Regulating Financial Cooperatives in Malawi: A New Era

Malawi’s financial cooperatives, also known as Savings and Credit Cooperatives (SACCOs), have undergone significant changes with the passage of the Financial Services Act in 2010. The Reserve Bank of Malawi (RBM) is now responsible for regulating all financial institutions, including SACCOs.

From Ministry to Regulatory Body

Prior to 2010, SACCOs were under the Ministry of Industry and Trade. However, with the new legislation, SACCOs are now considered financial institutions and must adhere to regulatory requirements. In 2011, a SACCO-specific law was passed, which outlines licensing requirements for existing SACCOs.

Regulatory Requirements

As of 2012, all existing SACCOs were given provisional licenses, which will expire in March 2015 if they fail to meet the necessary requirements. The RBM has since implemented:

Quarterly reporting requirements: SACCOs must submit regular financial reports to the regulator.
On-site examinations: Regulatory staff conduct on-site inspections to ensure compliance with regulations.
Enforcement actions for non-compliance: The RBM takes action against SACCOs that fail to meet regulatory requirements.

Directives and Guidance

The RBM has drafted several directives aimed at regulating SACCOs, including:

Licensing: Requirements for existing SACCOs to obtain licenses.
Asset classification: Guidelines for classifying assets held by SACCOs.
Financial reporting: Standards for financial reporting by SACCOs.
Liquidity management: Guidelines for managing liquidity by SACCOs.
External borrowing: Requirements for external borrowing by SACCOs.
Minimum capital requirements: Minimum capital requirements for SACCOs.
Premises inspection: Requirements for SACCO premises.

Regulatory Oversight

The Reserve Bank Governor serves as the Registrar of Financial Institutions, overseeing all financial institutions, including SACCOs. The government has chosen to have one regulator for all financial institutions to leverage resources, knowledge, and networks.

Supervision Structure

The RBM directly supervises 19 SACCOs, which account for 70-80% of the total SACCO movement’s assets, loans, and deposits. Smaller SACCOs are supervised by MUSCCO under an Memorandum of Understanding (MOU). The ultimate responsibility for regulating these smaller SACCOs rests with the Registrar.

Collaboration and Capacity Building

The RBM works closely with MUSCCO on financial support, capacity building, joint initiatives, consultations on laws and regulations, and problem resolution. The regulator’s organizational structure includes departments focused on supervision, economics, operations, pension and insurance, microfinance, and capital markets.

Future Plans

Looking ahead, the RBM plans to:

License qualifying SACCOs: To ensure that SACCOs meet regulatory requirements.
Revised regulatory framework: To update regulations to reflect changing market conditions.
Deposit guarantee scheme: To provide protection for depositors in case of SACCO insolvency.
Shared IT platform: To improve operational efficiency and reduce costs for small SACCOs.