Financial market analyst and banker, Misheck Esau, has called for a shift to debt funding as an alternative to the traditional bank or money market funding to stimulate economic growth and infrastructure development.
Esau, who is chief executive officer of CDH Investment Bank (CDHIB), said on Saturday there is need to change the status quo by harnessing local resources for infrastructure and projects as is the case in countries such as Kenya, Rwanda, South Africa and Tanzania, among others.
“In Kenya, they decided that in most of their infrastructure projects they will be using resources obtained from Kenya. In Malawi, we rely on raising money from multilateral institutions and this comes with a lot of conditions. By the time you finalise talking, a lot of time has been lost,” he said in his presentation at the Financial Market Dealers Association (Fimda) 2016 Annual Lakeshore Conference in Mangochi.
Esau said there is a lot of money that needs a home in Malawi, observing that the pension law ensures that idle resources can be mobilised for development projects.
A debt funding is an investment pool and it is critical in the context of Malawi’s economy, which is on a tailspin, characterised by high inflation and interest rates, which pushes borrowers to a corner and increases funding needs; an unstable exchange rate that potentially increases working capital; huge appetite for government borrowing, which crowds out the private sector and heavily influences investment and low deposit rates, undercutting commercial bank liquidity for lending.
Esau encouraged financial market dealers to be innovative and explore other forms of funding either using private placement—funding round of securities sold through a private offering, mostly to a small number of chosen investors.
“If we mobilise the resources, it will be easier to attract foreign firms to partner with us,” he said.
Commercial banks are mostly lending in the short-term using loans and advances, overdrafts, call loans, commercial paper, leases and other forms of asset-based lending.
Reserve Bank of Malawi (RBM) figures show that the borrowing needs of corporates has, over the years, increased to the extent that bankers cannot finance them fully.
Vice-President Saulos Chilima, who officially opened the conference, noted that despite a number of positive innovations in the financial infrastructure, the sector is yet to meet the growing needs for more diverse sources of finance.
He emphasised the need to address the challenge of missing markets such as the lack of long-term financing which is required to support long-term investments to expand the productive capacity of the economy.
Said Chilima: “These include infrastructure, factories, equipment, new housing, commercial buildings, research and development. These types of investments are considered key drivers of economic growth since they enable private enterprises to produce more goods and services.”
The Fimda 2016 conference was held under the theme Malawi Financial Markets Innovation: A Catalyst for Financial Deepening and Economic Growth. n