The central bank has placed the National Economic Empowerment Fund (Neef) on prudential supervision and has ordered the fund to comply with financial services directives on asset classification, corporate governance and financial reporting.
The Reserve Bank of Malawi (RBM) is also keeping a watchful eye on the highly politicised poverty reduction fund after a series of reports of credit mismanagement.
But the major reason, according to documents we have seen, is that Neef’s asset base has crossed the K3.0 billion threshold for a microfinance institution.
Central bank data shows that as of September 2020, Neef’s asset base was at K12.8 billion.
Placing Neef—a government microfinance institution— under prudential regulation is crucial and in line with the Microfinance Act of 2010, according to Mark Lungu, director, Capital Markets and Microfinance Supervision
In his letter to Grant Kabango, Deputy Governor, Economics and Regulation dated November 26 2020, Lungu says the Act mandates the Registrar of Financial Institutions to determine thresholds in terms of assets or services for any licensed non-deposit taking microfinance and place it under prudential regulation.
Current prudential thresholds according to Microfinance (Non-Deposit Taking Instutions) Directive of 2018 are asset base of K3.0 billion or annual revenues of K2.2 billion and Neef with assets at K12.8 billion should be under supervision.
“This entails that non-deposit taking microfinance institutions that attain such thresholds and maintain or surpass them over one-year period, will also be placed under prudential regulation.
“In addition, the recent events relating to credit mismanagement at the institution prompt us to place the institution under prudential supervision as most items could not be indentified under the market conduct,” he argues in the letter.
Lungu said he believes that placing Neef under prudential regulation will lead to enhanced and effective supervision of the government-owned microfinance institution.
In his response dated November 26 2020, Kabango says Neef should with immediate effect comply with financial services directives on asset classification, corporate governance and financial reporting in addition to current Applicable acts and directives.
Neef, formerly Malawi Enterprise Development Fund (Medf) Limited, was registered in February 2014 as a company limited by guarantee.
In January 2015 the company was issued a license by the RBM as a non-deposit taking microfinance institution, making it a recognisable and legitimate player in the Malawian microfinance market.
Rebranded late last year, NEEF’s key aim is to assist Malawians to set up small business ventures which will uplift their well- being by providing them with affordable loans and sustainable technical, entrepreneur, financial and management skills.
A financial expert said Wednesday by placing Neef under prudential supervision RBM ensures that the fund should not fail.
“Micro prudential supervision on financial institutions such as Neef is to prevent those institutions from going bankrupt. The supervisor—in this case RBM—will be assessing Neef’s risk from time to time,” he said.