Malawi’s Banking Industry Regulations and Compliance: A Complex Landscape

Introduction

Malawi’s banking sector has experienced significant growth in recent years, but it still faces numerous challenges in terms of regulation and compliance. The Reserve Bank of Malawi (RBM), the country’s central bank, plays a crucial role in overseeing the financial sector.

Regulations on Electronic Payment Channels

In 2020, the RBM introduced regulations requiring licensed entities to deploy and use electronic payment channels for payment of goods and services. This move aimed to provide a convenient, safe, and efficient experience for customers. Entities with annual revenue turnover exceeding MKW 10 million (approximately $9,670 USD) are required to register and mandate the use of electronic fiscal devices under the Value Added Tax Act.

• Electronic Payment Channels: All business entities must have at least one electronic payment channel of their choice, such as mobile money, mobile banking, or internet banking.
• Point of Sale (POS) Devices: Companies offering negotiated payment schedules to well-established companies in business-to-business transactions and to the government frequently require flexible payment terms due to cash flow issues.

Sound Banking Sector

Malawi has a generally sound banking sector, with eight full-service commercial banks operating in the country. The four domestic, privately-owned banks manage 55% of total net assets, while the remaining four foreign-owned banks manage 44%. The National Bank of Malawi and Standard Bank of Malawi dominate the sector, accounting for 46% of total assets and 47% of total deposits.

No Depositor Insurance

Malawi neither has nor requires depositor insurance. However, the RBM enforces safeguards and capital requirements, adopting Basel II standards in January 2014. International accounting standards apply to all banks in the country, with bank financial statements audited by internationally recognized firms.

• Capital Requirements: The RBM enforces strict capital requirements for banks, ensuring that they maintain adequate levels of capital to absorb potential losses.
• International Accounting Standards: All banks in Malawi are required to follow international accounting standards, providing transparency and consistency in their financial reporting.

Foreign Exchange Controls

Although foreign exchange markets operate freely, the RBM has a mandate to manage the exchange rate to maintain a sustainable balance of payments position and foster growth in real income. The kwacha has been subject to periodic interventions from the RBM to stabilize values. Foreign exchange pressures resulted in a 25% devaluation of the kwacha in June 2022.

U.S. Banks and Local Correspondent Banks

There are no U.S. banks operating in Malawi, but several domestic banks maintain banking relationships with foreign banks, including Citibank New York, Standard Chartered Bank of London, and ABSA Bank Limited of South Africa. Banking services include demand-deposit accounts, telegraphic transfers, and travelers’ checks.

Conclusion

Malawi’s banking industry regulations and compliance landscape is complex and presents several challenges. While the RBM has made efforts to improve the sector, more needs to be done to ensure stability and confidence in the financial system.