CURRENCY SWAP OR SOVEREIGN DEBT?

Sunduzwayo Madise

22 February 2015

The other day (Nation, 12 February 2015) the Minister of Finance was quoted to have said that one of the reasons for the Kwacha’s appreciation in value was a currency swap deal that Treasury had done with the PTA Bank. Now any attempt to stabilise our currency must always be commended but maybe the question to be asked is at what cost to us, and to the future generations. The Minister was quoted that the deal was worth $250 million (about K18 Billion) but that this does not mean Malaŵi had borrowed (heavily) from the PTA Bank but rather the deal was simply a currency swap and that ‘nobody will lose out’. According to the article, the PTA Bank paid to the Reserve Bank of Malaŵi (RBM) in US Dollars, and the central bank was acting as the agent of Treasury. The Minister is quoted further to have said:

instead of us owing the RBM, we owe PTA Bank. They paid that borrowing from RBM in Dollars. This is called currency swap because nobody is losing out. RBM bought Dollars so you could also say PTA bought Malaŵi assets from RBM, so it is a swap and there is no borrowing.  

This immediately raised some eyebrows amongst financial experts who most agreed that this was not a currency swap but rather an issue of sovereign debt. In order to delve further and analyse what has happened; it is imperative that we look at these two financial terms and what they mean.

Currency Swap

A currency swap involves the exchange of principal and interest in one currency for the same in another currency. It is therefore essentially a foreign exchange agreement of a loan in one currency for equivalent aspects of an equal loan in another currency; although it need not be restricted to a loan. In corporate finance, it is treated for all purposes as a foreign exchange transaction. Let us give an example of a typical currency swap. Suppose for example a Malaŵian company requires South African Rands and a South-African company needs Kwachas. These two companies will then agree a currency swap deal to allow them to access the currency they require. They will agree upon the interest rate as well as a common maturity date.  Currency swaps can also be done by states and between states and other corporations, usually but not always, of international nature.

Currency swaps are all about obtaining financing at mutually beneficial terms.

1.  They allows parties to secure cheaper financing (usually debt).
2. They are also an insurance of sorts, a type of risk-mitigator. It is a way to hedge against exchange rate fluctuations, especially for countries whose currencies are susceptible to volatile swings in the exchange rate (mostly of a depreciative nature). 
3. It provides a buffer against financial instability and turmoil which could arise by a crisis in the liquidity since the borrower borrows with its own currency. Consider a situation where the borrower borrows in foreign currency and then the local currency significantly loses value, the borrower would face a liquidity crisis as it would need to acquire more of its local currency to pay back an equivalent in the foreign currency.

 So let us apply this to our current situation in which the Minister is quoted to have said that we have entered into a currency swap with the PTA Bank. This would mean that the PTA Bank needed Kwachas and we needed Dollars under a loan deal arrangement (mutual borrowing). We then went into a deal to pay in Kwachas for Dollars in a reciprocal loan arrangement with an agreed interest rate for a set period. Is this what happened here?

Sovereign Debt

Sovereign debt refers to bonds (IOUs) issued by governments in a foreign currency. It is important to distinguish this with the bonds issued by the government domestically in its local currency, such as Treasury Bills or the recent issued Zero-Coupon Bond. Sovereign debt is targeted to international investors, including governments. It is common for governments to buy each other’s debt. For example China is the biggest buyer  of US debt. But because the US Dollar is freely convertible, the US does not have to issue its sovereign debt in a foreign currency other than the US Dollar. In contrast, if a country like Malaŵi decided to issue sovereign debt in Kwachas, the chances are it would not be bought because internationally the Kwacha is not considered a freely convertible currency. It is also considered a premier currency. Several factors influence this such as economic strength of the country of issue, stability of the currency play and foreign exchange restrictions. Most currencies of third world countries cannot be traded on the international bond market.

Sovereign debt is guarantee by the state. Therefore if the country is financial stable, and has good development indices, its debt will be deemed a safe investment. Internationally these debts are rated and those considered risk-free are given the highest ranking of AAA (Standard & Poor and Fitch ratings). Debt from developing countries is usually perceived as riskier and to hedge against risks associated with it, may be sold only if the returns (dividends) are much higher. The term junk bonds is sometimes used to bonds considered of non-investment grade. On the flip side, junk bonds are high-yield bonds, and characterise most bonds from third world countries. There are investors who actually specialise in buying junk bonds because of their high return. If one thinks about it, it is really easy to understand why. Suppose you go to a bank to get a loan, if at the end of the bank’s assessment you are a risky borrower, the only other way you may get the credit (other than being denied) is to get in on very high interest. The high interest reflects the risky nature of the transaction. The bank is hedging its risk by charging higher interest. The case of the katapila lender quickly comes to mind! Katapila is a risky business. Chances of default are high. To mitigate against this, the interest rates are high (mwala ku mwala – 100% per month is not uncommon).

Analysis of the Minister’s words

Let us be clear on one aspect, both currency swaps and sovereign bonds involving loans. Therefore to say there is no borrowing involving a currency swap is simply not true. A currency swap in corporate finance is not just an exchange of currencies. The fundamental difference is that a currency swap is mutually beneficial and in this way, the Minister is correct that nobody loses. Everyone pays (back) in their own local currency and that is where everyone benefits (if you discount the cost of borrowing itself). But is what happened here a currency swap?

According to the quote attributed to the Minister, the deal can be broken down into:

1. And agreement by Treasury with the PTA Bank to make available finance in foreign exchange amounting to $250million (he says this is not borrowing) 
2. PTA Bank will pay the funds via the Reserve Bank (acting as agent of Treasury) 
3. This will mean that instead of Treasury owning the central bank, it will owe the PTA Bank
4.  RBM has ‘bought’ the Dollars and PTA has bought Malawi’s assets (and according to the Minister there is no borrowing).

 Now looking at the above steps, it becomes quickly self-evident that there is confusion of corporate finance principles being brought in here. The agreement to have PTA Bank make available to us through then central Bank $250 million is clearly a loan, one involving sovereign debt. We are selling our national debt to the PTA Bank. Put in another way, we have agreed on a loan with the PTA Bank through which we will borrow $250 million to be repaid to them at an agreed interest over an agreed time. But we will have to pay back $250 million in foreign exchange plus interest.

The second and rather contradictory aspect is that Malaŵi and the PTA Bank have agreed to sell each other something. PTA Bank has agreed to buy some unnamed Malaŵi assets for the price of $250 million.  RBM is said to have bought the Dollars and PTA to have bought our assets. The first question is with what has the RBM bought the Dollars? With Kwachas? Or with some other unnamed assed? And the follow up question is if this ‘asset’ is not sovereign debt, then what asset have we sold to the PTA Bank? If it is sovereign debt then there is no currency swap and the issue is settled. But even if it was not sovereign debt, would it still qualify as currency swap? To answer this we must ask ourselves the question: have we had exchanged loans with the PTA Bank and agreed that we would pay them in Kwachas whilst they pay us in Dollars? Is this what has happened here? From what we have been told, the answer would have to be in the negative.

Concluding remarks and further thoughts

This is not a currency swap. We have sold sovereign debt to the PTA Bank and there is need to disclose the full deal in terms of maturity and the interest (yield) that is payable and when this is payable. And whilst we are at it, we may start considering how many Kwachas we will need at the date of maturity to repay the $250 million because when it matures, there will be a legal obligation to pay. It is only after making this analysis that we can make draw conclusions whether this deal is good for us as a country. The agreement is not just a financial one, it is a legal one too. Legal rights and enforceable legal obligations arise from it.

And this also applies to all other international loans. I have heard successive finance ministers boasting about how the country was getting a good deal because the loan they had negotiated was of zero percent (0%) interest. I have always wondered whether they are ignorant of what they are saying or they do not understanding how the world of finance actually works. Let me explain this by using a simplified example. Suppose we borrow $1 million in 2015 at 0% interest; and the loan is to be repaid after 20 years. The good thing is that when the loan matures in 2035, we would only be required to pay back $1 million (the terms of repayment would depend on the terms of the loan agreement). But suppose in 2015 the Kwacha is at $1 = K450 and suppose in 2035 the Kwacha has depreciated substantially and is at $1 = K4,500 (God forbid). This means that in 2015 we received K450 million as a loan but come 2035; we would have to pay back K4.5 Billion. Now anyone who says that by obtaining a loan in foreign currency at 0% or at a low interest rate is a deal needs to recalculate the actual cost of borrowing by factoring in the depreciation of the Kwacha over time (economic and statistical models are available to do this and make projections) . I have noted that apart from Treasury, several Malaŵian corporations have also borrowed from international financiers, especially on the London loan market (in Pound Sterling). I do hope they have done a proper due diligence of the actual cost of the loan. It maybe sometimes be cheaper to borrow locally and pay back in good old Chilembwes!

Coming back to the issue of currency swaps, and considering that the Minister of Finance is an expert in finance, I can only conclude that he has been misquoted. 

LISTENING TO DANIEL KACHAMBA

Sunduzwayo Madise: 20 February 2015

I must confess that despite the proliferation of good music, 90% of the music that I listen to is Malaŵi music (all of it) plus gospel (Grace Chinga, Lloyd Phiri, Thocco Katimba, Marching Soldiers etc). The remaining 10% is usually roots reggae and Malawian reggae (Anthony Makondetsa, Limbani Banda, Evison Matafale, Black Missionaries, Soul Raiders etc.) And somehow, the older it is, the merrier. I guess it just shows that I am not getting any younger too! Now Lucius Banda is a constant presence with the occasional mix up with other artists. But if it is Malaŵian music, I will listen to it, especially if sang in the local languages (even if I may not understand it; like some of Joseph Nangalembe’s, Allan Namoko and Namakwa Brothers Band’s classics). So the other day as I was driving I was listening to Daniel Kachamba. Listening to this great son of Malaŵi brought memories, fond memories. Kachamba made me remember kale langa. And talking of Kale, my collection of Edgar ndi Davis is missing Energy Saver!

But before I travel down memory lane, let me say a thing or two about Daniel Kachamba. I had not listened to his music, I must admit, for almost 3 decades such that this was a rewarding experience. In fact it was revitalising in a way. I quickly decided that the folks that had decided to honour him with the honorary title of Doctor of Music had it spot on. Now let me digress and tell you the story that we heard around this title. Daniel Kachamba had at some time gone to perform in Europe. He was, like most Malaŵian acoustic artists of the time, a one-man band. We were told the hall (cannot recall exactly where it was) was packed and when he was presented to the audience, a few thought they had been given a raw deal. Why? Because they expected a band which would make them dance the night away. Only if they had known! The tall, slender man from Malaŵi sat on the cow-skin strung drum (probably made of some dissected drum), took a flute which had a special wire that used his ears as support and placed it around his neck, took a home-made rattle in his right hand, and then bent down and picked his acoustic guitar and strung the strap his neck and settled himself facing the audience. The next thing that happened was an explosion of music that left the patrons dumbfounded. This one man was producing music from his guitar, his mouth, the flute, the drum (using his leg) and the rattle (by shaking the very hand he was using to play the guitar). The sum of it was the sweet magical music that Malaŵians had all along listen to and enjoyed on MBC Radio. And to add to it all, Kachamba would play his guitar with the hand in circular motion; going clockwise then anti-clockwise and then alternating, but not losing the rhythm! And to add to it all; he had a unique way of actually turning his back to the audience, hoisting the guitar above his head on to his rear neck; and playing the guitar ‘blindly’. And yes, there was dancing and all. In the end, the little man from Nyasaland was dubbed Doctor of Music. That is the story we were told when growing up. This same richness in music is what made me go back memory lane and prompted the writing of this piece.

Now I should know exactly what the European folks were confronted with. I had grown up knowing Daniel Kachamba as a musician. When we were staying in Kabula, my father used to run a bottle store styled Malonda gha Mariba Madise. This is Zulu/Nguni/Ngoni for [selling] business of Mariba Madise. Mariba was the middle name of my elder brother. At that time when I first saw the sign, I did not know it. I knew him as Hlekwayo. However I do not think that my father meant that the business belonged to Hlekwayo! If he did, he never showed it. I do not even recall my brother, who probably knew the significance, boasting of owning the shop! Good man he was.

Now ordinarily a business should be one where the ultimate aim is to make a profit. I do not think this was the type of business my father had in mind. In fact I doubt if he ever made a profit at all! For all I know he pumped more into the business than what he got out. I was later to understand what it was all about. It was a way for him to socialise with his friends. A brief history of my father will help put this into context. My father was arrested in 1959 in Mzimba as a young man deemed ringleader and troublemaker during the 1959 3^rd March State of Emergency in Nyasaland. He and some who were rounded up were transported via Nkhata-Bay on ship (he called it a kind of Gwendolyn[1]) to Chipoka, then onwards by train to Blantyre. He said they were supposed to be airfreighted to Kame, in Ghana,[2] while their leader, Kamuzu, was sent to Gwelo (now Gweru) prison, in Southern Rhodesia (present day Zimbabwe).[3] He told us that what saved them was that they had just missed the plane to Kame, and they were sent to Kanjedza Dentition Camp to eat, and wait for the next plane. As it turned out, they ended spending almost a year there until their release. He told us that he found it uncomfortable in prison because he was detained with his apongozi, Qabaniso Chibambo.[4] Oh, yes, my father respected local custom! Under local custom, you must ‘avoid’ your apongozi. After his release he was permanently ordered to stay in Blantyre and explicitly told never go back to Mzimba! Of course, things changed after independence, but this initial forced incarceration seemed to have left an indelible mark on him. I think my father was in a way torn apart. I think he missed his village life and wanted to continue experiencing it even within a city setting.

To me therefore, the bottle store was his solution to this dilemma. He used it as a way of re-living his village life. At the bottle store, traditional foods were prepared such as roasted makunda, mangh’ina, roasted deer meat. The ‘insides of the goat’ were also favourite! We used to call them bath towels! Cooked [goat][5] blood (ubende)[6] mixed with a few pieces of fat and small pieces of intestines was reserved for the older men. Of course as the cook; I made sure I had a good taste! Every Christmas he would slaughter a goat for the home and occasionally one for the bottle store for him and his friends! Well as I grew up, most of the slaughtering and skinning was left to me (but there is another story for another day). He used to take me and my young brother Dingiswayo hunting near Lirangwe with his Greener shot-gun to hunt Nyisa (yet another story for another day). The long and short of it all was that the bottle store was like importing the village into the town. It was a popular joint among his peers, and they came from all walks of life, and all corners of the country too. 3rd March was a day in which all shops were supposed to be closed in Malaŵi. We closed our bottle store alright, to everyone else except my father and his close circle of friends. No one would keep him from his ucwala or phele. No one could separate my father from his beer. He only stopped drinking when his health failed him. But I figured having spent time in detention, he deserved it and that somehow this 3^rd March quarantine did not apply to him. Interestingly, he never commented anything about politics, and when people started talking about politics he would quietly, silently but tactifully move away. I also noticed that the local Youth Leaguers[7] kind of avoided confronting him. I think they did right for my father had presence, and could instil fear when he chose to or wanted. Obviously traits of his Ngoni upbringing, as far as I know he never feared anyone, and once physically demonstrated to me two things: never let anyone jump the queue and never allow anyone to insult your wife (but that is another story there!).

The first bottle store was in Goliyo in Ndirande. Then he decided to expand, and got a spot at the corner of B.F. Chinseu’s Building at Chinseu, also in Ndirande. During this time we moved from Kabula to Chilomoni (another story there) and then finally to Chinseu, just behind the Chibuku Tavern (lots of stories there). I noted that the business was now styled Malonda Madise! So how is this all connected to Daniel Kachamba?

As part of the entertainment, we used to have travelling musicians that would come to the bottle store. By the time the bottle store moved to Chinseu, it was the local magnate of local musicians. We had people like Saleta Phiri and Amlamu Band (which when it became an ‘electric’ band changed to AB Sounds). We had Stonard Lungu who was popular because of his rich Mangoni vibes and wit. We had Ndingo Brothers Band of the aRosemary musanyade fame; and I recall they had one chap who had such a deep raspy voice (if you have heard of the song by Fuji Kasipa featuring Njati Njedede[8] you will know what I am talking about). And yes we also had the great Daniel Kachamba coming to sing. Namakhwa Brothers Band was a constant feature on the menu too, always leaving the patrons in stiches! At that time, the price (kubetcha) for a song was 20 Tambala for these prime artists. Once in a while, Robert Fumulani from Chileka would pop in, and when he did, he brought a drummer and an electric guitar which he would plug into the single amplified speaker we had and one or two other artists. And usually the price for each song was higher when he did; he was regarded as a ‘proper band’, and occasionally travelled nationally. Once these local artists arrived, we would stop playing the turn-table (usually it was Eric Donaldson, The Hurricanes, The Great MBC Band, Maroon Commandos, Manu Dibango etc). They would play late into the night. And once in a while, three or four artists would all converge but this did not provide a headache for them or for the patrons. They would quickly collaborate and play each other’s songs for hours on end; making everyone happy (that was the first time I saw different artists not only singing on one stage, buts collaborating!) To me seeing Daniel Kachamba, Stonard Lungu, Namakhwa Brothers Banda, and Ndingo Brothers Band playing together was just out of this word.

So listening to Daniel Kachamba made me realise how fortunate I am to have been in the presence of these great musicians. It triggered a memory, but it also reminded me of how rich our local music is. I know his music is not easy to find, but if you can source it, listen to Dr Daniel Kachamba. His brand was/is called Kwela music and is an infusion of South African beats, jazz and local Malaŵi music. Together with his brother Donald,[9] they formed the Kachamba Brothers Band. But the memories I have are of the Doctor himself! As for my father, he also introduced me to reggae music. He loved Alpha Blondy. He also loved Kenny Rogers. And yes he loved Franco Luambo Makiadi!  But that is a story for another day.

---

[1] http://en.wikipedia.org/wiki/SS_Gwendolen

[2] http://www.maphill.com/ghana/kame/

[3] http://en.wikipedia.org/wiki/Hastings_Banda

[4] Long-time powerful Minister in the MCP Government and father of politician and former Ambassador Ziliro Chibambo

[5] It does not have to be goat; it includes blood of cattle or sheep too

[6] This is interesting because the Zulu translation of ubende is spleen

[7] The Youth Leaguers were foot-soldiers of the MCP, the only party in power then. Also known as Chiswe, they were better known for their ruthlessness, unreasonableness and occasional theft of property like eggs, chickens under the guise of donations for Kamuzu. They never came to our home as far as I can recall!

[8] https://www.youtube.com/watch?v=CX0lZ65rXMg

[9] http://www.allmusic.com/artist/donald-kachamba-mn0001449747

Shooting off the hip and the diplomatic service

By Sunduzwayo Madise

30 December 2014

In a game of chess, whatever gambit you chose, the idea is always to plan ahead. You must always be several moves ahead and consider the: what if scenario. What is important also is whether you have a backup or an 'escape route'? And in every game of chess the king must always be protected. The king is not the most powerful piece in the game, but is the most important. He must be shielded and protected at all times. When the king is captured or cornered it is curtains; game over. Now clearly this game was conceived when the thought of a female sovereign was inconceivable – how times have changed! We will return to this analogy of chess but let us extend the discussion to another aspect of the sovereign. Traditionally, ambassadors were personal representatives of the sovereign. They were appointed and accountable to the sovereign. However in recent times we have noted that sovereignty has moved from a person (such as the Queen) to the state. This is the state of affairs in Malawi where we have a constitutional democracy and the doctrine of separation of powers calls for checks and balances between the three arms of government. Under this doctrine we have a head of the executive, head of the legislature and head of the judiciary. All these are under the head of state. In the UK the Queen is head of state, the Prime Minister is head of the executive. In Malawi the President is both head of the executive as well as head of state. However in making his decisions, he will do so as either head of state or head of the executive. Where his decision needs approval by another arm of government, then clearly he is exercising functions of head of the executive. To ensure that there is checks and balances with the doctrine of separation of powers, modern democracies now require that certain positions like of ambassador be approved by Parliament. Parliamentary approval is a recent addition to the doctrine of checks and balances. The President as head of the executive appoints, then another body, Parliament approves this appointment. When Parliament has approved, the President as head of state now sends the envoy yonder. Ideally this system should ensure that the candidate that gets the final nod is the right candidate to represent our state. Two recent appointments in which both appointees have turned down (or as they said themselves: “opted out”) amidst rumours of rejection by the recipient countries have prompted the writing of this piece. If true, this demonstrates a failure in the system at many levels.

I can say without fear of contradiction that both Dr Heatherwick Ntaba and Mr Thoko Banda are highly intelligent people. Hearing Mr Banda reminds me of the extremely articulate and highly intelligent Aleke Banda, his father. In the days of old we did not call Dr Ntaba talking computer for nothing. The man has a grasp of issues and speaks with conviction. Yes the fact that he speaks the Queen’s language with such finesse adds up to the mystique. Sadly however intelligence is not always equal to wisdom.

Mr Banda was appointed Ambassador to Zimbabwe. It later transpired that he had said some not-so-flattering things about the comrade.  It is rumoured Harare made it clear that the Ambassador-designate was persona non-grata. Mr Banda then went on various media trying to explain himself; and in the process said that in fact he had not been consulted before the appointment. Ooops!  Now people have asked: is Mr Banda not entitled to air his opinions? What happened to freedom of speech? And therein in lies the problem. He may be so entitled but maybe the question to be asked is whether he was wise to be so blunt, especially if he was planning for political office or diplomatic service. I read the article that caused all the furore and it reminded me of the phrase shooting off the hip. Shooting off the hip in this regard describing a person who does not censor their actions or words. At this point I recall the song by Robert Fumulani; ukayenda kumasiya phazi osati mulomo chifukwa mulomo uzakupeza.[1]

Which brings us squarely to the good doctor. During the time of the late Bingu, Dr Ntaba was part of the President’s press and PR team. And one thing you can bet on Dr Ntaba is that he will never disappoint. So during those politically charged moments when the British High Commissioner was given orders to leave, resulting in a tense diplomatic stand-off, Dr Ntaba naturally had to be on the side of the big kahuna[2]. Do I believe that Dr Ntaba believed the strength of his own arguments? No, definitely not. Do I believe that he nonetheless spoke with passion and conviction? Definitely yes. What was clear was he was shooting off the hip. Once again we have a situation where Dr Ntaba may not have been wise considering posterity. In hindsight he was not wise at all. He ought to have censored his words or exercised an element of restraint. But it is easy for us to say this after the fact, but nonetheless it is a lesson which hopefully others have learnt from. Therefore rumours that London indicated that Dr Ntaba would not be received as our emissary by the Queen are not surprising. In fact what is surprising is that these appointments were made in the manner they were in the first place.

When the Secretary to the President and Cabinet (SPC) was asked about the recent appointments to parastatal boards (in which some folk turned down and cried I was not-consulted), the SPC boldly said they do not consult before making appointments. That got me worried. I read in that response that they either do not have time to consult (which is worrying) or they do not bother to consult (which is very worrying). And if this consultation does not extend to ambassadors then it is even more worrying. And should we be surprised when one day a person happily rotting in their grave is appointed?

I did say earlier that this has exposed failure of systems at many levels. How are candidates appointed to key positions vetted? Is there even a process of vetting candidates?

If we refer back to the chess analogy, shouldn’t we have someone or some pipo planning ahead and contemplating what the other side might do? The Catholics gave us a good name for this, devil’s advocate.[3] Shouldn’t we have someone play devil advocate? Dig out any dirt and lay it on the table? And like a game of chess, shouldn’t we have someone getting into the shoes of the 'opponents'? Now I am aware that Public Appointments Committee (PAC) of Parliament is not exactly an opponent in the traditional sense but in this game theory, the other side is treated as though they are. Shouldn’t someone pre-empt PAC and what they will say or ask? Shouldn’t someone conduct an individual risk analysis for all key positions before they are thrown to the lion’s den? Now playing devil’s advocate does not mean that the candidate will not come out successful, it just helps to prepare for any nasty surprises. And surprises have an uncanny habit of being brutally nasty. As it is said forewarned is forearmed.

Let us start with our intelligence service(s). I am aware that the intelligence service performs important state functions to ensure that our country is safe from its ‘enemies’. However it is no secret that intelligence services do more than this. Intelligence services do a lot of information gathering. So let us assume the President intends to appoint one Mr Thoko Banda as Ambassador to Zimbabwe, shouldn’t the first thing be a request to the Director General of the National Intelligence Bureau (NIB) for a full dossier on Mr Banda before the President makes it official? Now let us be honest, information gathering these days is a different business altogether comparing to the days of old. It is a sophisticated art which depends on use of technology. For one it needs a lot of resources. I cannot say it for a fact, because I do not know, but if there are no high speed and high capacity computers and fast access to data channels (including the internet) at NIB offices then Government needs to invest in this yesterday. Furthermore, to make sense out of data collected, needs analysis. Qualification for intelligence analysts should not be being a party royalist. We need people who have been trained at least at tertiary level. They should be able to read chatter on the internet; social media and draw a picture based on evidence. Intelligence analysts think in multi-dimensional visions. They look at pieces of information and draw patterns. They connect dots which most of us cannot. Like a game of chess they contemplate the next move and several moves ahead. All intelligence organs the world over are now using the internet as an information gold mine; usually within the law but at times outside the law. There is always a big brother watching; what he is watching though is what matters. Information not gossip; not opinions is what counts. Analysts should be able to dig out information of every intended appointee such that a dossier is presented to the President before the actual appointment is made. So if the NIB cannot do this for people appointed as Ambassadors then it is clear more resources and efforts need to be injected to enhance its information analysis functions. Put simply, a dossier should have been presented to the President indicating that there were likely to be problems in having Mr Banda appointed to Zimbabwe and Dr Ntaba to the UK. It is elementary actually when one thinks about it, so basic that it boggles the mind how this was even allowed.

Let me digress a little here. I am told that two appointees; Mr Banda and Mr Voice Mhone all said they mothers come from Thyolo. Now only a stranger in Jerusalem would fail to connect the importance of Thyolo; the home district of the President. My question is why is this information even important or necessary? Did PAC actually ask these two Malawians where they mothers come from? If so then I have big problems on the mandate of PAC. Should they be discriminating Malawians based on their origins really? Shouldn’t being Malawian enough? Reminds me of the Traffic Police when they stop you for a traffic offence and ask for your tribe! Really? What has my being Ngoni got to do that I maybe a bad driver? I hope the Police are aware that this is a colonial left-over legacy which profiled Nyasalanders! I decided a long time ago that my tribe is Malawian. This has irked several people but I have decided to stick to my convictions. Now this doesn’t mean I am not proud of my Ngoni heritage but I refuse to be containerised in this imperial manner 50 years after our independence. In the UK, where we got these regulations from, no one asks this anymore. In fact it would be a scandal if a Police Officer did that!

So back to the issue at hand, and to conclude, Government should have information on its people. This does not mean spying on them although it is an open secret that all governments spy on their subjects anyway. In fact you would be naïve if you think they do not or should not, especially in these days when there is so much digital footprint left in all our digital voyages. No organisation can succeed without an element of spying and information gathering. No leader can successfully lead his or her people without gathering information about those being led or governed. It is just part of the business. Collecting vital information that can enhance decision making is therefore part of management. Before the President appoints people to become board members of parastatals, he should have a dossier about each of them to see whether they are fit and proper for the appointments. Then there needs to be a mechanism to obtain their prior approval, especially if there are indications that they may reject the appointment. This information can only be provided by those in the information gathering business. Ideally the President or his emissary should actually have chat with any person targeted for a public appointment of state importance to ensure the issue of acceptance is taken out of the way. Sometimes in this chat, the appointee-to-be may actually indicate any bottle-necks or pitfalls that exist and a plan may be worked out in advance (hoping in the honesty of people to tell the truth). Crucially before he appoints any Ambassador, the President must satisfy himself that they will pass the PAC test as well as have no barriers to be accepted by the recipient country. Does this mean that background check will guarantee that PAC will always approve the President’s appointees? No, but the answer to this lies in the realm of politics which is outside the scope of this piece.

---

[1] Ideally when you travel, leave a good name (of your conduct), avoid leaving a bad image (bad mouthing) because the character will one day surely catch up with you (or your ‘bad mouth’ will follow you)

[2] Big kahuna was coined by Ralph Tenthani and Dr Ntaba tried to convince the nation that it was a derogative reference to the President. He was of course wrong. Big kahuna is a term referring to the boss, leader or chief. See http://en.wiktionary.org/wiki/big_kahuna

[3] http://en.wikipedia.org/wiki/Devil%27s_advocate

Rationale of Regulating the Financial Services, Models of Regulation and Need for Regulatory Independence

Abstract:      

Theory suggests that the primary role of financial institutions and capital markets is to facilitate the allocation of resources in an uncertain environment across space and time.

Therefore regulation of the financial sector has a crucial role to play, especially in the development of third world countries, most of whom have enormous wealth disparities between sections of their populace. A key objective of regulation is to redress information asymmetries that sometimes exist in financial services businesses usually to the disfavour of the consumer.

Although most often the regulator is also the supervisor, the role of the regulator and that of the supervisor are. In most jurisdictions however, the powers to regulate and to supervise the activities of the financial services sector reside in the same institution. The regulatory framework of financial services often comprises primary regulation, secondary legislation and guidance and (policy) directives and directions issued by the regulator.

This paper looks at the rationale for regulation, the different models of regulation in the financial services and what they are aimed to achieve. The paper also looks at the broad objectives of regulation even in the absence of a unified theory of financial service regulation, such as investor protection, ensuring fairness, reducing contagion, protection against malpractices and maintaining consumer confidence.

The paper also analyses the pros and cons of single, twin-peaks and multiple financial regulator and why regulators need to be independent [but accountable] whilst at the same time avoiding industry capture.

Although the paper discussed regulation broadly, it discusses financial services regulation in the context of the Malaŵian financial regulatory framework with a brief overview of the regulatory models in the United Kingdom and Zambia.

Keywords: financial regulation, Malawi, regulatory independence, rationale for regulation, regulatory models, regulatory theory, single peaks, twin peaks, Zambia

working papers series 

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2538437

Solving the Remittance Dilemma

Sunduzwayo Madise 

University of Warwick; University of the Western Cape; University of Malawi
November 27, 2014

American International Journal of Research in Humanities, Arts and Social Sciences, 8(1), September-November, 2014 
Abstract:      

Remitting money in sub-Saharan Africa has always been a problem because of infrastructural problems affecting the region. Malaŵi, being a land-locked least developed country has been greatly affected by this. The country is agro-based with a majority of the population living in villages in the rural areas. Traditional means of remitting money have proved to be either expensive or unreliable. With the advent of the mobile phone, mobile network operators have devised a solution to the age-old problem of remitting finances to rural areas. The paper looks at how the mobile network operators in Malaŵi have addressed the remittance dilemma by taking advantage of the ubiquitous nature of the mobile phone.

Keywords: financial inclusion, Malaŵi, Malawi, mobile money, payment system, remittance

http://iasir.net/AIJRHASSpapers/AIJRHASS14-614.pdf

Payment Systems and Mobile Money in Malawi: Towards Financial Inclusion and Financial Integrity

Sunduzwayo Madise 

University of Warwick; University of the Western Cape; University of Malawi
November 27, 2014

ANULJ 2014 Vol 2(2) 71-96 
Abstract:      Malawi, like other African countries, has witnessed a recent surge in mobile phone usage. The increase in phone usage has been accompanied by an increase in mobile phone based products. Two such products in Malawi are Khusa M’manja (‘money in the hands’ in the local language) and Mpamba (money in the context of ‘start-up capital’ in the local language). These products, and the services they contain, allow the phone user to use his or her mobile phone as a wallet or purse: he or she can load money into the phone, send and receive money, make deposits and withdrawals, purchase goods and services, and pay bills. Khusa M’manja is provided by Airtel, while Mpamba is provided by Telekom Networks Malawi (TNM). Khusa M’manja and Mpamba may be said to be close relatives of M-Pesa, a financial service that was developed in Kenya by Safaricom. The introduction of M-Pesa has led to an increase in money circulation, roping in those who would otherwise have been left out by the formal financial sector. The mobile money platform has been lauded as an effective means of ensuring financial inclusion of the unbanked, which constitute a large proportion of Africa’s Sub-Saharan population. For many, therefore, the introduction of mobile money services into the national payment system is a welcome development. However, balancing between the competing interests of financial inclusion and financial integrity remains a serious challenge.

Keywords: mobile money, payment systems, khusa m'manja, mpamba, M-pesa, regulation, remittance dilemma, financial inclusion, financial integrity, unbanked

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2531319

Samusoni ni Dolo (SAMSON IS THE MAN: THE STORY OF A MODERN PAYMENT SYSTEM)

Sunduzwayo Madise

23 November 2014

I heard the original story from James Mbingwa[1]. I have granted myself poetic licence and added in mchere na sobola (salt and pepper).

Background

The story is told predominantly in Tumbuka. Tumbuka is the dominant language spoken in the Northern part of Malawi. The story has also few Chichewa (the main language in the Centre and most parts of the South of Malawi) and one or two Ngoni/Zulu words (the original language of the people of Mzimba, the biggest and most populated district in the North). Suffice to say the Ngoni language is now spoken only in parts, principally at Edingeni, the headquarters of the Zwangendaba/Jele Ngoni Paramopunt Chief: Inkosi Ya Makhosi Mbelwa V (King of Kings) and also in parts of Ntcheu in the Central Region, especially at the Nkosini[2] in Lizulu[3], headquarters of Inkosi ya Makhosi Gomani V, among the Maseko Ngoni.  Tumbuka typically has some characteristics, one of which is that it emphasises certain consonants when mixed with vowels such as “d” and “b”. To show this emphasis, I capitalise the consonant. So for example dolo would be pronounced with a light tongue on the “d” while Dolo would be with heavy “D”, like in dolus. I will provide the story translation into English at the end while attempting to preserve the richness of what it would sound like when told in the vernacular language. The story for all I know is made up. However Mkhulu[4] Village does exist, it is my village and so does the Group Village Headman Mkakabanthu[5] as well as Traditional Authority (T/A) Mtwalo.[6] Blantyre is the main commercial city in the South of Malawi. In Mzimba, and where I Come from, usually English names are not pronounced the English way. So for example my own father was named George when he was selected from Mzimba to attend Secondary School in Blantyre. His own mother could not pronounce George and called him Joroji. So in this story Samson is pronounced Samusoni.

Setup up of the story

So Dokiso trekked all the way from Mkhulu Village, Group Village Headman Mkakabanthu, T/A Mtwalo in Mzimba and visited his brother Samson in the suburb of Manja in Blantyre. He closely observed what his elder brother was doing and after a month he returned back home where he told his peers this story:

Banangwa, Samusoni ni munyathu yayi; Samusoni ni munthu! Ho! Mwini tauni Samusoni! Ni shasha Samusoni; mungafikako? Mungamkhwasa? Yayi, ni Dolo mwa zina lake, mwana wa muBaiBulo.

Mbwenu wakufika pa window la banki inyakhe; wakuwaphalila waka kuti, “Ine Samusoni nafika ine” mbwenu chinthu chinyakhe chikumupa vindalama! Nikuyowoya ma alovelatu, not za bweka-bweka cha!

Tilute ku golosale inyakhe ikulu, wenecho wakuti Shopwell; tanyamula vikatundu mula, iye wanyamula, nane nanyamula, tikududuza mu magaleta walimwenemumo. Kufika pakulipila, mbwenu Samusoni wakulemba waka kalata kuti “Ine Samusoni nangwiza pano”. Mbwenu msungwana wakutchena chomene, wakutowaso not vinyakhe ivi, wakuti jumphani. Ine ha, not even Chilembwe m’moza kuwapo?

Mbwenu Samusoni wakuluka mula wakuyimba nyimbo yakhe ya soja, ine shah, Samusoni ni Dolo chomene. Bulantaya yose ikumumanya. Ndipo nimuphalilani inu mose, na ku Bulantaye; zindaba zikuwa za Samusoni, mwenecho tauni. Magolosale na mabanki wose wakumumanya. Bigi mani mukulu chomene Samusoni!

Kweni banangawa, chimoza, Samusoni ni mtchisi, ha! Kugeza cha! Mwezi wose nikamutcheranga pa khomo la kwaku gezera. Munthu kuzako cha! Kugeza cha, kweni wakutuluka wavwala suti yake ya Piyere. Ukuti Piyere ni vichi? Ni suti yapachanya chomene, iyo wakuvwala pulezident, suti yamakopala ache, ungaiyigula iwe, pali wangaigula kuno? Nilekani nimphalireni nkhani yose, ndinamale. So, wavwala piyere, wakukhala pa thebulo kurya masumbi wake para, ma soseji na tchipisi chake apo; mbweno uyo; vuvumu wakuntchito pa galimoto. Kugeza cha!

The translation

My friends, Samusoni is not our friend,[7] he is the man! Yo! Man about town is Samusoni! He is the master, he is on another level, you cannot even get there, do not even attempt! Can you even touch him? Oh no, he is the consummate man of the town, just as his name, just like in the Bible.

We arrive at a window at a certain bank, he just tells them that “I am Samusoni, I am here” and immediately a certain thing just gives him money, lots of money! I am referring to aloe vera[8], not pennies!

We go to a certain big grocery, the owners call it Shopwell[9]; we carry groceries, he carries some, I carry some, wheeling some strange vehicles.[10] We get to the cashier, Samusoni just writes a note that “It is me Samusoni, I was here”. Then the well-dressed girl at the till, very pretty too, not like some of these local girls, says you can go ahead. I say, how, not even one Chilembwe[11] being paid?

After that Samusoni goes out of the shop singing his (popular) tune by Soldier[12]. I say, Samusoni must indeed be a king here. The whole Blantyre knows him. I am telling you, the whole Blantyre is full of stories about Samusoni, he owns the town. The groceries and the banks all know him. He is a big man[13] Samusoni. He is the big man.

But one thing folks, Samusoni is unhygienic! Eish! He does not bath! The whole month I was there, I was checking the bathroom door (to see which time he had his bath). The man never went into the bathroom! He would just get out (of his bedroom), dressed in his Pierre[14] … You ask what Pierre is? It is a top notch suit, worn by presidents, very expensive, can you even afford it! Is there anyone who can afford it here? But let me finish the story, he is dressed in his Pierre, sits on the table eating his eggs with sausages and chips and after that vrooom! Of he goes in his car. Having had no bath! Ah!

------------

Indeed Dokiso may have been perplexed with the operations of an ATM machine, payment by cheque, but how was he to know that in town we have self-contained bedrooms!

Payment System? 

So how is this a story of the modern payment systems. Well I am currently doing research of payment systems and whilst thinking about the impact of new methods of payment systems on people in the village, I recalled this story.

Simply put, if we remove the last part about having a bath in his master bedroom which is en-suite, the whole story is indeed one of the shocks of a modern payment system to an unsuspecting villager. Dokiso is confronted with an Auto Teller Machine (ATM) machine for the first time. He has no idea what it is. He has never seen one. To him, the only payment system he knows is cash. You transact in cash. You either have the cash or you do not. So the ATM presents a challenge to Dokiso. He does not know that the ATM is actually linked to Samson’s account and that Samson is only accessing his own money.[15] He does not know that he is dealing with an electronic payment system. He exaggerates what actually happens because he is not close enough to see (as does happens when someone is withdrawing money from an ATM machine). In his view the machine has just given his brother money. Welcome to the electronic payment system Dokiso!

Secondly when his brother goes to shop, he does not pay with his plastic card, but chooses to pay using his chequebook. To Dokiso this is something he has never come across. Paying by cheque? What is that! To him you pay for goods with money in the form of cash. Nothing else will do. Like in Mkhulu is simple. Cash is the means of payment. If you do not have it, you you cannot get the goods you want. You must exchange goods with cash. In his mind, he envisages that Samson must be a certain powerful well known and well-connected person that he can just issue a note and get things. His mind cannot process this. He does not fully understands what Samson is doing by writing on the cheque and signing it and to him it is just like any other paper. And yet this is what exactly happens with a cheque, it is an IOU note of sorts, a promise to pay, money in another form. Dokiso does not know that he is dealing with a payment system that involves a cheque clearing house. He does not know that this paper is actually a negotiable instrument. Welcome to the world of the cheque payment system Dokiso!

---

[1] https://www.facebook.com/james.mbingwa

[2] Nkosini is the place of the Inkosi or ‘King’s place’

[3] Lizulu comes from kuliZulu meaning “where Zulu is”.

[4] Mkhulu literally means ‘big’ in Ngoni/Zulu and reflects to a village that is deemed the ‘big’ village in a group of villages. Usually in a polygamous situation, this is usually the where the senior wife of the local chief stays.

[5] Mkakabanthu means ‘binder of people’ or ‘uniter of people’. It comes from two words kukaka meaning to bind or tie together (it can also mean to arrest) and banthu, a well known Banthu phrase for people.

[6] Actually called Inkosi Mtwalo, one of the chiefs under Inkosi ya Makhosi Mbelwa V.

[7] The phrase does not mean literally that; rather that Samusoni is on another level

[8] Aloe vera is the local name that refers to the highest denomination in Malawi. It is a K1,000 note and is green like an aloe vera plant.

[9] Actually there is one called Shoprite, owned by Shoprite Checkers of South Africa

[10] trolleys

[11] John Chilembwe is the best known earliest freedom fighter who died in 1915 fighting against colonial rule and oppression. He has been immortalised by having his face as the face of all banknotes in Malawi. A reference to Chilembwe is therefore a reference to money.

[12] Soldier is the musical nickname of a famous Malawian Musician Lucius Banda. He once used to sings protest songs as a soldier of the poor. This permanently endeared him to most Malawians, especially during times of oppression and hardship.

[13] Actually the real phrase is an exaggeration which reads “he is a very big man”

[14] Pierre Cardin. Obviously he just overheard the name and did not fully understand what it meant other than that it was a very expensive suit.

[15] Malawi does not yet have a credit card regime, only a debit card one