Default of about K1.5 billion loans has paralysed Malawi Rural Finance Company (MRFC) and resulted in Treasury spending millions of kwacha to pay salaries for employees of the insolvent company.
Government set up MRFC in 1993 as a microfinance company to provide loans to resource-limited small and medium entrepreneurs and farmers, especially those in rural areas, but the company has since last year not been performing its core mandate after it became insolvent due to high loan default rates.
In an interview on Tuesday, MRFC acting director of operations, Nellie Shawa, said the company is currently awaiting to hear from Cabinet on its future as it has run out of money to sustain itself.
“About K1.5 billion is still with the people. It’s quite a tall order for us to source money to give other loans. Our salaries and operational funds are supposed to come from the lending business.
“Currently, we have been getting injections from government to at least pay salaries [for 220 employees]. We got K80 million around July last year to keep us going for about six month,” said Shawa.
She said the company—with a customer base of about 200 000—is still pursuing the unpaid loans although she said the rate of success to get repayments has been “very low”.
“The majority of our customers don’t have bankable collateral. Most of them got loans to buy fertiliser and failed to pay back because of poor tobacco sales.
“We take them to court when all the processes have failed, but the rate of success has been very minimal. There have been instances where people have been taken to court and pleaded guilty, but they have nothing to pay back,” said Shawa.
She said the company gave out loans on group solidarity and not on the basis of possessing collateral, saying they currently need an injection of at least K1.5 billion for the leading function only to resume operations.
Ministry of Finance spokesperson Nations Msowoya last week said government will soon engage consultants to assess the future of MRFC as a financial institution.
“The company was heavily affected when the tobacco industry performed poorly in terms of prices. MRFC clients defaulted on most of their loans and MRFC balance sheet was heavily affected [thereby] requiring some recapitalisation from government. Before it can be recapitalised, government would like to find a sustainable way of running MRFC, so that it is a viable financial institution that can support itself.
“The recommendations from the study will help us to identify the future of MRFC. We still have staff at MRFC to help recover loans that were loaned out to farmers,” said Msowoya
Meanwhile, MRFC employees have threatened strike if the company does not increase their salaries, complaining that their perks have not been hiked despite skyrocketing cost of living after the kwacha devaluation and its subsequent floatation.