regulating and supervising financial cooperatives in malawi presentation by noel mkulichi financial...
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REGULATING AND REGULATING AND SUPERVISING FINANCIAL SUPERVISING FINANCIAL
COOPERATIVES IN MALAWICOOPERATIVES IN MALAWI
Presentation by Noel MkulichiPresentation by Noel Mkulichi
Financial Co-operatives Regulators Roundtable, Financial Co-operatives Regulators Roundtable, PretoriaPretoria
November 24-25, 2008November 24-25, 2008
Historical Background of SACCOs in MalawiHistorical Background of SACCOs in Malawi Overview of SACCO Movement in MalawiOverview of SACCO Movement in Malawi Regulatory Environment for SACCosRegulatory Environment for SACCos Roles of the National AssociationRoles of the National Association Observations on SACCOs Regulatory Environment Observations on SACCOs Regulatory Environment Consequences of the Regulatory EnvironmentConsequences of the Regulatory Environment Regulatory Direction for SACCOsRegulatory Direction for SACCOs Broad objectives of the RegulationBroad objectives of the Regulation Strengthening Governance and Internal ControlsStrengthening Governance and Internal Controls Regulation and Supervision of SACCOsRegulation and Supervision of SACCOs Regulatory Relationships Regulatory Relationships Concluding ThoughtsConcluding Thoughts
Presentation OutlinePresentation Outline
Historical Background of Historical Background of SACCOs in MalawiSACCOs in Malawi
SACCO philosophy was introduced by Catholic Fathers in 1962SACCO philosophy was introduced by Catholic Fathers in 1962
In 1968 an African Body called ACCOSCA was formed in Nairobi In 1968 an African Body called ACCOSCA was formed in Nairobi in order to facilitate development of SACCOs.in order to facilitate development of SACCOs.
In 1969 leadership of ACCOSCA visited Malawi and discussed In 1969 leadership of ACCOSCA visited Malawi and discussed with Government officials on SACCOs in the country.with Government officials on SACCOs in the country.
In 1971 three nuns went to Swaziland to study SACCO In 1971 three nuns went to Swaziland to study SACCO philosophy.philosophy.
In 1973 first SACCO was registered in Malawi.In 1973 first SACCO was registered in Malawi.
In 1979/80 SACCO feasibility studies were done.In 1979/80 SACCO feasibility studies were done.
In 1980 MUSCCO was registered as a National Association.In 1980 MUSCCO was registered as a National Association.
Overview of the SACCO MovementOverview of the SACCO Movement The Movement is still at its nascent stage, but relatively The Movement is still at its nascent stage, but relatively
developed compared to other movements in the regiondeveloped compared to other movements in the region
Comprises: Comprises: The Regulatory Authority (Registrar of cooperative societies)The Regulatory Authority (Registrar of cooperative societies) A national association (MUSCCO) with 60 affiliatesA national association (MUSCCO) with 60 affiliates Three chapters (regional groupings of SACCOs)Three chapters (regional groupings of SACCOs) Individual SACCOs (about 90 of which about 70 are active) Individual SACCOs (about 90 of which about 70 are active)
Total membership of SACCOs stands at about 74,000 Total membership of SACCOs stands at about 74,000 against adult population of about 5 millionagainst adult population of about 5 million
Outstanding loans amount to 232,500 with value Outstanding loans amount to 232,500 with value totallingK1. 04 billion ($7.4 million)totallingK1. 04 billion ($7.4 million)
Deposits stand at K1.09 billion ($7.7 million) of which:Deposits stand at K1.09 billion ($7.7 million) of which: K116.6 million ($0.8 million) are savings and K116.6 million ($0.8 million) are savings and MK974.0 million (6.9 million) are share depositsMK974.0 million (6.9 million) are share deposits
Regulatory Environment for Regulatory Environment for SACCOsSACCOs
SACCOs are registered under Cooperative Societies Act, 1998 SACCOs are registered under Cooperative Societies Act, 1998 (primary law), and Cooperative Societies Regulations, 2002 (primary law), and Cooperative Societies Regulations, 2002 (subsidiary law)(subsidiary law)
The Registrar of cooperative societies in the Ministry of Industry The Registrar of cooperative societies in the Ministry of Industry and Trade (MoIT) administers the lawsand Trade (MoIT) administers the laws
Each SACCO is further guided by its own bye-laws approved by Each SACCO is further guided by its own bye-laws approved by Registrar Registrar
The Registrar does not however supervise affairs of SACCOs on The Registrar does not however supervise affairs of SACCOs on account of capacityaccount of capacity
Delegated the inspection function to the National Association to Delegated the inspection function to the National Association to ensure safety and soundness of SACCOs ensure safety and soundness of SACCOs
MUSCCO is also mandated to conduct external audits in SACCOs MUSCCO is also mandated to conduct external audits in SACCOs
to ensure compliance with statutesto ensure compliance with statutes
Roles of the National AssociationRoles of the National Association
MUSCCO was set up to develop, promote and MUSCCO was set up to develop, promote and safeguard a safe and sound network of SACCOs in safeguard a safe and sound network of SACCOs in MalawiMalawi
In addition to inspections and external audits, In addition to inspections and external audits, MUSCCO:MUSCCO: Operates a central finance facility which assists SACCOs Operates a central finance facility which assists SACCOs
in liquidity management in liquidity management Operates in-house financial protection plan, an Operates in-house financial protection plan, an
insurance scheme for SACCO members targeting life insurance scheme for SACCO members targeting life savings and loan protection savings and loan protection
Provides technical support on accounting procedures Provides technical support on accounting procedures and systems, management information systems, and and systems, management information systems, and data base development, etc data base development, etc
Lobbying and dialogueLobbying and dialogue
Observations on SACCOs Regulatory Observations on SACCOs Regulatory EnvironmentEnvironment
No established position of the Registrar for No established position of the Registrar for cooperative societies in MoIT as required by law, cooperative societies in MoIT as required by law, only puts on the hat in times of needonly puts on the hat in times of need
Both the primary and subsidiary laws are not Both the primary and subsidiary laws are not enabling for financial cooperatives development enabling for financial cooperatives development
Conduct of inspection and external audits by one Conduct of inspection and external audits by one institution (MUSCCO) is cause for conflict of interestinstitution (MUSCCO) is cause for conflict of interest
Both inspection and external audits may not be Both inspection and external audits may not be independent (principal – agent dilemma)independent (principal – agent dilemma)
Observations on SACCOs Regulatory Observations on SACCOs Regulatory Environment Environment (Cont’d)(Cont’d)
Some SACCOs, especially those not Some SACCOs, especially those not affiliated with MUSCCO can escape affiliated with MUSCCO can escape regulation regulation
Some SACCOs have registered growth Some SACCOs have registered growth overtime thereby requiring stringent input overtime thereby requiring stringent input and involvement of board and involvement of board
Weak governance structures at both board Weak governance structures at both board and management leveland management level
Weak internal controls within SACCOs Weak internal controls within SACCOs
Consequences of the Regulatory Consequences of the Regulatory EnvironmentEnvironment
The office of the Registrar for cooperative societies The office of the Registrar for cooperative societies has no budget and hence depends on the ministryhas no budget and hence depends on the ministry
The Registrar reports to the Minister through the The Registrar reports to the Minister through the Principal Secretary, hence has no final say.Principal Secretary, hence has no final say.
Weak governance arrangements and internal Weak governance arrangements and internal controls have led to frauds, insolvency and controls have led to frauds, insolvency and ultimately, failure of SACCOsultimately, failure of SACCOs
Loss of confidence by membersLoss of confidence by members SACCOS lack formal recognition among non-SACCOS lack formal recognition among non-
members as portrayed by low membershipmembers as portrayed by low membership
Regulatory Direction for SACCOs Regulatory Direction for SACCOs
Introduce a specific and enabling Introduce a specific and enabling legislative framework for SACCOslegislative framework for SACCOs
Create a Regulatory Authority that is Create a Regulatory Authority that is independent, has capacity to independent, has capacity to regulate; andregulate; and
Strengthen governance and internal Strengthen governance and internal controls controls
Broad Objectives of the RegulationBroad Objectives of the Regulation
Place the regulatory authority under the Registrar for financial Place the regulatory authority under the Registrar for financial institutions to ensure effective oversightinstitutions to ensure effective oversight
Create a prudential, proportional and predictable legal and Create a prudential, proportional and predictable legal and regulatory framework for SACCOs in Malawi.regulatory framework for SACCOs in Malawi.
One central piece of legislation recognizing the banking, One central piece of legislation recognizing the banking, cooperative and microfinance aspects of SACCOscooperative and microfinance aspects of SACCOs
Protect deposits and shares of members while preserving ability Protect deposits and shares of members while preserving ability to serve the membersto serve the members
Limit the scope of regulation so the regulator is not Limit the scope of regulation so the regulator is not overburdenedoverburdened
Balance interests of regulation and supervisory capacity through Balance interests of regulation and supervisory capacity through delegation of regulatory powers to an independent body. delegation of regulatory powers to an independent body.
Put in place effective governance and internal controls in order Put in place effective governance and internal controls in order to gain public recognitionto gain public recognition
Strengthening Governance of Strengthening Governance of SACCOsSACCOs
Registrar to introduce minimum standards Registrar to introduce minimum standards for board of directorsfor board of directors
The Registrar to subject directors to ‘fit The Registrar to subject directors to ‘fit and proper’ test before rising onto the and proper’ test before rising onto the boardboard
Also to determine composition, frequency Also to determine composition, frequency of meetings, rules of appointment, of meetings, rules of appointment, responsibilities and additional responsibilities and additional qualifications for directorsqualifications for directors
Strengthening Governance of Strengthening Governance of SACCOs (Cont’d)SACCOs (Cont’d)
SACCOs to be managed by a CEO SACCOs to be managed by a CEO and another senior management and another senior management officerofficer
CEO to pass ‘fit and proper’ testCEO to pass ‘fit and proper’ test Must also have hands-on experienceMust also have hands-on experience
Strengthening Internal ControlsStrengthening Internal Controls SACCOs shall be expected toSACCOs shall be expected to
conduct business with integrity, conduct business with integrity, prudence and professional skillprudence and professional skill
engage only in bona fide transactionsengage only in bona fide transactions truth in lending by disclosing terms of truth in lending by disclosing terms of
any credit or savings product offeredany credit or savings product offered Comply with minimum standards of Comply with minimum standards of
good practicegood practice
Strengthening Internal ControlsStrengthening Internal Controls (Cont’d)(Cont’d)
Registrar to issue directives onRegistrar to issue directives on minimum capital or loan fund minimum capital or loan fund
requirements requirements Aging and provisioning of loansAging and provisioning of loans Insider lendingInsider lending Certain classes of credit facilities, Certain classes of credit facilities,
investments and risk-bearing investments and risk-bearing commitmentscommitments
Any other transactions affecting the Any other transactions affecting the solvency or liquidity of a SACCOsolvency or liquidity of a SACCO
Strengthening Internal Controls Strengthening Internal Controls (c(cont’d)ont’d)
SACCOs to appoint external auditors SACCOs to appoint external auditors for production of audited financial for production of audited financial statementsstatements
Regulation and Supervision of Regulation and Supervision of SACCOsSACCOs
Registrar to determine threshold for Registrar to determine threshold for placing a SACCO under prudential placing a SACCO under prudential supervisionsupervision
SACCOs to submit periodic returns to SACCOs to submit periodic returns to RegistrarRegistrar
SACCOs to submit annual financial SACCOs to submit annual financial statements to Registrarstatements to Registrar
Regulation and Supervision of Regulation and Supervision of SACCOs (Cont’d)SACCOs (Cont’d)
Minister shall issue regulations on Minister shall issue regulations on administration of the Actadministration of the Act
Remedial measures and winding up Remedial measures and winding up covered under the umbrella law, the covered under the umbrella law, the Financial Services ActFinancial Services Act
Regulatory relationships Regulatory relationships The Registrar for cooperative societies shall The Registrar for cooperative societies shall
maintain registration of cooperative maintain registration of cooperative societies according to Cooperative Societies societies according to Cooperative Societies Act Act
The Registrar for financial institutions shall The Registrar for financial institutions shall consider application from registered consider application from registered societies for licensing under the Financial societies for licensing under the Financial Cooperatives ActCooperatives Act
The Registrar for financial institutions may The Registrar for financial institutions may
delegate the supervision function to delegate the supervision function to MUSCCO (non-prudential) MUSCCO (non-prudential)
Concluding ThoughtsConcluding Thoughts
Access to financial services by the poor is Access to financial services by the poor is likely to accelerate economic development likely to accelerate economic development and poverty eradication and poverty eradication
An enabling cooperative law is likely to: An enabling cooperative law is likely to: reform and modernize the functioning of the reform and modernize the functioning of the
SACCOsSACCOs create a strong foundation for regulation and create a strong foundation for regulation and
supervision of SACCOssupervision of SACCOs provide a platform for prudent growth and provide a platform for prudent growth and
innovation in financial cooperatives industryinnovation in financial cooperatives industry provide a level playing fieldprovide a level playing field
Asante Sana!Asante Sana!Yebo!Yebo!MerciMerci!!
Thank You!Thank You!