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| 'Malawi has bad credit culture' |
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by
Taonga Sabola, 18 June 2006
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07:47:09
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When Timothy Banda, a small scale fruit grower from Mwanza won a scholarship to learn wine making in France two years ago, he thought his time to move into the world of the rich and famous had come.
A six month training programme in the French capital of Paris convinced Banda that back home, the wine business would not only enrich him but also help Malawi save foreign currency spent on imported wine and reduce the number of unemployed young people roaming the country’s streets.
Upon his return, Banda calculated that he needed a capital injection of K500,000 to start the business. Realising that he only had K100,000 to his name, he naturally approached local commercial banks for loans.
To his dismay, he was turned down flat. Today, as he works in his fruit garden, Banda’s dream of rubbing shoulders and breathing the same air with the rich is all shattered. The knowledge and skills acquired in France will soon get rubbed off down memory lane.
His bitter disappointment with the country’s banking system cannot be overemphasised.
“I have given up hopes of getting rich through wine making. I have the skills but I don’t have the financial muscle to get me started. I just want to concentrate on what I can afford to do now, and that is farming,” he says.
Banda’s wine making idea, which could have led to the creation of new businesses and products, is just one of many initiatives killed in their infancy due to lack of venture capital as banks, too cautious to risk their money on some poor farmer with no security and proven track record, avoid them.
But had this been the attitude of the American financial world, university drop out Bill Gates would not have been the world’s richest man cum philanthropist who dishes out millions of US dollars to the poor, especially those suffering from HIV and Aids.
When Bill Gates decided to form a computer software company, American investors believed in him and risked their money.
Today, most of them have become millionaires after helping to create a globally dominant American firm, Microsoft Incorporated, which employs tens of thousands worldwide.
Back home, University of Malawi students come up with ambitious and financially viable projects in various disciplines which, if implemented, could help reduce the prevailing high poverty levels.
But what becomes of the projects? They are just kept in university libraries where they are read for exam passing purposes and later abandoned to gather dust due to lack of funding.
It appears that banks, while playing hard to get with poor Malawians, literally beg cabinet ministers, Members of Parliament and rich members of society to borrow money, yet most of these so called prominent people are huge defaulters.
The increasing number of high profile individuals that banks drag to court for failing to service debts is shocking and provide food for thought. Some of these debts date back to as early as 1990 and have been accumulating interest all these years.
The question is, are local banks real partners in poverty reduction and development or they are part of the conspiracy to make the rich richer and the poor poorer? The impression one gets is that the banks are there to widen the already existing gap between the haves and the have nots.
Banks, however, disagree and give the same old story as basis for their hard-line stance towards poorer clients.
Bankers Association of Malawi (Bam) Executive Director, Fanwell Kumdana, says it is not true that lending institutions favour the rich or people in higher places when giving loans.
“It’s not that we don’t want to give loans to people but usually banks have problems knowing their customers well enough to be sure of recovering the money. Banks don’t lend out their own money, it is depositors’ money and it has to be protected,” says Kumdana.
He adds that the absence of a Credit Reference Bureau—a data bank which compiles records of credit performance of individuals and businesses and provides the information to potential lenders—makes it difficult for banks to know their customers better.
Bam was expected to come up with the Bureau mid this year but, according to Kumdana, it may not be instituted as earlier as anticipated as there are a number of legal requirements that need addressing.
“We are trying to get everything in place with the Reserve Bank of Malawi but I cannot commit myself to give the date when the Credit Reference Bureau will start operating,” he adds.
National Bank of Malawi Market Analyst Wilkins Mijiga, concurs with Kumdana, saying banks treat all their clients equally.
“May be that was the case in the past when there was too much political interference with financial institutions but not this time around. In fact, we are geared towards increasing lending to small and medium enterprises,” says Mijiga.
Recently President Bingu wa Mutharika added weight to the perception that banks tend to favour prominent personalities in society.
Mutharika recalled that in 1999 or thereabouts, a bank rejected his loan application for K100,000 because he did not have collateral which is usually in form of a house, land or other assets. Then, Mutharika was vying for the presidency on a United Party ticket.
But, according to Mutharika, the same bank approached him, offering him a K10 million loan after he won the 2004 general elections.
Mutharika’s experience raises several questions: Had he lost the 2004 elections, would this bank have offered him the loan? Isn’t this proof that banks tend to favour prominent personalities?
Financial securities firm, First Discount House, Managing Director Thom Mpinganjira, says the problem with Malawians is their poor credit culture.
“People will present a very good proposal but immediately they get the money, they divert it to unintended uses. They may either buy a car or start building a house, contrary to the business proposal.
“At first, banks used to give out loans easily but the system has been abused by the people the same way they abused a visa-free entry opportunity into the United Kingdom,” says Mpinganjira.
Malawi Confederation of Chambers of Commerce and Industry (MCCCI)—a representative of the private sector—says the country’s debt recovery rate is so low that a bank can spend up to 136.5 percent of the borrowed amount to recover the money.
“This is mainly due to the little attention our courts give to commercial crimes. And because of this, banks make it very difficult to lend,” says MCCCI Chief Executive Chancellor Kaferapanjira.
The earlier commercial courts start operating the better for borrowers and lenders, he says. Commercial courts are expected to start operations on July 1, 2006.
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