Malawi Rural Finance Company technically insolvent – Consultants

Independent Consultants engaged by the Malawi government to review Malawi Rural Finance Company Limited’s business model in 2011, declared the company technically insolvent and warned its board of directors that they may be personally responsible in law if the company continued to trade, Nyasa Times has gathered.

“MRFC finds itself in a financially tight situation. This has led the company being unable to discharge its long term loan obligations. The company is under serious doubts due to its liquidity challenges,” said Q&M Associates in association with Dye Mawindo Consulting in their July 2011 report.

Malawi government commissioned the review of MRFC after the company went through a tumultuous period from 2006 to 2010 characterised by maladministration, losses and dubious procurement processes among other administrative and operational blunders.

Mawindo: Consultant

 Nyasa Times has a copy of the 66 paged report presented to MRFC CEO Patson Kuntambila.

The Malawi government owned company’s gross outstanding loan balance as of 2011 was MK2.9 billion, a figure financial expert said is big compared to the Southern benchmark of US$2.9 million.

“The company’s revenue generation capacity has deteriorated adversely resulting in the company curtailing its business operations. Loan loss provisions have significantly affected the profitability of the company,” the Consultants observed.

The company’s management accounts as of April 2011 showed a loss of MK 130 million.

MRFC has a unitary board that is composed of only non-executive directors headed by Mrs Theresa Chilambe as Chairperson with Justin Nyondo, Doctor Eric Chilembwe, Smith Masuso and Doctor Edrinne Kayambazithu as directors.

“We would like to recommend that the company should take out some insurance against potential liability arising as a result of this state of affairs if this is possible,” said the Consultants.

As an alternative, the Consultants suggested that the company’s principal shareholders should confirm their awareness of the company’s position “in the unlikely event of a legal suit against the directors personally for allowing the company to continue trading, they would come to their aid”

Insider Trading

The Consultants also established that there is a lot of insider trading at the company, where directors and employees were using privileged information for their own personal benefit or that of other people connected with them.

“For instance, spouses of staff secured loans from the company and quite a sizeable portion of these loans are currently non-performing.”

“We are of the view that allowing these types of loans brings into question two concerning issues: Were the loans applications appraised objectively? And at the time of enforcing repayment of these loans can staff be expected to undertake this activity vigilantly against their own colleagues?” they queried.

The Consultants then demanded a review of these loans and systems put in place to avoid a recurrence of similar practices in future.

“We also recommend that MRFC take legal advice in respect of this approach granted that under the new Pensions Act, the use of pension benefits as collateral is forbidden,” they said.

MRFC was established in 1993 and its main area of activity is provision of micro-finance to micro, small, and medium size business undertakings as well as individuals.

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