RBM trade finance Facility at $307M
The central bank has renewed the $250 million revolving dual tranche strategic structured commodity and trade finance facility, a tool that softens the country’s importation of petroleum products, medicine and fertiliser, among others.
The facility, through which the Reserve Bank of Malawi (RBM) issues letters of credit (LC’s) to firms to borrow funds from PTA and Trade and Development Bank for imports into the country, has been increased from $250 million (K200 billion) to $307.22 million (K245 billion), according to minutes from the central bank’s board meeting.
The borrowed funds are usually used for the importation of the essential products by companies that have been rewarded contracts by the government.
National Oil Company of Malawi (Nocma) a key beneficiary of the facility has welcomed the renewal as a major step in sustaining a steady supply of fuel into the country.
Nocma deputy chief executive officer Helen Buluma said without this facility, the country would face serious fuel supply challenges as Nocma is the main fuel importer importing an average of 60-65 percent of fuel.
“Nocma’s allocation in the facility is $90 million [about K72 billion]. It’s the largest fuel procurement facility and supports our monthly file financing requirements which is currently at an average of $20 million [about K16 billion].”
The confirmation of the facility’s renewal, are contained in minutes of the RBM board’s meeting held in December 2020.
“The board noted that the facility has five tranches to finance the importation of white petroleum products, strategic commodities such as fertilisers and medicines, non-traditional exports, to facilitate payments or guarantees to power generation companies,” the minutes reads in part.
The facility was negotiated in 2012 by the Joyce Banda administration and is still standing to date.
The purpose of the facility was to ensure that strategic commodities are always available in Malawi, especially at the time when there were fears that Malawi would not recover quickly from the scarcity of forex.
As per its mandate as a gate keeper of financial trade in Malawi, the RBM was tasked by government to have this facility on behalf of the government of Malawi.
The RBM board resolution of 5th November 2012 clearly stipulated the conditions of managing the stated facility with PTA/TDB which clearly places the government as a primary obligor not just a merely surety.
However, the facility was heavily depleted after some local firms, failed to honour their part of the agreement with the government.
The bank has since dragged some of the companies—five in total—to court over non-repayment of about K3 billion.
According to court documents, some of the companies claimed from the bank LC’s to import subsidised fertilisers but failed to honour repayments.
RBM spokesperson Onelie Nkuna said the bank is not to blame for what happened since identification of the fertiliser suppliers and consequent beneficiaries of the facility was done by government.
“With regard to the current facility, you may wish to note that this is a government programme and not a bank’s programme. Further, as per mandate, the bank does not deal with private entities on any financial-related matters but only with financial institutions.”
But in a move seemingly aimed at addressing the facility’s flaws, the board in the December meeting resolved to tighten and enforce monitoring.
“The board considered the terms of the facility and approved that the facility be renewed. The Board resolved to receive regular reports on the performance of the facility, on a half-yearly basis through the Board Risk Oversight Committee,” the meeting minutes read.
