Reserve bank of Malawi defends village banks

Post was last updated: September 7, 2016

Amid regulation concerns from some sectors over the mushrooming of village banks, a grouping of individuals, mostly women, who come together to share a loan and guarantee repayment, the Reserve bank of Malawi (RBM) has come forward to defend the movement describing their operations in the country as legal.

Malawi is among countries with the highest interest rates in Africa and the world, hovering around 40 percent which makes it prohibitive for most people to access bank loans. The situation has seen an increase in the creation of village banks where mostly unsalaried women can easily access loans at minimal interest.

And according to RBM Publicist, Mbane Ngwira, Malawi’s Microfinance Act exempts village banks from being regulated by RBM, the regulator of financial institutions in the country.

“The village banks are legal only that they operate without regulations as outlined in the Microfinance Act. These are member based groups and basically, regulations target those in the formal financial sector.

“The formal sector is regulated in order to save the savings from losing their earnings when the institution collapses, while the village banks are member based and do not have entities that match company status,” he said.

Ngwira, however, said the Central bank is looking at modalities of having the village banks regulatated to help them develop and grow.

In a separate interview, Nico Holding Chief Executive Officer, Felix Mlusu, said failure by commercial banks to satisfy the needs of customers, citing poor customer ser vice, lack of competi tion and lack of innovation, among others has caused the phenomenon of village banks to spread like wild fire.

Delivering a keynote address during the Bankers Association of Malawi (Bam) annual dinner and dance held under the theme ‘Sustainable Business Development through Accessible and Affordable Financial Services’, Mlusu said failure by the banks to meet the needs of individual customers has resulted in the sprouting of parallel structures such as village banks.

“Because banks are not providing what the customers want, we have seen the sprouting of parallel structures such as village banks. Village banks are spreading like wild fire handling billions of kwacha. Even some of you bankers are now members of these village banks.

“If you don’t start giving the customers what they need, your market share will continue shrinking and you will wake up one day to find that village banks have taken over,” he said.

Bam First Vice President, Andrew Mashanda, admitted that the increase in the number of village banks in Malawi could be an indication that there are some shortfalls in the formal banking system.

Mashanda, who is Standard Bank Malawi Chief Executive Officer, said commercial banks will have to strategise on how to bring the customers back into the formal banking system.

He was, however, quick to point out that commercial banks play more important functions to the economy than village banks could do.

“We have been hearing these reports that village banks would result in the death of commercial banks but people need to realise that we play much broader functions than village banks can do,” said Mashanda.

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