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

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.