Development Finance Institution Licensing Directive

Introduction

Malawi’s Financial Regulator Introduces New Rules for Development Finance Institutions

The Registrar of the development finance institution has issued new guidelines aimed at ensuring that institutions engaged in medium and long-term financing for economic development are properly licensed and regulated.

Definition of a Development Finance Institution

Under the new directive, a development finance institution is defined as a financial institution that provides medium and long-term financing for economic development but is not a bank. To be eligible to apply for a licence, an applicant must be a body corporate with a minimum paid-up capital of Malawi Kwacha equivalent to US$50 million.

Licensing Application Process

The applicant, which refers to the shareholders of the proposed development finance institution, must submit a written application signed by a representative of the shareholders along with all required information outlined in the Second Schedule. The Registrar may request additional information if deemed necessary.

Objectives of the Licensing Requirements

• Establish licensing requirements for development finance institutions
• Specify the information required by the Registrar in assessing licensing applications
• Ensure that licence applications are objectively and consistently evaluated in a timely manner

Permissible Activities

The new directive allows development finance institutions to engage in various activities, including:

• Making available medium and long-term finance
• Participating in equity investments
• Guaranteeing loans and other financial obligations
• Mobilizing funds from within and outside the country
• Providing technical assistance and advisory services
• Buying and selling securities
• Studying and promoting medium and long-term investment opportunities

Registration of Capital with Reserve Bank of Malawi for Foreign Investors

The directive also provides for the registration of capital with the Reserve Bank of Malawi for foreign investors and requires a letter from the home supervisory authority confirming that the foreign investor is not a shell company and agreeing to exchange information with the Registrar.

Key Provisions

• Minimum paid-up capital of Malawi Kwacha equivalent to US$50 million
• Body corporates only eligible to apply for a licence
• Application process outlined, including submission of written application and required information
• Declaration of development finance institution as prudentially regulated financial institution
• Permissible activities include making available medium and long-term finance, participating in equity investments, guaranteeing loans and other financial obligations, and more.
• Registration of capital with Reserve Bank of Malawi for foreign investors.

Conclusion

The Registrar commented on the new directive, stating: “This is a significant step forward in regulating the development finance institution sector in Malawi. The new guidelines will ensure that institutions are properly licensed and regulated, which will promote stability and confidence in the financial system.” The directive comes into effect immediately and all applicants must comply with its provisions.