Reserve Bank of Malawi (RBM) has advised Savings and Credit Cooperatives (Saccos) to embrace the culture of mergers and acquisitions (M&A) to enjoy economies of scale and compete effectively with big financial institutions such as commercial banks.
The central bank call comes amid a slow growth rate of Saccos in the country compared to other countries in the region in terms of membership, asset base and liquidity levels.
Figures from RBM show that Malawi has 48 Saccos with a combined membership of just below 100 000 against an active population of between six and seven million.
Out of the 48 Saccos, small Saccos that are operating manually and are financially stressed are in a majority.
Speaking on Friday during a 2015/16 Joint Planning Forum for Malawi Union of Savings and Credit Cooperatives (Muscco) and Saccos, RBM director for microfinance and capital markets supervision Hastings Mzoma said under the prevailing environment, M&A offer a solution to the woes gripping the Saccos.
“The registrar [of financial institutions] wishes to see Saccos taking the route of merging or take-overs. Even big and performing Saccos can achieve economies of scale if they pool their resources together with small and non-performing saccos,” he said.
“If mergers and take-overs are not solutions, then the Saccos have to be closed and allow new leadership [to come in].”
Commenting on the growth of Saccos, Mzoma said from 2012 when RBM started regulating them to date, their growth has not been sufficient to meaningfully contribute to the country’s gross domestic product (GDP), the broadest measure of economic growth.
He said most Saccos lack governance skills, but said the central bank will help them to improve on that aspect.
Mzoma hinted that RBM will soon be introducing guidelines on asset base for Saccos, membership base as well as liquidity levels that will aid the Saccos to be automated and compete with banks.
Reacting to RBM assertions, Muscco chief executive officer Sylvester Kadzola described RBM advice as “brilliant”, but said on one hand, the Saccos have exceptionally performed in a number of aspects, including on quality asset and capital adequacy, among others.
He said: “In the last four years, we have doubled our assets, we have doubled our loan portfolio, we have doubled our share capital and this means that on the monetary front, there has been progress which to me shows that we have had quality membership that has saved much as it should.
“However, in any cooperative, the key issue is how many are involved and this is a concern we share with RBM on a small membership.” n