The MSB recapitalisation debate
I too wish to commend President Peter Mutharika for suspending the sale of the Malawi Savings Bank (MSB) so that the issues can be aired first. This is a breath of fresh air. The previous Democratic Progressive Party (DPP) government was notorious for opaque financial transactions, intolerance, arrogance, know-it-all attitude and brutality against critics. It treated critics as mortal enemies and firebombed their premises, shot demonstrators, tortured a student to death and sent a British diplomat packing.
More destructively, it ran a tribal government and installed members of one tribe to head public institutions regardless of professional competence, merit, experience or integrity. It is our turn to eat, they declared gleefully. The appointments and promotions were made by presidential fiat. Official organs which are empowered to appoint and promote public servants competitively were bypassed. The experienced, competent and professional public servants from other ethnic groups were chucked out.
It was like a taxi-driver driving an articulated-truck; just muddling through. The public institutions lost their institutional memories and have been under-performing.
If President Mutharika continues to be a listening President and to take criticism as beneficial, then he will benefit from the advice of dozens of political parties, civil society organisations (CSOs) and others. It will be advice he cannot get from his own hangers-on.
From the outset I wish to state that there is no dispute about the problem: MSB is in trouble. There is no dispute about the cause: it is the loans MSB made to DPP stalwarts. The dispute is on the proposed solution. The government, which turned MSB into a political milking-cow, included the current President and several current ministers.
This is why there is paucity of details. The government has not said who authorised those loans, what efforts have been made to recover them, why the assets which secured those loans were not seized and sold before and so forth. This is a blatant attempt to guarantee that those loans are not and will never be recovered.
The challenge is for President Mutharika to demonstrate that he is serious when he talks about eliminating the rampant fraud, waste, incompetence and corruption in the public service. He can break with the past, recover those loans and save MSB easily, if he wishes to. It is his litmus test. Let us see if he is man enough to walk his talk. What was politically-done can always be politically-undone. Certainly if it was not a DPP government, those loans would been repaid yesterday.
I have great sympathy for the views of the Malawi Confederation of Chambers of Commerce and Industry (MCCCI) and other business-gurus when they say that business decisions, not political decisions, should take precedence in this matter. Both the World Bank and the International Monetary Fund (IMF) are absolutely correct to say that MSB needs recapitalisation fast.
The truth of the matter is that this is a political issue. Government is a political institution and cannot make a business decision. MSB itself is owned and controlled by government and ran by political appointees. MSB is in trouble now because it did not make business decisions when it gave out those billions of kwacha to politically-connected entities. Failure to recover those loans was a political decision and not a business decision.
Originally, the MSB was the Malawi Post Office Savings Bank. It was purposely established by the then government for two main reasons. The first was to provide banking services to the 80 percent of Malawians who live in the rural areas. That was why it had a countrywide network and operated in every Post Office.
The second reason was to mobilise domestic savings for use by government. That is why it was not lending out money but was investing in Treasury Bills. It had very safe and solid investments.
Rural Malawians stopped keeping their money in tin-pots and mattresses. Instead, they started to earn decent interest payments on their savings deposits. They started to send or receive money through Postal Orders and Money Orders. They were roped into the banking sector.
No privately-owned bank could or can provide these banking services. No one in their right minds can say these services are no longer needed in this country. The Malawi Post Office Savings Bank is now the MSB, a commercial bank. Nothing was put in its place.
The then government established the New Building Society to provide long-term loans for the real-estate sector so that Malawians could own houses and commercial buildings. No one in their right minds can say such loan-services are not needed in this country. The New Building Society is now NBS Bank, a commercial bank. Nothing was put in its place.
The then government established the Investment and Development Bank to provide long-term loans for the construction of factory buildings and the purchase of factory machinery for rapid industrial development; the establishment of farms for the development of agriculture and the construction of hotels for the promotion of tourism.
No one in their right minds can say such long-term loan-services are not needed in this country. The Investment and Development Bank is now INDE Bank, a commercial bank. Nothing was put in its place.
After coming into power last year, this government blamed donors for suspending their 40 percent budgetary aid to the Recurrent Expenditure Account pending resolution of Cashgate cases. It passed a Zero-Aid Budget and preached austerity. Meanwhile, it secretly awarded obscene increments to the entire political class.
It took a newspaper leak and widespread strikes by public servants for a piece of the cake, to shame the government into postponing those obscene increments. Another newspaper leak exposed a big feast on National Aids Commission (Nac) funds. The government lost public trust and its claim on transparency.
Malawians believe that the proposed sale of MSB is for the benefit of some DPP stalwarts. They believe this is just another, but sophisticated, Cashgate and that the government is, once again, hoodwinking them so that some individuals can get away with billions of MSB money.
The forensic audit that exposed Cashgate covered a period of only six months, April to September. One shudders to think what the figures would be if 12 months before that were also audited. One shudders when the figure of MK92 billion is mentioned as having been looted in a period of five years before that.
One despairs when one realises that this level of criminality is committed by public servants and political leaders in one of the poorest countries in the world.
The British left us with a system in which the Auditor General was auditing every government department and every statutory corporation every year. The reports were submitted to Parliament. The Auditor General should have been auditing MSB. Former President Dr. Hastings Kamuzu Banda passed a law which imposed a mandatory 14-year imprisonment for theft of as little as K80 of public money. He added forfeiture of property for any act of economic sabotage.
Today, not only is the Audit Department deliberately incapacitated but it is also part of the problem. Today, not only do our public servants and political leaders fail to fight crime but are also accessories to crime.
Years ago I lived and worked in Germany. A week after arrival I met a bank manager who asked me to open a current account with him, although I had not yet received my first salary. I did and he gave me a cheque book. He told me to go and spend not in excess of a certain figure. I went into a showroom and bought a brand-new Fiat 850 Sport Coupe, complete with a comprehensive insurance cover. I drove home that day.
In the morning, I went to tell the bank manager that he was mad. He said he was not but perhaps I was. He explained that his job was to make money for the bank and he made money on customers who were in the red. He charged interest on their outstanding balances. Customers who were in the black were not an asset but a liability to him. He wanted his customers to be in the red.
Every month I received my salary he took what was left from the previous month. Six months later he wrote to thank me for having given him business and to say I had paid off the advance. It was so painless for me.
The policy of the bank was clear: Lend to make money. Bank managers were appraised on how much money they made for the bank. They hardly spent the day in their comfortable offices but went about to offer money to businesses. Banking was highly competitive.
Years later I lived and worked in Addis Ababa, Ethiopia. One day the receptionist, one of the least-paid staff, came to ask me for a To-Whom-It-May-Concern letter. She wanted my confirmation that she was working for us. I gave her. A week later she waved a mouth-watering cheque from the Land Bank in my face. She bought a plot in the city and built a mansion which she leased to an embassy at a mouth-watering rental.
I met the manager of the Land Bank at a reception and told him he was mad. He said he was not but perhaps I was. He explained that his job was to make money for the bank and the safest investment was a loan to an Ethiopian national to own property. Even if she dropped dead the bank would not lose because it had custody of the title-deed.
Both in Germany and Ethiopia the banks were making money from the private sector and not from the government.
Fifteen years ago I had K3000 I did not need. I opened a Savings Account at the Post Office Savings Bank and threw the book away. Several years later I took the book to the bank. They calculated my annual interest and added it up. I had a new capital of K6000. I threw the book away. Two years ago I took the book to the bank expecting to get a new balance of at least K12000. The bank had become MSB. They did their calculations and said I had zero-balance. I went home and threw the book away, for good.
Without my agreement or notification, MSB had introduced a service-charge of K100 per month. Instead of giving me interest they were taking away K1200 from me every year. My K6000 had disappeared. It was not what I had signed for but they did not care.
That day I confirmed to myself that the Malawi economy is in deep trouble. If commercial banks are not interested in mobilising domestic savings then they are too comfortable living on the proceeds of Treasury Bills at near 40 percent interest earnings and making astronomical annual profits of over 80 percent. I also understood why development banking for investment in fixed assets has died out in Malawi. The only banks which can survive are commercial banks.
No sane person can borrow money from a commercial bank at over 25 percent interest for long-term investment in fixed assets. Many businesses are barely surviving. The only businesses that can afford expensive commercial loans are those having short-term trade transactions.
Budget-deficit financing has made government go into massive domestic borrowing. The private sector has been crowded out. The government has correctly identified massive fraud, theft, waste, incompetence and corruption in the public services as the villains. That is why government is talking about Public Sector Reforms.
Money is to business what blood is to the body. Businesses need money to make more money. They create jobs and pay taxes. Without an expanding private sector, government will not receive more tax revenues. Government has to employ more teachers, doctors, nurses, police officers and so forth every year. It desperately needs an expanding tax base. Instead, government is choking the private sector.
Thanks to Jubilee 2000 and other campaigners, Malawi entered the millennium debt-free. She had no bilateral debts. Multilateral debts had been cancelled under HIPC. Domestic debt was almost nil. Fifteen years later government is borrowing like a drunkard and its debt is choking development.
The time government reduces its domestic borrowing is the time lending interest rates will go down. The private sector will access cheaper money from the banks for fixed assets. Jobs will start getting created. We will be talking about economic development rather than economic growth. The tax base will expand for more tax-revenues.
The challenge for President Mutharika is to ensure that those MSB toxic loans are recovered yesterday and that MSB does not become another burden on taxpayers. Has he got the guts to do it?
Sam Mpasu is President of New Labour Party, former Speaker of National Assembly and Cabinet Minister. He is also a writer.
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