Mi­cro-fi­nance sec­tor serv­ing credit needs of ma­jor­ity of Zam­bians – FSD

Zambian Business Times - - FRONT PAGE -

The first ever credit sec­tor re­port done by the Bank of Zam­bia - BOZ cor­rob­o­rat­ing with Fi­nan­cial Sec­tor De­vel­op­ment Zam­bia – FSD, has re­vealed that the mi­cro - fi­nance sec­tor is serv­ing 42% of the en­tire for­mal sec­tor in Zam­bia.

Find­ings of the Credit Mar­ket Mon­i­tor­ing Re­port - CMMR made avail­able to the Zam­bian Busi­ness Times by FSD Zam­bia, re­vealed that the coun­try’s for­mal Zam­bian credit mar­ket com­prises the bank­ing and the non-bank fi­nan­cial in­sti­tu­tions - NBFIs sec­tors. As at 31 De­cem­ber 2016, the bank­ing sec­tor com­prised 18 banks while the NBFI sec­tor com­prised 47 fi­nan­cial in­sti­tu­tions, 13 of which were de­posit-tak­ing the re­port re­vealed.

The FSD led re­port, based on data com­piled by BOZ for the last quar­ter (Q4) of 2016 re­vealed that com­mer­cial banks ac­counted for 82.2% of gross to­tal as­sets ( loans) of fi­nan­cial ser­vice providers un­der the su­per­vi­sion of the BOZ and pro­vided most of the na­tion’s credit. Although most credit ( by value) was pro­vided by com­mer­cial banks, other fi­nan­cial in­ter­me­di­aries ex­tended a sig­nif­i­cant por­tion of credit to some mar­ket seg­ments.

The re­port in­di­cated that, house­holds and small busi­nesses re­lied heav­ily on mi­cro-fi­nance in­sti­tu­tions. Com­pared to credit ex­ten­sion by value, credit ex­ten­sion by vol­ume (mea­sured by the num­ber of credit agree­ments) in the mar­ket was spread more evenly across sec­tors; other fi­nan­cial and mi­cro-fi­nance in­sti­tu­tions pro­vided 64.0% of the to­tal num­ber of credit agree­ments in the mar­ket while banks pro­vided 36.0%.

It was also re­vealed that the Bank of Zam­bia has more work to do as far as its role in fa­cil­i­tat­ing credit ac­cess to the ma­jor­ity of Zam­bians at both in­di­vid­ual and lo­cal com­pa­nies level. The re­port showed that when com­pared to other coun­tries, the amount of credit in the Zam­bian econ­omy is low, with credit to the pri­vate sec­tor com­pris­ing only 15.7% of GDP (com­pared to the Sub-Sa­ha­ran Africa - SSA av­er­age of 29.3% and the world av­er­age of 87.7%).

For in­stance, in 2015, only 4.8% of Zam­bians bor­rowed from fi­nan­cial in­sti­tu­tions, which was sig­nif­i­cantly lower than the SSA av­er­age of 6.3% and the world av­er­age of 10.7%. Con­sid­er­ing that credit plays an im­por­tant role in fa­cil­i­tat­ing both eco­nomic growth and re­duc­ing poverty, the anal­y­sis of credit mar­ket trends cre­ates a ba­sis upon which to de­sign ap­pro­pri­ate credit pol­icy in­ter­ven­tions aimed at spurring the sup­ply of credit to de­sired lev­els.

Some play­ers in the Zam­bian Fi­nan­cial sec­tor have in­di­cated to the ZBT re­search team in sep­a­rate in­ter­views that they would like to see a sit­u­a­tion where the Bank’s and NBFIs su­per­vi­sion and reg­u­la­tory unit needs to be delinked from the cen­tral bank so that there are clear lines of re­spon­si­bil­ity for steer­ing the mon­e­tary pol­icy sep­a­rate from fi­nan­cial sec­tor su­per­vi­sion.

This pro­posal is in line with mod­ern trends from the U.K were the cur­rent Zam­bian bank­ing and fi­nan­cial ser­vices sys­tem was orig­i­nated and modelled from. The UK had ini­tially set up the Fi­nan­cial Ser­vices Author­ity - FSA which has later dis­solved af­ter the credit crunch and led to a fur­ther split of the FSA role into the Fi­nan­cial Con­duct Author­ity and Pru­den­tial Reg­u­la­tory Author­ity.

The Kwacha has been a vic­tim of lack of clear ac­count­abil­ity on which in­sti­tu­tion ex­actly is re­spon­si­ble for its value preser­va­tion. The cur­rent sys­tem al­lows for the cur­rent ban­ter of re­spon­si­bil­ity be­tween the Bank of Zam­bia’s role for mon­e­tary and price sta­bil­ity with the Min­istry of Fi­nance’s fis­cal pol­icy co­or­di­na­tion role. The sep­a­ra­tion is ar­gued as one that would give the cen­tral bank a clear and un­equiv­o­cal role to take full re­spon­si­bil­ity for mon­e­tary pol­icy for­mu­la­tion, im­ple­men­ta­tion and then co­or­di­na­tion with all other rel­e­vant gov­ern­ment min­istries and agency’s

Zam­bia needs to strive to get an “in­de­pen­dent” and more fo­cus Cen­tral Bank that will en­sure there is no­table credit growth in both vol­ume and value, drive fi­nan­cial in­clu­sion ag­gres­sively as well as be­come a model in SSA. Banks and NBFIs im­por­tance, is in their ex­ten­sion of credit to com­mu­ni­ties they serve and there is need for the coun­try to be top first in SSA as its moves along its de­vel­op­ment curve.

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