At least 11 parastatals are failing to recoup in excess of K11 billion they separately invested in Alliance Capital Limited (ACL) which the Registrar of Financial Institutions has applied to the High Court to be placed on liquidation.

This tax payers’ money is part of the over K24.7 billion which the portfolio and investment management firm owes about 233 different organisations and individuals but it is failing to pay their maturing investments.

The State firms are Malawi Revenue Authority (MRA), Malawi Energy Regulatory Authority (Mera), Malawi Communications Regulatory Authority (Macra), Malawi Electoral Commission (MEC), Malawi Blood Transfusion Services (MBTS), Malawi National Council of Sports (MNCS) and Admarc.

Registrar of Financial Institutions housed at RBM cited unsafe and unsound businesses

Others are Export Development Fund (EDF), a wholly-owned subsidiary of the Reserve Bank of Malawi (RBM), Technical, Entrepreneurial and Vocational Education and Training Authority (Teveta), Agricultural Research and Extension Trust (Aret) and the Natural Resources College (NRC), a constituent college of Lilongwe University of Agriculture and Natural Resources (Luanar).

Initially, MEC was believed to be the only public institution whose K690 million savings were in jeopardy following ACL’s failure to pay them after maturity.

The commission generated the money from candidates’ nomination fees for various electoral activities. That money has now accrued to K847 million.

MEC disclosed its predicament after its officials were summoned by the Budget and Finance Committee of Parliament in August last year to explain how its financial resources were utilised during the 2020/21 financial year.

Several documents and correspondences between ACL and the RBM Weekend Nation has seen, reveal that several individuals and organisations had been placing long and short-term investments with the firm under money market arrangements to earn some profits.

According to the documents, as of December 2021 EDF was owed K6.9 billion, Macra K1.2 billion, Mera about K592 million, Aret over K560 million while MRA is failing to redeem over K326 million, Admarc K282 million, Teveta has K222.8 million, MBTS is owed K150.5 million with MNCS and NRC owed K161.5 million and K34 million, respectively.

According to court documents, the firm owes private firms and individuals a total of K13.7 billion some of which have separately taken the company to court.

After receiving complaints from several institutions and individuals regarding ACL’s failure to pay matured investments, RBM conducted a full scope on-site examination to determine whether ACL was complying with financial services laws and conditions of its license and registration.

The examination was conducted from December 15 to 24 2020 and RBM found that the company was conducting its business using “unsafe and unsound practices that were prejudicial to the interests of its investors and the stability of the financial system”.

Among others, the on-site examination also showed that “the Defendant was found to have deviated from its principal role of arranger in private placements and acted as a principal lender in such transactions as if it were a lending institution. As a result, the Defendant had been unable to honour requests where clients instructed the Defendant to redeem in part or in full matured investments.”

After several attempts to force the company to effect a fund liquidity management strategy, in March 2021, the Registrar of Financial Institutions (RFI) Wilson Banda, who is also RBM governor, pursuant to Section 27 (2) (b) of the Financial Services Act (Cap 44:05) as read with Section 22 (2) of the Securities Act (Cap 46:06) suspended ACL’s portfolio manager licence for “gross violations of financial services laws” for a period of 12 months.

In April this year, the registrar of financial institutions applied for winding up of ACL on grounds that the company is insolvent because of, among others, its net capital is excessively below the minimum regulatory capital of K50 million. As of April this year, ACL’s net capital was negative K393.39 million.

“Clearly, the company’s assets are less than its current liabilities further proving the insolvency of the company,” reads the application of winding up.

The RFI also notes its application for insolvency of ACL that several complaints had been lodged with the registrar regarding the company’s failure to settle matured investments. “Despite several engagements, the Defendant has not been able to honour those claims due to liquidity challenges.” 

The central bank did not respond to our inquiry about how ACL’s clients would be assisted to get back their money.

But commenting on the matter, financial analyst James Kamwachale Khomba said while investing for profit was not a crime the issue revolves around the integrity of Alliance Capital Limited as the middle man.

“The financial market is a highly regulated business and it is a very unfortunate development to note that even the highly rated MRA, which is the backbone of our economy, is in such a dilemma.

“Professionally, I blame Alliance Capital for being so naïve in their profession but I am very sure there should be a way of recovering the money. The regulator will have to come up with the means and ways of recouping whatever is owed to the investors because the matter cannot just go without any remedial measures in place,” said Khomba, a professor of Finance and Corporate Strategy and former lecturer at Malawi University of Business and Applied Sciences.

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