capital market development.

To support growth, the Ministry of Finance, along with the Reserve Bank of Malawi (RBM), Malawi Stock Exchange (MSE), and Malawi Revenue Authority (MRA), should review existing tax policies. This review could result in tax incentives for business owners, startups, and investors in various areas like infrastructure and listed companies. It can increase investment in vehicles such as REITs, service vehicles, and secured structures. These changes can affect these areas and improve savings. 

Making tax-free dividends can also make more investors move into retail. But any tax breaks should be time-bound to protect government revenue while encouraging growth in the capital markets.

C. Financial reporting, auditing, and corporate governance preconditions

Clear cut financial reports and stronger corporate government help can develop a tough trust between companies and investors. 

When investors trust a company’s finances, there’s a high chance they will invest for the long term. This supports better and improved pricing of financial products and helps direct savings into crucial projects. 

All companies in Malawi, public or private, should follow best practices in reporting, auditing, and governance. To do this, Malawi can work with professional bodies like ICAM and IIA to improve training, promote ethics, and enforce governance rules. Programs like financial reporting awards also help raise standards.

The Auditor General should keep working to develop and grow public trust in reports from local governments and parastatals. Boards of directors should include people with different skills and experience to make better decisions with a variety of options. Improving financial reporting and governance will help more companies join the capital markets and attract both local and foreign investment.

D. Information and Communication Technology Preconditions

ICT, or information and communication technology, is very important for capital markets. It runs the systems that help with trading, payments, keeping records, and sharing information. These systems connect investors with businesses that need money. For the market to work well, these systems must be fast, safe, and easy to use. 

In Malawi, the internet that is slow or expensive makes things harder. It can delay trades and increase costs. This keeps many people from taking part in the market and makes investors less confident.

To grow its capital markets, Malawi needs to improve its ICT. This means good internet and systems that work with mobile money, online banking, etc. These tools will help Malawi immensely and should share information quickly and help manage risks. 

If Malawi invests in better ICT, more people across the country can access the market. This will help grow the economy and attract both local and foreign investors.

E. Market Intermediation Precondition

A strong capital market needs many skilled and competitive intermediaries. These are companies or professionals that help with transactions or give services and advice to investors and issuers. They include investment managers, brokers, and investment banks. 

In Malawi, most intermediaries are small. This limits their potential to grow and develop. It also limits their ability to offer better services and reach more clients. To enhance the capital market, it is vital to increase the size, skills, and quality of all these intermediaries. 

Better, stronger, smarter intermediaries will aid in moving money more effectively between investors and those who need funding, and support the growth of the market and economy.

The aim of developing Malawi’s capital markets can be achieved through clear, practical, and well-planned actions. These actions are grouped into three main categories in the Malawi Capital Markets Development Plan (MCMDP):

a. Improving access to capital markets to support economic growth and development.

b. Strengthening overall market performance, infrastructure, intermediation, and trust.

c. Enhancing the legal, regulatory, and policy-making environment.

Each theme plays an important role, though they are closely connected. 

The first theme focuses on increasing access for both issuers and investors. It aims to solve problems like low bond and equity listings and limited savings. The goal is to help institutions raise and use long-term funds more effectively. 

The second theme works on improving the systems that connect investors and issuers. It aims to improve structures and professional market services to increase overall performance. It also signifies the importance of ethics and professionalism. 

The third theme focuses on strong laws, fair regulations, and good supervision to protect investors and support stable markets.

All three themes are linked. The plan follows a full and balanced approach where many actions will be carried out together to build a strong and growing capital market in Malawi.

Theme 1: Improving Access to Capital Markets to Support Economic Growth And Development 

The goal of developing Malawi’s capital markets is to support economic growth by building strong long-term financing options. This means helping both issuers, like government, parastatals, and private companies, and also helping investors get easier access to the market. Issuers need to offer financial products that match the needs of local and foreign investors. 

Meantime, more people need to be encouraged to invest in the various areas of Malawi, so there is enough money available. This balanced approach helps lower costs and make the market work better. 

The plan focuses on improving access for both sides-issuers and investors-using simple steps that meet their different needs.

1.1. Helping Local Issuers Get Long-Term Funding from Capital Markets: Malawi needs to help both public and private projects that increase economic growth. A list of ready, well-studied projects should guide market funding. 

Capital markets can provide cheaper, long-term finance. Key focus areas include: infrastructure, energy, and industry.

Recommendation: Identify and prepare key national projects for investment.

1.2. Making It Easier for Local Investors to Invest in Capital Markets: Many people in Malawi lack the knowledge and tools to invest. Using mobile banking, the internet, and simple investment products can increase access. 

Teaching people about the market is also key to growing the investor base.

Recommendation: Support financial literacy and promote tech-based, low-cost investment options.

1.3. Attracting More Foreign Investors to Malawi’s Capital Markets: Foreign investors can help increase Malawi’s capital markets. 

Better sight, stronger credit ratings, and open market rules will attract them. Connecting with global markets also brings more trust and economic growth.

Recommendation: Improve investor attraction, outreach, and maintain open, clear rules for foreign investment.

Theme 2: Strengthening overall market performance, infrastructure, intermediation, and trust.

The theme is mainly about Malawi’s Capital Markets Plan. It primarily focuses on building better infrastructure and rebuilding and improving intermediaries to connect investors. When this works well, the market grows in four different ways. 

• Width means more product choices. 

• Depth means more money raised. 

• Liquidity means easier and cheaper trading and
• Efficiency means better investment decisions. 

Good infrastructure helps people access the market, trade faster, and lower risks. Intermediaries like brokers and fund managers help investors enter the market and choose where to invest. 

Together, strong systems and skilled intermediaries make the market more active, trusted, and useful for both local and foreign investors.

2.1.  Improve Debt and Equity Market Performance: Malawi’s bond market has grown. Its Treasury notes are rising from 0.2% of GDP in 2014 to 25.9% in 2020. Maturity terms improved from 3 to 10 years. 

However, more corporate bonds and equity listings are needed. Requiring companies to float at least 25% of shares and attracting a wider mix of issuers and products will help investors.

Recommendation: Encourage more bond and equity listings with diverse features and float requirements.

2.2. Improve Market Liquidity: Liquidity is low, with just 12 trades per day on average. 

Many investors hold assets instead of trading. To enhance this, Malawi needs market makers, lower costs for transactions, and systems like repos, short selling, and better refinancing tools to encourage more activity.

Recommendation: Introduce market makers and trading tools to boost liquidity and reduce costs.

2.3. Improve Market Efficiency and Information Flow: Access to new market information is key. Yield curves for government and corporate bonds should lead prices. Lowering fees and improving data sharing will help investors make better decisions with confidence.

Recommendation: Strengthen information sharing and develop clear pricing benchmarks.

2.4. Promote Alternative Investments: Other assets like real estate, Islamic finance, and private equity are still not developed yet. Real estate investment venture capital funds can offer more investment options. 

Better regulatory systems, trained experts, and support institutions are needed to develop this part of the market

Recommendation: Support legal and market structures for alternative investment products.

Theme 3: Enhancing the Legal, Regulatory, and Policy-making Environment.

Theme 3 primarily focuses on building a strong legal system policy framework to make sure the growth of Malawi’s capital markets is safe and secure.  By staying on pace with global standards and improving the law and justice system, Malawi can create a safer and more attractive market environment for investors. 

This theme also signifies the importance of fair business conduct, transparency, and investor education, all of which are crucial for boosting confidence and attracting both local and foreign investors. It covers lots of action that has been taken to improve the regulatory system, with some recommendations as well.

3.1. Strengthen Laws, Rules, and Policy Making: Capital markets need strong and fair laws with better enforcement to build investor trust. 

Malawi should fix and upgrade its laws to match global standards, like the International Organization of Securities Commissions (IOSCO) principles, and support a stable financial system. Legal occupations should also get better training and education

Recommendation: Review and strengthen laws, and build legal capacity.

3.2. Improve Governance and Financial Reporting: Good governance helps companies raise funds and money to grow. Firms must follow proper rules, be transparent, and report finances clearly. Clear Financial statements, examined by experts using global standards, help investors make better decisions.

Recommendation: Enforce global reporting rules and promote strong corporate governance.

3.3. Protect Investors from Malpractice: Investors need to be safe and informed. Firms should always treat their clients fairly and just. They should give clear details about risks and costs, and match products to investor needs. Better Investor education also helps reduce fraud and builds market and investor confidence

Recommendation: Strengthen investor protections and support public finance.

The Malawi Capital Markets Development Plan 2021–2025 is not just a document; it is a chance to grow. It is a guide for economic growth in Malawi, showing various actions and recommendations on how investors, business owners, startups, and people can improve it. 

Development plans like this help build trust among the government and investors to start business. With the right support, it will help create more money for the business, build trust, and bring in more investors. By improving access, systems, and rules, Malawi can become a better place to invest. This plan gives local people, businesses, and global investors a way to grow while helping the country move forward.