Malawi has put on hold plans to establish state owned Development Bank after cooperating partners, particularly those interested in financing, have suggested that instead the government should consider establishing a development fund, Finance Minister Goodall Gondwe said on Friday.
Gondwe made the disclosure in parliament when he was delivering the country’s financial plan for 2015/16 in Lilongwe.
Malawi government initially had planned to turn Indebank, in which government has a controlling stake, into a development bank. But later decided to open a new financial institution to offer loans to Small and Medium Enterprises (SMEs) at affordable interest rates.
Government announced it had appointed former finance Minister, Friday Jumbe as the development bank’s CEO. Jumbe is an economist with vast management and finance experience having previously served as CEO of Admarc and Admarc Investment Holdings. He also served as Minister of Finance and Economic Planning in the government of Bakili Muluzi.
Jumbe – who contested in the last presidential election under the New Labour Party but later “dissolved” the party to support the ruling Democratic Progressive Party (DPP).
However, in his budget statement, Gondwe said some development partners advised government to establish a development fund “since this would part own development projects and be involved in their management”
Gondwe noted that there are also arguments in favour of the establishment of the development bank “including the relative ease with which such an institution could mobilise private resources in partnership with the government.”
He told parliament that the formation of the development bank “has been delayed” in order to give “full room to this consultative process”, saying parliament will be duly informed about the progress.
Government sees the development bank as a tool to help medium and large-scale entrepreneurs to access capital as it is problematic for them to get loans from commercial banks.
Malawi Development Corporation (MDC), which acted as a quasi State development bank was liquidated in 2005 and according to a situational analysis report by then MDC board of directors in October 2004, MDC, was being forced to participate in projects that were either unviable or marginally viable in its eagerness to support government social economic initiatives.
Initial estimates showed that the development bank required a capital injection of $25 million but could commence operations with $6.75 million.
Meanwhile, Gondwe also told the House that government is also considering review of the Malawi Enterprise Development Fund (Medf), which replaced Mardef and Yedef, to transform it into a rural cooperative development financial institution.
“The aim is to provide credit to the poor and medium sized farmers and the youth in the country,” said Gondwe.
He said MEDF is facing “threats” of being viewed as government institution which creates the downside risk of poor loan recovery rates.
Gondwe said government is consulting some lawmakers on the revised concept.Follow and Subscribe Nyasa TV :