Malawi Enterprises Development Fund (Medf) Limited says it will not be able to recover about K8.9 billion worth of loans issued by its predecessor Malawi Rural Enterprise Development Fund (Mardef) in 2015.
Medf chief executive officer Mervis Mangulenje said this yesterday when Medf management appeared before the Budget and Finance Committee of Parliament in Lilongwe.
Medf is a branded version of two former State-owned enterprises namely Mardef and Youth Enterprise Development Fund (Yedef).
Mangulenje told the committee that as part of the rebranding process to a full fledged microfinance institution, Medf conducted an audit which uncovered that the K8. 9 billion was issued to ghost beneficiaries who used fake phone numbers, fake identification cards, and fake locations.
She said: “From the initial K8.9 billion, K6. 4 billion was issued out through the government’s Farm Input Loans Programme (Filp) and the rest was issued as normal business loans to beneficiaries.
“To be honest with you, we cannot recover the loans. It’s a tall order for us because we cannot trace the beneficiaries. When we came in as new management, we found a negative balance which forced us to undertake an audit that uncovered the losses.”
Mangulenje said the handful of beneficiaries they were able to trace were in a state where they could not repay the loan, neither did they possess assets from which to recover the loan.
She assured the committee that the new management aims to clean the mess and rebuild the image of the institution, admitting that they face a bid challenge of people’s perception that Medf money is free government money.
Presenting a catalogue of annual operational losses, Mangulenje said K8.6 billion was lost in 2015, K339 million in 2016, K962 million in 2017 and K642 million in 2018.
In the current 2019/20 performance, a new and performing loan portfolio for Medf as at December 31 2019 increased to K3. 6 billion up from K2.9 billion in June 2019, representing a 24 percent growth.
As of the first six months of the current financial year, Medf recorded an operating profit of K67.5 million against a budgeted profit of K762.7 million for the year ending 2020.
The underperformance, according to Mangulenje, was largely due to delays in getting finance to grow the loan portfolio and profitability.
Mangulenje said the institution planned to borrow K3 billion from commercial banks by July 2019, but banks were shunning them due to their poor performance, until in September when they got K1.5 billion.
In terms of the recently launched K8 billion youth and women loans programme, Mangulenje told the committee that it is not capital from Treasury but a credit capital from the Export Development Fund through the Reserve Bank of Malawi.
She said beneficiaries will pay an annual 30 percent interest rate on the loans and that Medf has now fully embraced regulatory requirements set by the central bank on microfinance operations.
However, some members of Parliament (MPs) asked Medf why it has remained quiet over reports of some politicians using its name to obtain national identity card (ID) records and selling of forms for political reasons.
Mangulenje said they have also learnt of the concerns with surprise, and that they are planning to conduct mass awareness through the media and community engagements to do away with the malpractice.
Meanwhile, parliamentary committee chairperson Sosten Gwengwe has warned Medf to be extra cautious on the situation, saying if no action is taken, the institution will fail on its mandate.
He said: “We understand that they inherited a mess from their predecessor Mardef, but the challenge is upon the new management to prove that they are different and prudent in their service delivery.
“We advise them that it shouldn’t just be a change of name but a complete rebranding. Medf is now a microfinance institution and people in the villages should not see them as a political business but becoming profitable and sustainable to benefit everyone.”
He further advised the institution to control non-performing loans by becoming strict in enforcing regulations as set by the central bank to recover loans to serve its mandate of a revolving fund.
On acquiring of the credit capital from Export Development Fund, Gwengwe said much as Medf is not in export business, he believes that the decision was made in the best interest of Malawians who are looking for capital to start small businesses.
On March 4, President Peter Mutharika launched the K8 billion Medf loan fund for youths and women as beneficiaries but critics described it as a disguise to attract youth and women votes in the forthcoming fresh presidential election.
Medf, which evolved from Mardef, was formed by an Act of Parliament in February 2014 as the only microfinance limited company owned by the government.
In 2016, government said it had given up on reclaiming over K1 billion it loaned out to some youths through Yedef for business start-ups. Capital Hill wrote-off the loans that critics said were largely given based on political leanings rather than sound business cases.