The Reserve Bank of Malawi (RBM) has issued a directive to strengthen oversight of life insurance and pension fund administration, allowing offshore investment to unlock diversification and safeguard the funds.
In a government notice number 93 dated September 12, the Registrar of Financial Institutions said the new Financial Services (Investment Management of Life Insurers and Pension Funds) Directive of 2025 will apply to life insurers and pension fund managers.
Through the directive, the registrar wants to promote prudent management and diversification of investments of life insurers and pension funds as well as facilitating investment in qualifying infrastructure assets.
The directive comes at a time the pension fund has hit K3.8 trillion with increasing need for strong oversight and diversification of investment avenues. The registrar has indicated that life insurance firms and pension fund managers are developing an investment policy in line with the move.
Reads part of the directive: “Where a life insurer or pension fund appoints an investment manager, the life insurer or pension fund shall enter into a written investment management agreement with the manager.”
The directive further said an investment management agreement shall, among other things, clearly set out terms under which the investment manager is engaged, fees payable to the investment manager, the obligations of each of the parties to the agreement and performance measurement, evaluation, reporting, benchmarks and performance indicators for the investment manager.”
It said issues such as how to avoid undue concentration of investments in relation to, among others, asset category, economic sector, industry, counterparty or geographic region will be considered during the investment policy formulation.
Speaking in an interview yesterday, chartered insurer Eric Chapola said the directive will ensure owners of the funds are well regulated to guarantee safety.
“This is a welcome development to the nation, life insurers and the owners of the funds themselves as it is making sure that these third party funds are administered well and regulated by RBM as the regulator,” he said.
Chapola, who is former Nico Life Insurance Company CEO, said the pension funds will now have to develop investment policies on how the funds will be administered.
“The directive also allows investment in foreign assets, but only in mentioned entities,” he said.
Life and Pensions Association of Malawi president Lilian Moyo yesterday described the new directive as a milestone that will create value by unlocking diversification and supporting the country’s investment structure.
Said Vanguard Life Assurance Company CEO: “By promoting prudent investment practices, opening opportunities for regional diversification and supporting infrastructure development, the directive will help safeguard pensioners’ and policyholders’ savings while contributing to Malawi’s economic growth.
Nico Capital Limited CEO Misheck Esau said the directive has the potential to transform the country’s financial sector.
“Stakeholders must welcome this directive as it safeguards the funds and makes sure the funds are fully available when needed by the owners of the funds,” he said.
Meanwhile, finance expert Brian Kampanje said the directive limits the contagion risk as a result of potential problems in one sector of the economy.
“For example, 60 percent maximum threshold on the investment in listed companies means more shares will be available for trading as pension funds and life insurers will be forced to dispose of some shares once they achieve substantial capital gains,” he said.
Meanwhile, to ensure diversification, the directive indicates that offshore investment will be allowed but limited to securities of governments in Common Market for Eastern and Southern Africa (Comesa) and Southern Africa Development Community (Sadc) countries.
The Pension Act 2023 Qincluding governance of pension funds, early access of benefits, benefit design and administration.
Pension funds have grown to K3.8 trillion despite pension arrears rising to about K30 billion, according to RBM
