Balancing size with reach and customer service attention to detail, Indebank is one of the country’s larger commercial banks, yet still focuses on tailoring products to meet clients’ needs, particularly in the SME sector and industries with greatest growth potential. William Chatsala, Managing Director of Indebank, details the sectors with the most opportunities for investors and what makes Malawi perfect for foreign investment, including its competitive advantages over other developing nations and what his bank can offer to make getting involved easy
When President Joyce Banda took office last year, she was left with a difficult situation, but she quickly started to implement reforms and policies, some of them tough, such as the kwacha devaluation, to put the economy back on track. What are your thoughts on President Banda’s policies? Do you think they are starting to pay off now?
The significant devaluation of the national currency in May 2012 was necessary, because we were in a situation where the kwacha was officially managed, and it was too strong when we did not have any forex in the country, so there was a mismatch. Given the supply and demand we had, the value of the kwacha was very unrealistic. Malawi is an agricultural country, and most of the foreign currency comes from agriculture, the mainstay being tobacco. We start selling tobacco in March through to September because of the seasonality of the crop, and between these months we will usually have good supplies of foreign currency. From the end of September, the kwacha slides every year. It is expected. When you look at demand and supply, from October through to early March, the main supply is not there, so we are dependent on trickles of tea sales, donor funding etc.
For several years, we artificially managed the value of the kwacha at a certain level, so when the President took over power, she looked at what issues were critical at that time, and the value of the kwacha was one of them. Following her decision to let the Reserve Bank operate professionally, (the Central Bank saw the need to devalue the kwacha, but I do not think the political will was there), the Reserve Bank took advantage of the direction that the President provided, and went on to devalue the kwacha. But because the kwacha had been artificially maintained at a high rate for a long time, the extent of the devaluation was huge. It hit the economy badly, and because Malawi imports twice what it exports, we had import inflation coming into the country.
So the inflation rate soared and the Central Bank had to manage the threshold. We saw very strict and stringent monetary policy coming in. From June to July last year, the availability of the kwacha in the market was tight, and banks have not fully recovered yet from the challenges that arose with liquidity tightening. If we are talking about where we are coming from, it has been tough from a liquidity perspective in the industry, but with the devaluation there was an improvement in the availability of foreign currency in the market, because the exporters that had forex sitting somewhere were able to bring it, knowing that they would get the right value for their forex.
So we had inflation rates going up, as well as interest rate increases; but on the other side, we had the liquidity issue, which we have had to grapple with. As we speak now, after a long time we saw the kwacha appreciate, and it is now fairly stable. Inflation has been coming down, partly because it is a harvest period and there is an abundance of food in the market. Food items make up 50.2% of the consumer price index (CPI) basket, so around this time of the year, normally we have a lot of food. Inflation is coming down; hopefully interest rates will come down as well. We are coming from a very difficult position last year. It is too soon for all the measures we have put in place to bear the kinds of fruits we want to see, but we have started seeing some, and some of us are starting to see light at the end of the tunnel.
President Banda also introduced the Economic Recovery Plan (ERP), which highlighted five key sectors that will generate short and medium-term forex incomes. What is your opinion on the potential of these sectors and, considering that Indebank is also working in many of them, what role does Indebank play within the ERP?
When you look at those sectors, you are talking about energy, mining, infrastructure, tourism and agriculture. Energy is critical in this country. At the moment, we do not have sufficient supplies of energy. In fact, the banks pretty much generate a lot of the electricity they require by themselves, through standby generators, which unfortunately are working much more than they should. So there is a lot of scope for improving energy supplies in this country, and that creates opportunities for potential investors in the energy sector.
Once we have sorted out the energy side of things, the cost of production should improve, and productivity will therefore increase. This will mean that companies will be able to make more profit and employ many more people, etc. Energy is key. We have seen developments in that area. The country is looking at the power interconnection with Mozambique, which is going to help improve the energy position. Malawi is also involved in the Millennium Challenge Cooperation Arrangement to improve the energy sector here, so that will help improve the supply of energy. But as we do that, we will improve production in this country, as well as income generation. When industry flourishes, companies will pay more taxes and the Government will collect more money, and many more people can find employment. So it is a positive development there, and it is important that the Government has identified energy as a focus area.
If you do not have energy, you do not have a strong enough ground to stand on. Mining is good. We have seen a significant focus on this particular area. There are many players that are prospecting for more uranium, bauxite and other resources. There is quite a lot of potential here. As foreign investors invest in the country, they will require local partners for banking services. I think the banking industry in general is quite excited about the developments in mining and the opportunities that those developments offer.
Indebank is specifically looking at the opportunity to partner with various players in energy and mining to provide tailor-made banking services and solutions to their needs. We as Indebank have a country-wide presence – we are in the southern region, the center, the eastern division and the north; so we are very well-positioned to provide branch banking services for those who require these, and our customers also have access to our products and services without necessarily needing to walk into a branch. We have Internet banking for example, which they can access 24/7 from wherever they have Internet access.
We do provide banking solutions to corporate customers, as well as retail customers. We are excited about the opportunities we can see in these two sectors. But those are not the only sectors that the ERP focuses on. It also touches on tourism. Tourism is one sector that we as a country have not exploited very well. There are a lot of interesting things and places in Malawi, which many foreigners who come to Malawi wonder how they were able to find these in Malawi. We have the third largest freshwater lake in Africa, Lake Malawi. The lake looks different when you are on the southern side, the Mangochi side, in Salima, and the north. It is beautiful. Each particular part of that lake has its own unique beauty. This is something that a lot of countries would kill to have, and we are fortunate enough to have that.
We have the third tallest mountain in Africa, Mulanje, and it is beautiful. There is a lot of ecotourism that you would enjoy. We are not exploiting the full potential of that mountain at present. We have national parks, game reserves and various other things. I have been to some countries where it just looks flat. I am sure that people who come from those countries to see the mountains here would wonder how this portion of the continent and indeed this Earth was created.
You talked about the warmth of the people in this country; it is amazing. Somebody was joking that if you have a Malawian and a foreigner who are stranded and are looking for transport, the foreigner is more likely to get a lift, because people will look at you and say that this person does not have relatives in this country, and if there is anyone who can look after this person, let me be that person. Just make sure that they are comfortable, and when they go back home, they will know that they have been to the warm heart of Africa. We are very warm people. I hope that in the few weeks or months you are here, you will get to experience that.
I talked about the lake, but we also have lots of rivers in this country. There is huge potential for irrigation. At the moment, most of the farming is rain-fed, and due to challenges such as climate change, it has proven to be a huge problem. But with the focus we have with the Green Belt Initiative, there is huge potential to develop the agriculture sector in this country. We have very fertile soils and a very good climate. We can actually farm most parts of this country three times a year. If we just get the various efforts that we have together, we will do very well as a country.
Indebank is involved in agriculture, at a farming level, where we finance the growing of tobacco. We work with tobacco merchants and finance a lot of customers, especially in the central region, but we also finance customers in the southern and northern regions. We are also involved in other crops (the non-traditional crops). We are looking at soya and cotton for instance. We are focusing on increased productivity in the agricultural sector. We can see Indebank doing a lot of business. Our service centers are located strategically. We have more service centers in the center than we have in the north and the south, because we recognize that the central region is a major agricultural hub for this country. That is not to say that other regions do not grow as much, but we just use maybe 50% of the potential we have in the central region.
We have to ensure that we exploit whatever opportunities arise out of the implementation of the ERP and we are not just sitting waiting for things to happen – we are being proactive, engaging the major players of the various sectors I have talked about, to see how we can provide efficient and effective partnerships as a bank.
Indebank was created in 1972 as a development bank and in 2001 it transformed into a commercial bank. What does Indebank mean for Malawians?
The word ‘inde’ stands for investment and development. When we were an investment and development bank, we were involved in the transformation of this country through the provision of finance to industry. We were involved in agro-processing, manufacturing and tourism. We financed a hotel, and regarding health until recently we had a shareholding in Mwaiwathu Private Hospital. We financed operations in various sectors in this country.
When we converted to a commercial bank in 2001, we started off with two branches. The idea was to extend our services to as many people as possible. We subsequently started looking at the retail side of things, and SME customers. It was our strategy to ensure that we improved access to our products and services, and to do that, we looked at several ways. Firstly, by expanding the branch network. We now have 15 service centers across the country, offering various products and services to our customers. We also looked at electronic access to our products and services. We introduced Internet banking and our own ATM switch, so that through our ATM network we can provide value-added services, such as purchasing airtime or settling utility bills, and various other payment requirements. We also looked at areas where we do not have branches. Maybe the Internet could be a big problem, but we said that we do need to extend services there. So we provide a mobile banking van that reaches out to the most remote areas and provides banking services.
We offer a wide range of products and services here, and I am glad to report that the number of customers has been growing steadily since we became a commercial bank. We now have over 45,000 customers that we service in the bank, and our focus is to operate this bank in terms of being very good at what we do in the corporate banking space, but also applying our energy to growing the retail side of the business.
It is in line with that thinking that we have two banking divisions – a corporate banking one and a personal SME banking division, to ensure that in whatever market segment we are operating, we are offering the best services we can.
Our teams in the respective divisions are first and foremost very carefully selected, but also developed to ensure that the customer experience is the best that they can get in the market when they deal with Indebank.
Banking penetration is still very low in Malawi, between 19% and 24%. How is Indebank educating rural people and farmers about the need to have a bank account and its related services?
We are approaching issues from various angles. The first is the support we provide for SME training. We have various organizations that are trying to cater to the needs of SMEs in helping them organize themselves better, and our role at Indebank has been in improving capacity, so we provide funding for training on the SME side.
For SMEs and retail, we have what we call ‘experiential marketing’. We have vans and teams of people going out and explaining what we do at Indebank, and how they can open accounts, and why it is important for people to open accounts with us. The major challenge in terms of financial inclusion of market penetration has been that banks’ requirements are too onerous and strict. Whereas in some cases the minimum balance is a hindrance, at Indebank we have set the lowest minimum balance one can find in the market.
Even with the little that they have, they can still open a bank account and access banking products. We have the lowest minimum balance on the market, and through the campaigns we have run, we have made information on banking more readily available out there than it was before. Through our mobile banking van, we have people seeing a mobile van that talks about banking and getting information that they would otherwise have not got if they did not have this van going out.
We as members of the Bankers Association of Malawi are also involved in financial inclusion. Through that, every bank has made an undertaking to make banking services as readily available as possible. The lowest minimum balance is out of our own efforts to make sure that we reach out to as many people as possible.
We are involved in working with communities, and we hope that as a result of this we will ensure that as many people as possible find out about banking and how it benefits them. We have a corporate social responsibility (CSR) initiative right now. We are focused on health, education and environmental protection and management. As we work with beneficiaries and communities that have benefited from those initiatives, we have taken the opportunity to explain what we do at Indebank and how they can work with us, and hopefully that helps improve rural people’s understanding of banking and what they can do to access our services.
Indebank greatly contributes to the socioeconomic development of Malawi through creating jobs, introducing international standards and your CSR initiatives. How would you say Indebank is contributing to the wellbeing of Malawians?
We contribute in many ways. We have 280 people working at Indebank now, but Malawi has what we call the ‘extended family system’. This bank might employ 280 people, but for every employee we have here, there are five, six or even 10 people who depend on that person. So through the jobs we create, we are able to help with the development of many other livelihoods. Secondly, through the profits we make and the taxes we pay, central government is able to provide all kinds of social services to the people of this country.
I also just want to move back to the role of the bank as an intermediary. We offer various avenues to those that need to invest or save funds and those that need to borrow. Through the avenues that we offer for the two parties to interact, we think Indebank, along with other players in the industry, is playing a big role in the socioeconomic development of the country.
Regarding CSR, Indebank has taken a decision to try and help people with sight impairment on health and education issues, and maybe environmental management as well. For us, that is not just advertising – we are looking at people who have the potential to do much better, but are only limited because they cannot access Braille reading materials for instance. Research has shown that we do not have many Braille facilities for sight-impaired people. As a result, our compatriots with visual impairment have not been able to contribute as effectively as they should to the economic development of this country. So the Board of Indebank approved a policy that will ensure that we work with the Malawi Union for the Blind to identify various ways in which we can improve the livelihoods of our compatriots who have sight impairments.
There are many countries in Africa at the moment that are making a lot of noise and therefore attracting investments. But why should an American investor choose Malawi and Indebank as its ideal partner?
Let me start with Malawi as an investment destination. The Government and the people of Malawi have been working on making Malawi a very attractive investment destination by improving the ease of doing business. I spoke about infrastructure and the efforts that are being made to improve the country’s infrastructure and the energy sector. As a country, we have been working on how we can speed up the process of creating or enabling investors to set up shop and operate as efficiently as they can. You have been to see the Malawi Investment and Trade Center and they are working on ensuring the process of setting up shop is as easy as possible.
First of all, it is easy to come into Malawi. The regulatory environment and framework are very straightforward and easy to understand. We have various professionals that will help foreign investors settle in this country. Secondly, as a country we are working on improving infrastructure and the road network. You can reach most of the areas in the country now throughout the year. The weather is good, whether you would want to invest in agriculture or other economic activities – you can operate all year round.
When you talk about forex, the current account is liberalized, although the capital account is not yet, but when you register your investment, it is very easy to take your money out when you have to. So you can come in and go out as you wish.
The education levels here can be improved, but we have a relatively high literacy rate. It is easy to find professionals in the various disciplines, so an investor coming into the country does not have to worry about finding local talent or skills to do the job. We have very well-educated people. It is a very stable political setup. This country has been at peace for a long, long time, and that is not something that we take for granted; it is difficult in other jurisdictions to go in, do business and not experience some of the challenges that we see on TV for example. In this country, we are politically stable. It is a great investment destination.
The beauty of being a developing country is that in the various sectors, there are immense opportunities to exploit. There are very few players, so there is room for people to come in, do very well, and make a lot of money, whereas in other markets there might not be enough leeway to do so. There are so many things that people can look at here. We talked about the mining sector, which is still in its infancy. There is a lot of scope for growth in that area, and I think the opportunities we have can very easily be checked up with the Minister of Industry and Trade for example, or the Minister of Mining.
We are the sixth or seventh largest bank, depending on what you are looking at, out of 12 in the market. There are advantages in this. Customer service in this bank is second to none – we are very good and customers have a very good experience working with us. We are a very dynamic team, and we do not believe in the one-size-fits-all phenomenon. We tailor-make solutions to our customers’ needs. Branch-wise, we are all over the country and our Internet infrastructure is excellent. Customers have access to our products and services 24/7. Because of our size, decision-making in this bank is very quick, and we have a well-qualified and diverse board of directors with vast experience, as well as a management team which is focusing on how to make a difference in the industry.
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