Malawi’s Banking Regulations Compliance in the Spotlight as Trade Financing System Improves

Despite being a largely cash-based economy, Malawi has made significant strides in promoting the use of credit and debit cards as payment mechanisms. The Reserve Bank of Malawi (RBM) has issued regulations to mandate licensed entities to deploy electronic payment channels for payment of goods and services, providing a convenient, safe, and efficient experience for customers.

Regulatory Requirements

According to industry experts, the RBM’s Business Licensing (Deployment and Usage of Electronic Payment Channels) Regulations, 2019 require entities with annual revenue turnover exceeding MKW 10 million (USD 9,670) to deploy Point of Sale (POS) devices at their premises. All other business entities are required to have at least one electronic payment channel of their choice.

Challenges and Opportunities

While access to credit remains a challenge due to the high cost of credit, the RBM has implemented measures to promote access to credit for businesses and individuals. The base-lending rate in June 2022 stood at 13.8 percent.

Malawi’s banking sector is considered sound, with eight full-service commercial banks operating in the country. The top two banks, National Bank of Malawi and Standard Bank of Malawi, dominate the sector with a combined market share of 46 percent for total assets and 47 percent for total deposits as of December 2021.

Safeguards and International Standards

The RBM has implemented various safeguards to ensure the stability of the banking system, including guidelines on capital adequacy and liquidity ratio. The bank also adopted Basel II standards in January 2014 and international accounting standards applied by the Institute of Chartered Accountants in Malawi (ICAM).

Foreign Exchange Markets and Challenges

Despite the challenges, foreign exchange markets operate freely, with the RBM exerting influence to manage the exchange rate and maintain a sustainable balance of payments position. However, foreign exchange pressures have resulted in a devaluation of the kwacha, leading to shortages of essential commodities.

The government has implemented measures to mitigate forex shortages, including mandating 30 percent of all money generated through exports to be sold to the RBM at the official rate before any funds can be externalized. Critically high inflation is expected to continue to rise, leading to concerns about the cost of living.

ICS Section on Financing and Investment Climate

In related news, Malawi’s ICS section on financing has been updated, providing valuable information for investors and businesses looking to operate in the country. The U.S. Department of State Investment Climate Statement website offers detailed information on financing options and regulatory requirements for foreign investors.

Banking Services and Connectivity

Malawi’s banking sector is well-connected to international banks, with several local correspondent banks maintaining relationships with major global financial institutions. Banking services include demand-deposit accounts, telegraphic transfers, and travelers’ checks.

Conclusion

As Malawi continues to improve its trade financing system, compliance with banking regulations will play a critical role in promoting economic growth and stability. By understanding the regulatory requirements and challenges facing the sector, businesses and investors can make informed decisions about operating in the country.