As government is mulling over the establishment of Malawi Development Bank (MDB), the Public Private Partnership Commission (PPPC) has said unless efforts to establish the bank are stepped up, Malawi will continue to struggle to embrace project financing.
PPPC director of legal, contracting and compliance Allison Mbang’ombe said with weak capital markets in Malawi, financing huge projects is becoming more of a challenge.
“If we look at the nature of infrastructure that Malawi has, you will see that there is more that needs to be done, one of which is to invest. But investment needs a lot of capital which is not possible right now,” said M’bang’ombe on the sideline of a Public Private Partnership (PPP) Awareness Meeting in Blantyre last week.
The establishment of the bank has been dragging for some years, but Reserve Bank of Malawi (RBM) already concluded a feasibility study on the viability of the proposed bank and results were analysed and experts duly consulted.
RBM earlier said MDB requires an initial capital of $25 million (about K14 billion) but can start operations with $6.75 million (K3.7 billion).
According to investopedia, project financing is a loan structure that relies primarily on the project’s cash flow for repayment, with the project’s assets, rights and interests held as secondary security or collateral. Project financing is particularly attractive to the private sector because they can fund major projects off balance sheet.
M’bang’ombe said people’s resistance more especially on land issues is also proving to be a challenge for the success of PPPs.
“Even if we have sponsors, they would not want to expose themselves to financial risks looking at the depth of our financial sector. Inherent cultural beliefs are making it difficult, especially for investors who would require land to implement their works,” he said.
M’bang’ombe said currently Malawi Stock Exchange (MSE)-listed National Bank of Malawi is offering loans for project financing for seven years, which he said is not enough.
Ben Kaluwa, economics professor at Chancellor College, a constituent college of University of Malawi, said the establishment of a development bank is long overdue.
He said in the absence of a development bank, high interests rate being offered in commercial banks are making it difficult for investors and individuals to borrow for investment purposes.
Most of the countries in the region have their own development banks. South Africa has what is called Development Bank of Southern Africa (DBSA), Mozambique has Banco Nacionale de Investmentos (BNI), and in Zambia it is called Development Bank of Zambia while Tanzania has TIB Development Bank.