Depositors’ bailout scheme in the offing
Malawi Government has moved in to assure ‘small and unsophisticated depositors’ of protection with plans to establish a deposit insurance scheme (DIS) to cushion depositors in case of a bank failure.
Finance Minister Ken Lipenga, in the 2013/14 budget despite not providing concrete details, said government wants to strengthen the stability of the financial system; hence, expanding the financial safety net with the establishment of the DIS.
“The national task force, under the leadership of the Ministry of Finance, has already developed a comprehensive business plan upon which government and the Reserve Bank of Malawi will provide seed capital to enable the scheme to roll out.
“We have provided resources for the capitalisation in this year’s budget and within the course of the year, we will be asking this august House to consider and approve the legal and regulatory framework for the scheme,” he said.
Treasury spokesperson Nations Msowoya told Business News on Wednesday that government through the Ministry of Finance will provide 40 percent of the seed capital while the Reserve Bank of Malawi (RBM) will make available the remainder [60 percent].
“A tentative provision-based on expected costs has been made under Vote 20 of the 2013/14 budget being contribution by government and the Reserve Bank of Malawi Board will also meet to consider and approve their contribution once the business plan is finalised and approved by authorities,” he said.
According to budget document five (Output based), Vote 20 is compensation and refunds and has been allocated K13.9 billion.
On when the scheme will be operationalised, Msowoya said that will be done after Cabinet approves the scheme and the DIS law is enacted.
Already, he said a task force comprising experts from the ministry, RBM and the Bankers Association of Malawi (BAM) is in place.
“Once all views have been taken into account, the bill will be presented to Parliament for approval. We are targeting the November sitting of Parliament for this. In terms of operations, the DIS will be a stand- alone entity, separate from the RBM, with its own board,” explained Msowoya.
BAM president William Chatsala on Wednesday said he could not competently comment before reading what Lipenga said in the budget since he has been out of the country.
But he, however, said “it is a project that the central bank has been talking to the bankers association”.
The beauty of the scheme, Msowoya said, is that it will guarantee reimbursement of customers’ deposits up to the insured limit.
According to Treasury officials, deposit insurance is a complementary financial safety net initiative in addition to others such as supervision and lender-of-last-resort provided by RBM.
