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Regulations for Non-Interest Banking Activities in Malawi
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The following regulations outline the requirements for banks in Malawi that engage in non-interest banking activities, specifically those related to Islamic finance or Shariah-compliant products.
Establishment of Shariah Board
A bank engaged in non-interest banking must establish a Shariah board or advisors with at least three members. The Shariah board should comprise:
- A Shariah scholar based in Malawi or abroad
- A person of high integrity, honesty, professionalism, and ethical behavior
- A person with experience, skills, and knowledge in delivering Shariah rulings and opinions on Islamic law and finance
Roles and Responsibilities of Shariah Board
The Shariah board is responsible for:
- Reviewing and approving non-interest banking products
- Certifying that products/services are Shariah compliant
- Overseeing the development of innovative Shariah-compliant products
- Conducting non-interest banking training for staff
- Issuing a report to be incorporated in the annual report confirming that the board has conducted a Shariah review
Audit and Compliance Function
A bank engaged in non-interest banking must have an internal audit structure that incorporates an independent assessment of control procedures for addressing specific risks associated with non-interest banking products.
Prudential Requirements
A bank must comply with the following prudential requirements:
- Liquidity requirements: A bank must comply with the Reserve Bank of Malawi’s Liquidity Reserve Requirements Directive 2010.
- Risk management: A bank must develop policies, systems, and procedures to identify, measure, monitor, and control risk exposures in line with the Risk Management Guidelines for Banks 2007.
Permissible Non-Interest Banking Products
A bank may offer the following products:
- Murabaha
- Mudaraba
- Musaharaka
- Diminishing Musharaka
- Ijarah
- Istisna
Regulatory Treatment of Non-Interest Banking Products
The products listed above shall be mapped to conventional products for regulatory treatment, such as:
- Mudaraba/Qard: treated as deposits for liquidity risk and lending ratio purposes
- Musharaka/Murabaha on residential property: treated as residential mortgages for regulatory risk weighting (35%)
- Musharaka/Murabaha on commercial property: treated as commercial real estate loans for regulatory risk weighting (100%)
- Ijarah or Murabaha on motor vehicles/equipment: reported as lease financing in the call report (100% risk weight)
- Istisna: treated as long-term finance (100% risk weight)
Accounting, Reporting, and Disclosure
A bank engaged in non-interest banking must comply with International Financial Reporting Standards (IFRS) or International Accounting Standards (IAS).
The audited financial statements for a bank engaged in non-interest banking must contain a statement on the nature, amount, and status of non-interest banking products carried on its statement of financial position.
A bank must report its banking activities to the Registrar in the form and frequency as prescribed in the Financial Services (Submission of information by banks) Directive 2012.
Anti-Money Laundering Compliance
A bank engaged in non-interest banking must comply with the Financial Crimes Act 2017 and all relevant regulations and directives.