Ending aid dependency in Malawi


Among the first projects financed by the Social Action Fund was repair of the Seventh Day road bridge.

Western economies are used to high public spending mainly funded via taxation, but in Malawi tax revenue is exceedingly low owing to the largely informal nature of the economy.

This leads to high dependence on foreign aid. Even so, local infrastructure is dilapidated, income levels are very low, and education and health provision is precarious.

To help address the shortfall in funding and to give local communities greater control over it, the Capacity Foundation has devised a Social Action Fund, financed from two sources: a service charge on business loans and contributions from the Foundation’s social enterprises.

Business loans

After completing our business skills and marketing course, loantakers receive an entry-level loan of 60,000 kwacha (about £65). Loantakers can receive successive loans – the largest loan currently is 500,000 kwacha (£550).

To cover training and mentoring costs and to contribute to the Social Action Fund, each loantaker pays a 25% service charge on their loan. Over 100 families have already taken part in the loan programme.

Social enterprises

The Foundation owns four social enterprises – a restaurant, a shop, a fishing boat and a motorcycle taxi.

The businesses contribute to the local economy in terms of employment and spending but their prime purpose is to devote all of their profits to funding the Foundation.

Eventually the combination of the loans programme and the social enterprises will mean that the Foundation doesn’t rely on external funding at all. This is true sustainability.

Future plans: the Evergreen Fund

The business community in Malawi is very small but shares characteristics with any business community including a proclivity toward philanthropy. There is a significant Malawian diaspora in the UK.

The Foundation’s post-pandemic plans include an Evergreen Fund whereby significant investment can be sought from internal and external Malawian sources on commercial terms where the lender receives interest but allows the capital to remain invested, becoming constantly recycled as loans to more groups.

As the funds being generated within Malenga Mzoma specifically and Malawi generally grow, the Social Action Fund will be able to do more and more to improve infrastructure and to develop programmes prioritised by the community.

2000 kwacha banknote