Abstract

It is not known, at least in Malawi, the uses to which income transfers from various sources are put. For instance, it is not known which transfers are used to satisfy consumption needs or which are used to augment the stock of capital. There are also additional concerns as to whether the gender of the giver or the receiver affects the uses of these transfers. Transfers are known to be a relatively important source of start-up and working capital for small-scale and medium enterprises in Malawi. Some concerns have been expressed that the current adjustment policies might affect the magnitude of these transfers. This study will establish the nature, the character, and the motivations for income transfers in the country. In particular, it will investigate whether small and medium enterprises' capital formation, and hence employment creation, are affected by policies that adversely affect income transfers.

Post-Project Summary

Data gathered by means of a random sample survey was used to ascertain the relationships between senders and receivers of private income transfers, as well as the frequency and size of such flows. In all, 607 completed questionnaires from a field survey in both rural and urban areas were analyzed. According to the data, 61.8% of respondents transferred cash income, while 36.1% transferred income in kind. Remittance flows between children and their parents accounted for 50.6% of the total number, and 40.9% of the value, of such transfers. The second largest flow was between brothers and sisters, which accounted for 20.8% of the number, and 35.4% of the value of cash transfers and 26.5% of the value of transfers in kind. Most of the income transfers flowed from relatively better-off to poorer households and constituted a significant proportion of the income of the recipient households. The largest cash flow was between rural areas, followed by urban-rural, and urban-urban.

The main motive for making income transfers was enlightened self-interest or altruism. The implication of the last finding is that private transfers in cash or in-kind compete with rather than complement similar public transfers, i.e. rise with the decrease in public transfers such as fertilizer subsidies and drought relief. It was noted that the gender of neither the giver nor the recipient affected the uses to which the transfers were put. Rather, age was the significant factor, with adults tending to spend the cash income received on food purchases and young people to spend it on school fees (this finding might have been biased by the fact that the survey took place during a drought year). One-third of cash income transfers between friends were used as start-up capital for small and medium enterprises (SMEs). But since these receipts represented a mere 0.3% of the total amount of transfers, it was concluded that private cash transfers were far less a source of business capital and employment creation than of human capital formation.

It was concluded that structural adjustment policies that lead to a decline in real income and income transfers do not adversely affect investment and employment creation by SMEs. On the other hand, by leading to high rates of inflation, they have adversely affected the real value of income transfers and the personal incomes on which they depend.

Recipient Institution(s)