Government says plans are at advanced stage to open two development banks—Agricultural Cooperative Bank (ACB) and Malawi Development Bank (MDB)—to extend banking services to other sectors of the economy.
Minister of Finance, Economic Planning and Development Goodall Gondwe, in an interview last week, said government has asked the African Development Bank (AfDB) to finance the establishment of the two financial institutions.
Plans to open the banks come at a time government has just sold majority stakes in two banks, Indebank Limited and Malawi Savings Bank (MSB), to Malawi Stock Exchange (MSE)-listed National Bank of Malawi and FDH Financial Holdings Limited respectively.
Gondwe said government is also seeking financial help from the World Bank (WB) for the two projects.
“We are courting AfDB on the same and we have been told to conduct a feasibility study, which of course might take time. But initially we need about $50 million [about K34 billion] to open ACB,” he said.
The finance minister explained that the bank will mainly advance agricultural activities, since Malawi’s economy is agro-based.
“We will need to organise smallholder farmers into cooperatives for them to benefit from the bank”, he said.
Gondwe said the establishment of MDB has, however, dragged because of the legal paper work that has to be approved by Reserve Bank of Malawi (RBM).
Gondwe hinted that, so far, RBM has concluded feasibility study on the viability of the proposed MDB and results were analysed and financial market experts duly consulted.
RBM earlier indicated that the bank will require an initial capital of $25 million (K17.3 billion), but can kick-start operations with at least $6.75 (K4.7 billion).
Gondwe said that government plans to have a 50 percent shareholding in both banks.
Economics Association of Malawi (Ecama) President Henry Kachaje said it is high time Malawi had an agricultural development bank to promote export- oriented organised agro firms.
He said the cost of borrowing in most commercial banks is exorbitant, thereby restricting large and organised farmers, especially exporters to access finance.
In an earlier interview, University of Malawi’s Chancellor College economics professor Ben Kaluwa said in the absence of an agricultural and pure development bank, high interest rates being offered in commercial banks make it difficult for investors and individuals to borrow for investment purposes.
Most of the countries in the region have development banks. For example, South Africa has the Development Bank of Southern Africa (DBSA), Mozambique has Banco Nacionale de Investment (BNI) and in Zambia they have Development Bank of Zambia while Tanzania has TIB Development Bank. n