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Reserve Bank of Malawi Issues Directive on Non-Interest Banking Activities

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The Reserve Bank of Malawi has issued a directive outlining the prudential requirements for banks that engage in non-interest banking activities. The directive is divided into five parts, which are outlined below.

Part I: Licensing Requirements

  • Banks must obtain a license from the Registrar before engaging in non-interest banking.
  • The license will be granted after reviewing the bank’s Shariah compliance framework.

Part II: Prudential Requirements

Liquidity Requirements

Banks must comply with the Reserve Bank of Malawi’s liquidity reserve requirements directive 2010.

Risk Management

Banks 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

The following products are permissible:

  • Murabaha
  • Mudaraba
  • Musaharaka
  • Diminishing Musharaka
  • Ijarah
  • Istisna

Part III: Shariah Compliance

Banks must establish a Shariah board or advisors to oversee non-interest banking activities. The Shariah board or advisors must comprise of at least:

  • A Shariah scholar who is either based in Malawi or abroad
  • A person of highest integrity, honesty, professionalism, and ethical behavior
  • A person with proven track record, experience, skills, and knowledge in the delivery of Shariah rulings and issuing scholarly opinions on matters of Islamic law and finance

Part IV: Accounting, Reporting, and Disclosure

International Financial Reporting Standards (IFRS)

Banks must comply with IFRS or International Accounting Standards (IAS) in all respects of their business.

Use of Alternative Accounting Standards

Banks may prepare their accounts in line with the relevant provisions of the Financial Accounting Standards (FAS) issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) for their own use.

Part V: AML/CFT Compliance

  • Banks must comply with the Financial Crimes Act 2017 and all relevant regulations and directives.