Z ALLAN NTATA: THE GOVERNANCE SIDE OF THE MSB SALE

It is easy to celebrate. After all, who doesn’t like a good party? I have observed, however, that parties are often a distraction, something to divert our minds from matters that need our attention. I have seen couples go for anniversary dinners when there are issues between them that need addressing- in the hope, perhaps, that the issues will sort themselves out, or perhaps in the desperate need for a moment or two of a carefree feeling and some reveling. Unfortunately however, the tactic never really works, for in the morning the problems are still there, and they now have to be faced while dealing with a hangover.

In this regard, Malawi can spend MK300 million celebrating independence, but in the morning, the hole left by the MK300 million expenditure will have to be filled, and the nation will still need to address the governance issues that have come to the fore with the sale of MSB bank, cashgate and all other governance failures. Don’t get me wrong. I believe there is a time to make merry and celebrate just like there is a time for everything under the sun. I just think that when it comes to independence celebrations in the Malawian sense, what we should really be celebrating is simply the right to be called a nation, and the freedom to choose our own oppressors. Not independence.

Now let me discuss what we can learn about governance from the MSB sale fiasco.
The truth about the MSB sale is that unscrupulous politicians and greedy individuals run roughshod and fleeced the company millions in a well-crafted scheme that was meant to run it down and then cheaply buy it off. The people behind the strategy included former CEO Joseph Mwanamvekha, former Reserve Bank Governor Perks Ligoya, Mulli Brothers CEO Leston Mulli, and Late President Bingu wa Mutharika himself. In recent times, new players such as the CEO of FDH Bank and other players at the State House, including the current president and his Personal Assistant, of course, had to be roped into the scheme.

Economics books will have to be re-written because we now know from the recent MSB issues that a government and a bank can actually aid a borrower to act in a risky way, both of them with full information that the risk will be assumed by a third innocent party, the Malawian taxpayer in this case.
Events that eventually led to the disposal of a national asset, the Malawi Savings Bank are a failure of good governance, and are once again a reminder to all well-meaning Malawians that our leadership tends to have strong affinity for corruption, cronyism and sometimes, outright racketeering.

That MSB has now been disposed of is water under the bridge but for the country to avoid repeating this mistake, we need to learn from what exactly happened for a healthy public asset to go bust that quickly and auctioned at near salvage value.

Mulli Brothers Limited (MBL) acquired a loan from MSB during the time that Joseph Mwananvekha was CEO of MSB (he later became Secretary to the Treasury) and Perks Ligoya, Governor of the Reserve Bank of Malawi and Registrar of Financial Institutions. Mr Leston Mulli, the owner of MBL was a known sympathizer of the regime that time. He also happened to belong to the powerful tribal grouping that had Late President Bingu Wa Mutharika as patron. It is not a secret that both the CEO of MSB-thereafter ST- and the governor were part of that tribal grouping.

To understand the power and importance of being associated with the Mlakho Wa Alhomwe, one only needs to know that the former RBM boss though from Thyolo is actually a Mang’anja and not a Lhomwe but had to be seen to belong to the powerful tribal grouping.
The MSB Loan, based on available facts, is a perfect example of how cronyism, coupled with bad governance, and an arrogant and corrupt administration is the perfect concoction for those in power to play Russian roulette with national assets.

The MSB loan given to Mulli Brothers Limited was designed to fail.
As CEO of MSB, Joseph Mwananvekha had to approve the loan to MBL. Because the amount of the loan, for a single MSB client, was significantly large when compared to MSB’s balance sheet, the Registrar of Financial Institutions- the same person holding the office of Governor of RBM- had to give an approval and a waiver under the single client exposure rules for banks in the Malawi.

As if that was not enough, the powerful individuals involved in the deal pressured government, the majority shareholder in MSB to provide a sovereign guarantee for the MSB loan. Our government quickly obliged for they couldn’t deny the powerful MBL which at the time was supported by the President himself.

In 2009, the CEO of MSB, who had approved the MBL loan was appointed Secretary to the Treasury on secondment from MSB. Effectively, while he continued to be CEO of MSB- because that is where he continued to draw all his salary and benefits from- he was, by virtue of being ST, chairperson of the MSB Board because government was the sole shareholder. Thus on the one hand, he was making decisions as MSB CEO while on the other, reporting to the MSB Board where he was chairperson. In actual fact, he enjoyed the unusual privilege of reporting to himself.

With a sovereign guarantee for a private loan that was waived by the Registrar of Financial Institutions in terms of single client exposure rules, it became obvious to MBL that it could walk away from the loan because any such risk was indemnified by a sovereign guarantee issued by the Treasury. After several years, and because of unpredictable political developments that compromised the performance of MBL, the company indeed defaulted.
It must be obvious, however, that for the loan to reach the point of threatening to break the bank, the MSB CEO of the time and the ST, who was one and the same person (Joseph Mwanamvekha), and the Registrar of Financial Institutions (Perks Ligoya) must have known that the MBL portfolio was not performing.

Those with knowledge of the Malawian financial system are in chorus that MSB should have in fact been disposed of a couple of years back because of this MBL loan that was designed to fail by the events we have outlined above. There are even questions of whether this was not in fact a conspiracy aimed at running down the bank and acquiring it for a song. It is now an open secret that the Late Bingu wa Mutharika, at the height of his powers, desired to own a bank. Was this the strategy, and is what is happening now simply fulfilling a plan that he set in motion?

There are questions that should still linger on many minds as we learn yet another bitter lesson from the MSB saga. Why should the Treasury provide a sovereign guarantee for a private loan? If they can do so, what are the circumstances that warrant an implicit bailout for a private entrepreneur with public funds? Why and how did the Registrar of Financial Institutions fail to see a clear conflict of interest and a huge governance problem in dealing with an ST who was still CEO of a bank that the registrar is supposed to regulate? Indeed why did the Registrar of Financial Institutions fail to consider the governance implications of this transaction? How could he fail to exercise his operational independence and see that a loan facility to a Politically Exposed Person (PEP) would be a regulatory nightmare and a recipe for panic in the financial system especially when you are the same person that waived single client exposure limits?

As a final observation, I am aware that the President has weighed in with all sorts of assurances that the bank will recover its loans and that special debt collectors will appointed and so on. But this is rather convenient because the upshot of the sale is that the bank’s ownership now seems to be in private hands that seem to be strongly connected to the ruling DPP. We can talk about how a government shouldn’t run a bank all we like, and we can debate the economic sense of the sale all we like. The bottom line is that a perfectly functioning public asset was run down so that politically connected individuals could benefit at the expense of the poor Malawian taxpayer. It is a governance travesty. Period.