A High Court judgement has shown that former Reserve Bank Malawi (RBM) deputy governor Henry Mathanga’s recklessness in handling of Farm Inputs Subsidy Programme (FISP) contacts exposed the institution to financial risks.
This is according to a High Court verdict by Judge Allan Hans Muhome in a case in which Mulli Brothers Limited (MBL) sued a consulting firm Deloitte for defamation in a forensic audit report which showed that the company benefited from dubious payments from RBM.
Mathanga’s actions that were described as reckless, led to a financial loss of around K2.9 billion under FISP at the central bank.
Released in May 2021, the audit report covering January 1 2019 to June 30 2020 details how central bank officials allegedly bent their own rules to facilitate payments, including some which auditors deemed fabricated.
In 2018-2019 and 2019-2020 FISP seasons, MBL, Rock-Ba-Rock, Web Commercial, FF Trading, JF Investment defaulted on their payments thus forcing RBM to settle the balance amounting to K3,131,997,213.03 on the Letters of Credit established by RBM.
The reason for the default was cited as failure to retail all the fertiliser awarded in the contracts.
The report showed that the company and Jean Mathanga (the wife to the former deputy governor) were benefitting from hefty loans from RBM for their businesses and that the two were paid money four times for the FISP and payments were made before the contracts were awarded to other suppliers.
For example, the judgement states that Mathanga singlehandedly lifted conditions, against other advice on awarding payments to suppliers exposing RBM to financial loss.
Deloitte Technical Lead Partner on the material assignment Nasser Adam testified that his review of the role played by RBM in securing the credit facilities indicated that actions by some RBM officials exposed the bank to several risks that resulted in a negative financial impact and the same needed ‘an in-depth analysis’.
“The witness further testified that on 25th October 2019, RBM received applications for the establishment of Letters of Credit on behalf of the claimant, Rock-Ba-Rock, Web Commercial and FF Trading. On 28th October 2019, Dr Kabambe, the erstwhile RBM Governor, instructed Mr Mathanga to deal with the applications on the same day.
“Mr Mathanga shared the application with Mr Wiyo, the former RBM Director of Financial Markets, for his attention. In turn, Mr Wiyo sent a memo to the Executive Director, Corporate Affairs and copied to the Governor and Deputy Governor, indicating that the Ministry of Agriculture had changed the way in which the FISP was administered, stating that the suppliers would now only be paid upon production of fertiliser coupons sourced from subsistence farmers.
“The witness stated that despite the new conditions not being met by the MBL prior to the 2019-2020 FISP season, and red flags raised by Mr Wiyo, following the change in the administration of the FISP programme, Mr Mathanga exercised judgement and discretion to effectively lift the conditions thereby exposing RBM to financial loss.
“The MBL, Rock-Ba-Rock, Web Commercials and FF Trading applied for Letters of Credit amounting to $6,540,000,000 for 2019-20 FISP season. A review of the documentation showed that the applicants were related parties however RBM did not perform due diligence to establish the shareholding and directorship of the applicants. Consequently, they all defaulted again in the 2019/2020 FISP season,” the judgement reads.
Adam further stated that ‘an in-depth assessment’ was required as Mathanga was impartial; and that RBM was reckless as it did not take necessary risk mitigation measures by ignoring obvious red flags such as dealing with four affiliated companies: a risk of over-concentration.
“As at 2018/2019, it was obvious to RBM that the risk of default had matured. Mr Wiyo advised RBM that the risk was too high and that the suppliers be advised to obtain financial accommodation from commercial banks, however, Mr Mathanga thought otherwise. He waived the requirement for redeeming coupons leading to a financial loss of K2.9 billion,” the judgement adds.
