The Reserve Bank of Malawi (RBM) says the current regulatory framework for development finance institutions (DFIs) does not help to bridge the financing gap.
In his presentation during the Financial Services Lawyers Conference on Friday in Mangochi, RBM legal principal examiner in the Financial Services Regulation Department Jimmy Mwenye said this is despite DFIs being critically designed to fill market gaps.
He said: “Traditionally, DFIs play a direct role in the financial sector to achieve a certain public policy objective.
“This may involve responding to perceived shortfalls in the provision of private sector financial services. The current regulatory framework falls short of enhancing the gap-filling role of DFIs.”
DFIs are not new in Malawi. In 1964, Parliament established the Malawi Development Corporation under the Malawi Development Act as a holding
company to establish State-owned enterprises in various sectors.
However, to date, Malawi has no specific statute on regulation of DFIs.
In 2018, the registrar of financial institutions formulated a regulatory framework for prescribing licensing, capital adequacy, governance and credit risk management requirements for DFIs wishing to operate in the country.
The directives include Financial Services (Licensing of Development Finance Institutions), Financial Services (Corporate Governance Requirements for Development Finance Institutions), Financial Services (Capital Adequacy Requirements for Development Finance Institutions) and the Financial Services (Credit Risk Management for Development Finance Institutions).
The licensing directive defines a DFI as a financial institution that provides medium and long-term financing for economic development, but is not a bank.
In an interview, Elton Jangale, commercial lawyer with PFI Partnerships, said regulating DFIs can persuade the institutions to do business in the country.
He said: “How long are you going to regulate a 30-year project? The important thing is to create regulation for DFIs to thrive and not how to do their business.
“The only reason I find a challenge with regulating DFIs in Malawi is that RBM has gone ahead to regulate DFIs when we do not have actual DFIs. The current definition of DFIs does not allow commercial banks to go into DFI space.”
Until the promulgation of directives by RBM on regulation of DFIs in 2018, DFIs in the country were not specifically governed by law.