The Public Accounts Committee of Parliament (PAC) has questioned the legality of the Export Development Fund (EDF), wondering why the Reserve Bank of Malawi (RBM) allowed the institution to operate for over nine years without a licence.
EDF, a wholly-owned subsidiary of the RBM—the regulator and registrar of financial institutions, was established in 2012 as a development finance institution (DFI) to address the gap in generating bankable projects and provide financing to check persistent foreign currency disequilibrium.
During an appearance before PAC at Parliament Building in Lilongwe yesterday, RBM Governor Wilson Banda conceded that EDF has been operating without a licence for the past nine years, but was quick to point out that its registration process was in progress.
He said: “Let me admit that EDF is an institution that has not been licensed for the past years. Different administrations have gone past and have seen the value in supporting the EDF. I admit there might be conflict of interest because we are 100 percent shareholders and at the same time we are regulators.
“It is a government issue; government has to decide what to do on how we may do away with conflict of interest. If EDF shuts down, then who is going to take up its place? Then it becomes a big issue.”
On whether EDF would have been allowed to operate if it was a privately-owned financial institution, Banda said that would have been illegal.
He could, however, not explain why the EDF has remained unregistered for over nine years, saying he was new in his role as governor. He could also not indicate when the institution’s registration would be completed, a development which amused the committee.
Members of the committee also questioned why the EDF, while operating illegally, was issuing billions in loans to institutions under its illegitimate mandate, fearing institutions that owe it may not pay back loans, with an excuse that they dealt with illegal institution.
PAC chairperson Shadreck Namalomba accused RBM of double standards by policing other financial institutions to have operational licences while its subsidiary, EDF, has been operating for years without one.
He also questioned the powers under which the central bank was mandated to establish a structured gold market under its subsidiary, saying there could be conflict of interest.
Namalomba said: “How can it happen that nine years passed with EDF operating without a licence when actually the central bank should have led by example to licence own subsidiary. This is a contentious issue, should not happen and the Reserve Bank should be the last institution in this country to break laws of the country.
“As a committee, we are shocked with this development, and now they are buying gold, under what mandate are they buying gold? We have learnt the EDF have incurred bad loans in excess of K20 billion, how are they going to recover the money with interest without a licence.”
In May this year, RBM announced the establishment of a structured gold market manned under the EDF with the view to legalise gold trade which was then being sold illegally in the country, mined by artisanal, small and medium miners.
RBM deputy governor responsible for bank supervision Grant Kabango justified that EDF was engaged to buy gold because the central bank apart from championing monetary policy mandate has, in the law, a developmental role which involves foreign exchange generation for the
economy when the real sector is failing to generate such.
Ordinarily, he said RBM was not supposed to be generating forex. However, due to constraints in the economy, he said RBM has been coming up with initiatives under EDF to support forex supply.
EDF managing director Gerald Nsomba told the committee that the institution has about K20 billion bad debts offered to several institutions to facilitate exports of commodities to generate forex for the country.
While not mentioning other institutions because the issues were in court, he revealed that they invested K6 billion with Alliance Capital Limited which is failing to pay back the money with an anticipated interest in excess of K500 million.
Nsomba also named the AHL Commodities Exchange as another beneficiary with an $800 000 (about K648 million) loan.
The meeting adjourned prematurely due to time constraints. The two parties agreed to reconvene after three weeks.