Government action hurts civil servants, threatens MFIs

A civil servant gets a loan from a micro-finance institution (MFI). The employer deducts the repayment from the worker’s salary.

After the agreed deduction period, the worker returns to the MFI for another loan, believing that he has finished paying back the money, hence qualifies for another credit line.

To his dismay, the MFI rejects the application on grounds that the initial loan is yet to be repaid.

Puzzled, he storms his employer’s accounts department demanding an explanation. The response is depressing: while the department was deducting money from the employer to repay the MFI, the funds were not being remitted.

That action is denying the civil servant the short-term loan that government—panting under a cash squeeze that has brought in strict expenditure controls—can no longer provide to relieve its employees of emergency financial needs.

On the other hand, the MFIs—with operational capital stuck with government departments in unremitted funds—struggle to lend out money, which is their main source of income, as they do not have sufficient cash.

The business, which also employs hundreds of Malawians nationwide, starts to suffocate, with potential contagion effects on the rest of the sub-sector, public finances due to potential tax losses and the economy

The problem is big—and broad—not just across the 130 000-strong public service, but also MFIs.

Weekend Nation has learnt that government owes MFIs around K1.8 billion (US$40 million) in unremitted loan repayments already deducted from civil servants.

According to a report Weekend Nation has seen, some of the MFIs government owes include Pride Malawi, Blue Financial Services, Get Bucks, Green Wing Capital and Epic Finance.

The period during which money has not been remitted ranges from six to 12 months depending on the institution.

The institutions have since sought the intervention of the Budget and Finance Committee of Parliament to help them recover their money.

According to consolidated figures of what government owes the MFIs as at May 31 2015, the Ministry of Education, Science and Technology tops the list, owing MFIs nearly K754 million (US$1.7 million), followed by the Ministry of Health at around K414 million (US$920 000).

But while confirming that government owes the institutions money, spokesperson for the Ministry of Finance, Economic Planning and Development Nations Msowoya said this week that the total figure could be exaggerated.

In an e-mail response, Msowoya said: “While we acknowledge that Treasury is yet to remit some of the deductions that it makes to the MFIs, it is not correct that we owe them K1.8 billion.”

He said Treasury is currently doing a comprehensive reconciliation of the deductions and what each of the MFI claims to have disbursed to civil servants as loans.

Msowoya added that while Treasury has a greater role to play in this matter, the MFIs are also to blame.

He added: “Very often, their account details at the banks which are given to Treasury for remitting funds are not correct, resulting in funds being sent back [to Treasury]. This is a waste of [time for] everybody involved because we have to do the same work twice.”

He has since advised the MFIs to improve their record keeping for seamless transfer of funds from Treasury into their accounts.

Msowoya explained that the electronic system of transferring funds to the MFIs, introduced in February this year, requires that all account details for the payee should be correct and updated for funds to go through and any mistake leads to errors.

He urged the MFIs to “put their house in order” before rushing to Parliament to complain

In an interview on Thursday, deputy chairperson of the Budget and Finance Committee of Parliament John Chikalimba confirmed meeting the MFIs, Treasury officials and controlling officers separately to resolve the matter.

“MFIs are key to the country’s economic growth and if government is failing to pay them, how can economic activities flourish?” asked Chikalimba.

He said the committee has advised the Accountant General and the Reserve Bank of Malawi to ensure that the money is remitted before June 30, which is the end of the government financial calendar.

Civil servants are disappointed.

Civil Service Trade Union general secretary Madalitso Njolomole said in a separate interview yesterday that government’s failure to remit the funds has affected desperate civil servants. The union has since demanded that government immediately clear the arrears.

Meanwhile, Malawi Microfinance Network (Mamn) executive director Duncan Phulusa has described the situation as unfortunate, saying this will have enormous implications on the MFIs as some of them are failing to meet capital adequacy requirements because of the money they are still owed.

“Non-payments to the institutions by government mean it is suppressing the growth of business. This may lead to job losses as well as loss of tax revenue for the same government,” said Phulusa.

He said the MFIs have resolved to suspend lending to civil servants until government remits the money. He also said government will have to pay interest on the default payments.

Said Phulusa: “Some of our members are now failing to meet tax obligations. As of now, some have started closing some of their branches, leading to job losses.”