Tighter Regulations for Financial Institutions in Malawi

The Malawian government has strengthened its regulatory framework for financial institutions, particularly Savings and Credit Cooperative Societies (SACCOs), to promote stability and soundness within the sector.

Background: Regulatory Changes

Prior to 2010, SACCOs were under the Ministry of Industry and Trade. However, with the passage of the Financial Services Act that year, the Reserve Bank of Malawi was designated as the regulatory authority for all financial institutions, including SACCOs.

In 2011, a SACCO-specific legislation, the Financial Cooperatives Act, was enacted to provide additional oversight. The act has led to the implementation of various regulations and directives aimed at ensuring that SACCOs operate in a safe and sound manner.

Key Regulations

Some of the key regulations include:

Quarterly reporting requirements: Regular reporting to ensure transparency and accountability.
On-site examinations: Regular inspections to verify compliance with regulatory requirements.
Registrar’s directions: Directives from the Registrar of Financial Institutions to ensure compliance.
Enforcement actions: Actions taken against non-compliant institutions.

Proposed Draft Directives

Draft directives have been proposed for:

Licensing
Asset classification
Financial reporting
Liquidity management
External borrowing
Minimum capital requirements
Premises inspection

Regulatory Oversight

The regulator of financial institutions in Malawi is the Governor of the Reserve Bank of Malawi, who serves as the Registrar of all financial institutions. The bank has direct supervision over 19 SACCOs, which account for approximately 70-80% of the entire SACCO movement’s assets, loans, and deposits.

Industry Expert Opinion

Industry experts say that regulation is essential for financial cooperatives to grow and contribute to poverty reduction efforts in Malawi. With the implementation of these new regulations, the sector is expected to become more stable and secure, ultimately benefiting both members and the economy as a whole.

Future Plans

The Reserve Bank of Malawi plans to:

License qualifying SACCOs
Revise the regulatory framework
Establish a deposit guarantee scheme
Develop a shared IT platform for small SACCOs