They sank the Development of Malawian Traders Trust (Dematt) simultaneously with the Small Enterprise Development Organisation of Malawi (Sedom).
By the time they were done with Dematt and Sedom, the two bodies were pathetic shells that ended up being thrown into the not-so- strong arms of the Malawi Enterprise Development Institute (Medi).
The three weak genes then intercoursed into what is now called the Small and Medium Enterprise Development Institute (Smedi), whose own survival largely depends on whether it will have funds—the nectar that attracts politicians—to disburse to up-start entrepreneurs.
Their fangs also sank into the now liquidated Malawi Development Corporation (MDC), devoured its income and capital base and threw it under the bus where it was crushed to pulp, leaving its offspring companies without a holding firm.
They bulldozed their way into Malawi Savings Bank (MSB), bit off its heart and soul—prudential banking—and sold off whatever remained of its business integrity to FDH Holdings Limited to salvage.
They are currently ravaging the Malawi Enterprise Development Fund (Medf) which, until February 2014, was called the Malawi Rural Development Fund (Mardef).
Our investigations indicate that the raiders—politicians, especially those belonging to the party in government—are threatening Medf’s top executives to disburse loans to ruling party zealots who do not qualify and are unlikely to repay as history at the institution shows.
They are also bulldozing procurement decisions at Medf that have no value for money to the Treasury fund.
Chief Secretary to the Government George Mkondiwa confirmed in an interview with The Nation last week that he has received a formal complaint from Medf that politicians from the ruling Democratic Progressive Party (DPP) are threatening and intimidating the fund’s executives into dishing out loans to the party’s cadres.
And now they are trying to set up a development bank to pulverise and to plunder like the rest.
The Nation has talked to several former and current top executives of Treasury funds, government investment arms and similar institutions formed to uplift the poor’s lives, to understand how politicians abuse these institutions.
We also talked to some former and active politicians from various administrations.
While some spoke on record, others asked not to be identified so they could speak candidly about the issue.
We also went into the archives to get historical financial information, digging out situational analysis reports, forensic audit findings and other organisational literature.
What comes out clearly from our investigations is that in most cases, the politicians never leave a trace of their dirty tricks.
Instead, they intimidate senior managers of the concerned institutions to process all the paperwork on their behalf, a former general manager of Dematt said. Two former MDC officials corroborated.
A powerful parliamentarian or Cabinet minister would bring several of his or her constituents, say to Dematt, and tell an employee there to fill in loan application forms and sign all of them for the applicants.
The politician would then order that they be given loans forthwith: Just like that, no due diligence.
At MDC, politicians would simply walk in and tell staff there to develop project proposals for them to access credit lines at the then government investment arm.
The fall of Dematt
In an exclusive interview last week, former Dematt general manager Leonard Mangulama said Dematt used to be a well-run trust under the Ministry of Commerce and Industry.
Set up in the 1980s, its mandate was to train businesspersons, give technical support to small entrepreneurs, especially women, and to manage credit guarantee funds.
Problems started in 1995 when the United Democratic Front (UDF) administration added a new mandate for the body to manage Small and Medium Enterprise Fund.
“In 1995, Bakili Muluzi’s financial adviser, Kalonga Stambuli, approached Dematt to start managing the Small and Medium Enterprise Fund in which small loans were distributed to people under the Bakili Muluzi Poverty Alleviation Initiative. The Reserve Bank of Malawi [RBM] then released K200 million to Dematt for the loans,” he said.
Mangulama, a former Cabinet minister, said his trust’s efforts to manage the loans professionally and procedurally faced resistance from politicians who wanted the money to be disbursed as soon as possible.
He said politicians were announcing the loans on political podiums, exciting people—a move he said eventually put pressure on Dematt to give out the loans to people without following procedures.
“We were asking people to form groups and come up with business plans to access the loans. But I recall that some big politicians would produce names of groups from their pockets. ‘Small’ politicians would come to my office claiming that they have been sent by big politicians to obtain a loan. The slow process of disbursing the loans clashed with government’s need to have the money quickly [released] to the people,” he said.
Mangulama said politicians started demanding that the procedures be simplified and were influencing the distribution of loans.
He said most Malawians did not know how to fill in the forms and officials from the institution would be asked to assist in filling in forms for the groups that were mostly identified by politicians.
Mangulama says he tried to remain professional, but ended up paying the price by losing his job.
“I created enemies, but I stood my ground. If you do not have a proper system or [you have] a weak character, politicians interfere,” he said.
But, adds Mangulama, barely nine months after the roll-out of the K200 million loan scheme, he was accused of misappropriating government money. He was fired three months later.
“They never stated why they were firing me. Two audits were carried out by government and Pitt Marwick auditors. However, the outcomes were never communicated to me. Neither police nor any law [enforcement] agency ever interrogated me on any crime, so I assume that they did not find any misappropriation and that my firing was political,” he said.
Plunder of MDC
Once they were done with Dematt, politicians turned their focus on MDC, government’s largest investment vehicle, soon after it announced the availability of European Investment Bank (EIB) loans meant to develop small businesses in the country.
By the time government was winding up MDC in 2006, a staggering K110 million that people with political connections borrowed could not be recovered, according to an MDC loan portfolio status report.
The report indicated that companies that had politicians as backers dominated the list of 35 loan defaulters.
A former manager at MDC explained that the investment arm died because of the loans that were extended to politically connected people without following procedures, which made loan recovery extremely difficult.
The normal procedure was that interested individuals would have submitted project proposals to be independently evaluated by project officers within MDC who would then select viable projects for board approval.
Said the former manager in an e-mail: “The terms and conditions of the loans should have included an oversight role of MDC so that at each and every point, the public funds would have been secure. However, the position is that once government made a decision to extend this facility, politicians and their appointed board and management got together to devise ways of accessing the funds.
“The result was that politicians came to MDC without project proposals. They just mentioned what they wanted and it was MDC project officers who were tasked to write project proposals for the politicians and force the said proposals to appear viable and presenting such proposals to the board was just like ticking a checklist.”
“Since most of the projects were owned by politicians, there was no credible oversight role that MDC played until the entire portfolio was declared non-performing and written off.”
MDC also suffered from being forced to fund projects that were politically initiated without any commercial value.
“Despite the fact that Malawi needed [a television station], the TVM project at its inception was commercially not viable, but government decided to embark on it and implement it through MDC, draining MDC resources with no option of recouping from the investment,” the former manager said.
Politicians are also said to have jumped in to manipulate the decisions made by the country’s multilateral partners who pushed government to privatise most of MDC investments, subsidiary and associated companies.
“Proceeds from the privatisation ended up going to Malawi Government Account Number One, leaving MDC with nothing to reinvest,” the former manager said.
“In my view, I feel that in Malawi we give politics and politicians too much space, responsibilities and respect that they do not deserve and is not within the ambit of their mandate,” said the former MDC official.
Indeed, most government, owned companies have over the years failed to achieve their objectives due to undue political interference,” said the source.
MSB suffered similar fate
Evidence The Nation unearthed in January this year, once again, showed that politicians are responsible for the problems that dogged MSB.
Documents The Nation saw and reported on at the time showed that bad loans to “people who are politically exposed”, politically driven government programmes and adventures brought the then whollyowned State bank to its knees by locking up money in toxic assets that could not be quickly converted into cash or cash equivalents on demand.
The poor quality of the bank’s loan book—comprising large nonperforming accounts—tied up liquidity and eroded capital by way of loan loss provisions and suspension of interest, according to a contextual background brief to the crisis that MSB prepared for its shareholder.
“Most of these nonperforming loans relate to people who are politically exposed,” the brief stated.
Of the bank’s K7 billion toxic assets—roughly 30 percent of the loan book—Mulli Brothers Limited (MBL) held the single largest (K4.6 billion or nearly 66 percent) of MSB’s nonperforming loans.
MBL’s chairperson and managing director Leston Mulli is a known backer of Democratic Progressive Party (DPP) and was particularly close to former president the late Bingu wa Mutharika.
That may explain why most of the MSB toxic loans were issued during the Bingu regime, especially from 2010.
Apart from using MSB to finance politically linked people, the ruling elite also pushed the bank—just like they did with MDC—to finance non-viable politically initiated government programmes.
Thus, MSB extended loans to government-owned institutions and departments to finance “strategic transactions relating to student loans, fertilizer procurement through Smallholder Farmers Fertilizer Revolving Fund of Malawi [SFFRFM]; procurement of maize through Admarc and deployment of a Malawi Defence Force [MDF] peacekeeping mission to Ivory Coast”.
Other bad loans, according to documents, went to Malawi Broadcasting Corporation (MBC), Air Malawi, the politically charged Youth Enterprise Development Fund (Yedf) and the University of Malawi.
The loans weighed on MSB books until 2013 when government issued a K6.4 billion five-year promissory note to remove the politically initiated loans off MSB books and shore up its balance sheet.
And just a few months ago, government released additional treasury notes worth K6 billion to MSB to wipe politically exposed loans off the bank’s balance sheet and attract a buyer. FDH Financial Holdings took the offer.
Medf is the new target
Our investigations have established that Mardef or Medf as it is called these days, recently protested to Mkondiwa over political pressure from ruling DPP zealots who are pressuring the fund to give them loans.
“We write to inform you Sir, about the threats that Medf management is receiving from DPP cadres who are demanding loans from the institution. The threats range from the CEO being told that he has been dismissed to ‘tithana naye’.
“You will recall, Sir, that when government incorporated the activities of Yedf into Mardef, it was the view of government that the two funds should be used sustainably to help Malawians, especially those that could not access financial services from formal financial institutions. The two funds were meant to be revolving and, to support productive enterprises on a sustainable basis,” reads a letter to the Chief Secretary that The Nation saw.
When contacted to confirm personal threats against him, Medf chief executive officer Joseph Mononga could not respond to NPL’s questionnaire despite numerous reminders.
But in the letter, Medf management asked the Chief Secretary to provide management with guidance on the way forward following the threats from DPP cadres.
Mkondiwa said his office has not done anything on the matter as it believes that the matter was resolved because Medf has not gone back to his office.
“The matter was discussed with appropriate authorities and [Medf] has not come back to complain that the threats are continuing. Since the matter was written to us, we expected them to write again if the threats were continuing,” he said.
But the fact that threats were issued to Medf top executives from DPP officials and the lukewarm response from the Office of the President and Cabinet (OPC) only demonstrate how dangerous the political environment is for public officials.
The desire to work professionally is certainly there, but sometimes the need to survive drives the officials into bending rules to favour powerful politicians and their cronies.
“We exist to serve all Malawians, including ruling party members, but we would like them to operate in accordance with best micro-finance practices for sustainability and within acceptable requirements as stipulated in our operational guidelines.
“The approach that has so far been taken has mostly been supply- driven other than demand-driven, as we have seen the forms being solicited and submitted at regional level of the party structures,” reads the letter.
The fund told Mkondiwa that since its creation in 2005, the first loans that were disbursed were politically influenced, resulting in the Budget and Finance Committee of Parliament recommending suspension of the programme by Parliament.
The micro-finance lender said the programme was suspended from May 2005 to November 2005 and resumed after protracted discussions between Ministry of Finance and the Budget and Finance Committee of Parliament.
“Guidelines for operation of the fund were agreed and subsequently approved by Parliament in November 2005 and these helped in ensuring enforcement of the oversight role by Parliament. The fund experienced encouraging repayments from 2006 to 2009, which at times were as high as 95 percent. However, this trend was reversed with the introduction of Yedf in 2010,” reads part of the complaint.
But it said when the first phase of Yedf loans were approved by the board in accordance with operational guidelines, government—through OPC—suspended the loans on the basis that funds were given to “overaged” beneficiaries, who were not within the eligibility threshold.
“…The truth of the matter was that the list of beneficiaries did not reflect the preferred political leanings. After discussions with government officials on the same, it was agreed that the list of beneficiaries should be replaced with the one to be determined by the Ministry of Youth and Sports Development. This resulted in the then minister of Sports compiling the list from his office by calling fellow members of Parliament to give him names,” reads the letter.
Yedf used to fund July 20?
And in a startling development, the Medf complaint suggests that the ruling DPP may have used Yedf to fund July 20 counter-insurgencies that saw around 20 people dead.
Medf further alleged that the second phase of Yedf loans followed the demonstrations that occurred on July 20 2011 when the then Mardef was instructed to give loans to vendors as these were seen as masterminds of the demonstrations.
Reads the memo: “Unfortunately, most of the loans were given to DPP youth instead of the vendors.”
According to Medf, the total loans that were given out during the first and second phases were politically motivated and amounted to K1.7 billion—most of which is yet to be recovered and the Medf board agreed to write them off.
“For the past four years, Mardef has been struggling to recover these loans and this has led to a portfolio that is not performing with most of the loans still outstanding to date. These events had a negative spill-over effect on the well-performing Mardef portfolio, which also became difficult to recover.”
It adds: “As indicated earlier, due to the failure of first and second phase loans, and the consequent negative spill-over effects on the Mardef loans, the resultant loan portfolio was nonperforming and in accordance with international accounting standards and RBM guidelines as stipulated in the Act, the Medf board at its last sitting on 26th March 2015, approved bad debts write offs.”
Mardef said in accordance with micro-finance best practice, management will, however, continue with its recovery efforts although likelihood of recovery remains distant.
“The nonperformance of politically motivated loans and the resultant provisioning continue to erode the capital base of the institution. It is the board’s and management’s view that these significant write-offs would have been avoided if micro finance best practices of recruiting clients were followed and political tone set for improved credit culture for beneficiaries,” reads the letter.
DPP secretary general Eclain Kudontoni defended his party in a telephone interview on Thursday, saying what he has heard was that Medf was telling people looking for loans that the institution has no money because youth, during People’s Party (PP) reign, did not pay back the loans they took.
“Why are they complaining about DPP youths only? They are receiving pressure from all angles, youths from all political parties. The problem in Malawi is that the youths do not pay back loans, it is not only DPP youths, I am surprised why they are targeting DPP when they are failing to recover money from PP youths,” he said.
He said as a political party, they are not exerting any pressure on Medf for loans.
PP secretary general Ibrahim Matola said his party has never facilitated any Mardef loan for its members, but rather PP members, like any other Malawian, were able to access loans as individuals.
“This is not a political issue. People access loans as individuals. PP has millions of supporters, we could not know who obtained a loan with Mardef,” he said.
The previous PP government also dumped a K25 billion poison chalice on Mardef’s lap when then president Joyce Banda conceived an idea of a parallel Farm Input Programme (Filp) to benefit people who do not qualify under the Farm Input Subsidy Programme (Fisp).
The programme by-passed Parliament to satisfy Banda’s political whims. Today, Medf is struggling to recover funds from the loan scheme because procedures of forming the groups were not followed.
Why do they get away with it?
One seasoned politician who has been active politically and held different senior portfolios in Cabinet, civil service and Legislative branches as in one of the ruling parties, said in an interview that there are structural and operational aspects that make this abuse possible and allow politicians to get away with it.
“In all cases , rest assured that such abuses are not possible where the president does not condone or initiate them,” the veteran politician said. “It starts with the powers of the president in appointing board members. He chooses those he can control.”
The second problem, he said, was that the office of the Auditor General is so incapacitated that although it has statutory powers to audit every organisation, that never happens.
“Then the Accountant General does not exercise his or her powers to ensure that procedures are followed. In most cases it has to do with the powers of the president to appoint or remove both the Accountant General and the Auditor General at his or her discretion,” said the politician, who was once Speaker of the National Assembly, Cabinet minister and technocrat, but asked not to be named.
He also observed that parliamentary committees such as on Public Accounts as well as Finance and Budget , are constitutionally empowered to demand audit reports as part of their oversight powers over the Executive, but they do not.
“The abuses by subsequent governments had such a detrimental effect on public finances that both the World Bank and the IMF [International Monetary Fund] demanded privatisation. Our leaders took advantage of that to privatise to their own friends as well. In some cases they deliberately raided the organisation so that the IMF could order its privatisation,” he said.
Social analyst and known political strategist Humphrey Mvula—who served as chief executive officer of several State-owned enterprises—agrees that political interference mostly comes through the appointments of board of directors and chief executive officers.
Mvula, a former general manager of government-owned Shire Bus Lines Limited and MDC, cited political interference in the former David Whitehead and Sons when he was board chairperson of the company. He also cited the company’s sale transaction as rife with political interference when it was sold in 2003.