Reserve Bank of Malawi Enacts Foreign Exchange Act, 2025

The Reserve Bank of Malawi (RBM) has recently introduced significant amendments to its Exchange Control Regulations (ECR) and enacted the new Foreign Exchange Act, 2025, which commenced on July 1, 2025. These regulatory shifts, aimed at enhancing foreign exchange management and financial stability amidst persistent economic challenges, mandate new requirements for foreign currency accounts, export proceeds conversion, and a revised licensing regime for foreign exchange dealers. Financial institutions and other regulated entities in Malawi are now faced with the urgent task of reviewing and updating their operational frameworks and compliance protocols to align with these evolving legal demands, a process further complicated by a legal challenge from the Bankers Association of Malawi against certain aspects of the new ECR.

The financial landscape in Malawi is currently undergoing a significant transformation, driven by a series of pivotal regulatory interventions from the Reserve Bank of Malawi (RBM). These interventions, primarily manifested through recent amendments to the Exchange Control Regulations (ECR) and the enactment of the comprehensive Foreign Exchange Act, 2025, signal a concerted effort by the central bank to address persistent foreign exchange shortages and bolster the nation's financial stability. The new regulatory framework, which became effective with the commencement of the Foreign Exchange Act, 2025 on July 1, 2025, introduces stringent requirements for the management of foreign currency, mandatory conversion of export proceeds, and a revised authorisation regime for foreign exchange dealers.

These developments are not merely administrative adjustments; they represent a fundamental shift in the operational parameters for banks, authorised dealers, and other entities involved in foreign exchange transactions. The "action required" directive from the RBM necessitates an immediate and thorough review of existing internal policies, systems, and compliance mechanisms by all affected practitioners. The urgency of compliance is underscored by the legal challenge initiated by the Bankers Association of Malawi (BAM) against certain provisions of the ECR, highlighting the practical complexities and potential points of contention arising from these new rules. This article provides a comprehensive overview of these critical regulatory changes, their underlying rationale, and the immediate implications for legal and financial professionals operating within Malawi's banking sector.

The Reserve Bank of Malawi operates under the authority of the Reserve Bank of Malawi Act, 1989 (Chapter 44:02 of the Laws of Malawi), which grants it broad powers to regulate the financial system, manage monetary policy, and maintain financial stability. Complementing this, the Banking Act, 1989 (and its subsequent amendments, including the Banking Act 2010), establishes the framework for the licensing, supervision, and regulation of banks and financial institutions in the country, ensuring the protection of depositors' interests and the soundness of the banking sector. Historically, Malawi has maintained a system of exchange controls, which the RBM has periodically adjusted to respond to prevailing economic conditions, particularly concerning foreign currency availability and balance of payments.

In recent years, Malawi has grappled with a severe balance of payments crisis, characterised by acute foreign currency shortages, a depreciating Kwacha, and high inflation. These macroeconomic pressures have significantly impacted the financial sector, leading to increased risks, including a deterioration in asset quality as evidenced by rising non-performing loan ratios. In response to these challenges, the RBM has intensified its regulatory oversight, issuing prudential guidelines on asset quality and capital adequacy requirements, aligning with international standards such as Basel II, to strengthen the resilience of the banking system. It is against this backdrop of persistent economic vulnerability and a proactive regulatory stance that the latest amendments to the Exchange Control Regulations and the introduction of the Foreign Exchange Act, 2025, must be understood.

The Reserve Bank of Malawi's recent regulatory actions have significantly reshaped the foreign exchange landscape. Key among these are the amendments to the Exchange Control Regulations (ECR), which were gazetted in December 2024 and further refined in March 2025. These amendments introduced new requirements for both private and public institutions managing foreign currency. Notably, public institutions and organisations are now mandated to open foreign currency accounts with the RBM for all foreign currency receipts, and are required to convert 80 percent of incoming funds into local currency, retaining only 20 percent in foreign currency. Access to these retained funds is subject to strict guidelines, including specific procedures for withdrawals and transfers, with funds used within Malawi requiring conversion to local currency at the official exchange rate.

Further adjustments in March 2025 saw a reduction in the mandatory conversion ratio on export proceeds from 30% to 25% for general exporters, with exemptions for manufacturers exporting manufactured goods meeting specific RBM criteria. Additionally, the regulations for Non-Governmental Organisations (NGOs) and public sector foreign currency receipts were refined, subjecting NGO and public body funds to mandatory conversion at the point of use rather than receipt, and adjusting the mandatory conversion rate for NGO foreign currency-denominated accounts from 70% to 50%. A critical new measure is the introduction of a Telegraphic Transfer (TT) verification requirement for importers, designed to ensure that imports are financed through formal banking channels.

Adding another layer of complexity, the Foreign Exchange Act, 2025, commenced on July 1, 2025. This new Act supersedes previous foreign exchange legislation, and RBM Circular No. 02/2025 provides a transition period, stipulating that all extant authorisations and licenses to deal in foreign exchange will remain valid until June 30, 2026. This transition period is crucial for authorised dealers to align with the new licensing regime, which proposes variations in tenure, moving from perpetual to one-year authorisations for commercial banks and tourist operators, and from three years to one year for foreign exchange bureaus and money transfer operators.

The implementation of these regulations has not been without challenge. The Bankers Association of Malawi (BAM) has initiated court proceedings, seeking a judicial review of several aspects of the December 2024 Exchange Control Regulations. This legal action highlights the operational concerns and potential friction between the RBM's regulatory objectives and the practical implications for financial institutions. The RBM's easing of conditions for diaspora foreign currency denominated accounts (FCDAs) in February 2026, allowing monthly hard currency withdrawals up to 50 percent of the account balance without prior approval, demonstrates a degree of flexibility in response to market dynamics and a commitment to incentivise remittances. However, the ongoing legal challenge and the comprehensive nature of the new Foreign Exchange Act, 2025, underscore the dynamic and sometimes contentious environment in which these regulations are being implemented.

The recent regulatory changes by the Reserve Bank of Malawi, encompassing amendments to the Exchange Control Regulations and the commencement of the Foreign Exchange Act, 2025, present a critical juncture for all financial institutions and authorised foreign exchange dealers in Malawi. Practitioners must prioritise a comprehensive review of their current operations, internal controls, and compliance frameworks to ensure full adherence to the new mandatory conversion ratios, foreign currency account management rules, and the revised licensing regime. The transition period for existing licenses, extending until June 30, 2026, offers a window for adaptation, but proactive engagement with the new requirements is essential to avoid penalties.

Furthermore, legal professionals should closely monitor the ongoing judicial review initiated by the Bankers Association of Malawi, as its outcome could influence the interpretation and enforcement of certain ECR provisions. Beyond immediate compliance, banks and financial institutions should consider the broader strategic implications of these regulations, particularly in light of Malawi's persistent foreign exchange challenges. Adapting to the new normal of stringent foreign exchange management will require robust internal systems, enhanced reporting capabilities, and a deep understanding of the RBM's evolving policy objectives to navigate the complex regulatory landscape effectively.