Caleb M Fundanga: An appeal to the Zambian microfinance industry to offer
affordable financial services
Opening speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the 8th Annual
General Meeting of the Association of Microfinance Institutions of Zambia, Lusaka, 7 July 2006.
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The Chairperson;
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Senior Government Officials present;
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His Excellencies, member of the diplomatic corps present;
• Members of the Association of Microfinance Institutions of Zambia (AMIZ);
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Distinguished Ladies and Gentlemen
It gives me great pleasure and gratitude to be amongst you this afternoon to officiate at the 8th Annual
General Meeting of the Association of Microfinance Institutions in Zambia.
Mr Chairperson, as you are aware, micro-lenders are credit providers to people with limited or no
access to traditional credit sources. It follows therefore that the primary impact of microfinance in
Zambia has been the broadening of access to formalised financial services particularly to many people
both in urban and peri-urban areas. The microfinance sector in Zambia has grown rapidly in recent
years in terms of the number of service providers as well as outreach which is currently estimated at
over 60,000 persons.
Ladies and Gentlemen, in recognition of the need to provide a conducive regulatory environment
which promotes sustainability, accountability and transparency in the conduct of micro finance
business, the Bank of Zambia, in consultation with other key stakeholders in the microfinance sector,
introduced the Banking and Financial Services (Microfinance Regulations) of 2006 which came into
force on 31 January 2006.
While the Regulations may be focusing on deposit taking microfinance institutions and relatively large
non-deposit taking microfinance institutions, it is envisaged that several other smaller players in the
industry will continue to be regulated under the Cooperative Societies Act and the Money Lenders Act.
The Bank of Zambia will be holding a workshop for microfinance institutions and other stakeholders
during the second half of 2006 to highlight the salient features of these Regulations and the
importance of operating microfinance institutions to properly register their businesses.
Ladies and Gentlemen, we are aware that lending of small sums of money to a large number of
individuals maybe costly, and this may compel microfinance institutions to charge high lending interest
rates than commercial banks and other financial institutions. However, it is also important to note that
high lending interest rates can lead to high levels of delinquency.
It is in this regard that the Bank of Zambia is concerned about the levels of lending interest rates
charged by most financial institutions in Zambia, microfinance institutions included. With the
achievement of relative macroeconomic stability in the recent years as evidenced by a significant
reduction in the inflation rate to 8.5 percent as at June 2006, it is the expectation of the Bank of
Zambia that all prudent lending institutions would make downward adjustments to their lending interest
rates. Some commercial banks have taken the lead by reducing their base lending rates and we
expect microfinance institutions will follow suit so that many more people can have access to
affordable financial services.
Mr Chairperson, Distinguished Guests, let me take this opportunity to inform you that following the
coming into force of the Credit Reference Services (Licensing) Guidelines and the Credit Data
(Privacy)
Code on 30 January 2006, a credit reference bureau has since been issued with an
operating licence to provide services to the Zambian market. Although the bureau will initially provide
services to the banking sector, it will subsequently extend its services to other credit providers, such
as, microfinance institutions. This will help in reducing credit risk through the availability of a widely
accessible database on the loan repayment profile of borrowers. This should also provide another
incentive for lowering of interest rates.
Ladies and Gentlemen, one way of addressing concerns of limited capital and dependence on donor
support to the industry is by promoting linkage banking where microfinance institutions not only
maintain accounts with commercial banks but also access funds from their respective commercial
banks for on lending.
Before I conclude, allow me to mention one area of concern not only to the microfinance sector, but
the entire financial sector in general, and that is money laundering. In the absence of effective
cooperation among the various players in the financial sector, there will be no realistic change of
defeating or significantly curbing money laundering. It is therefore imperative that the microfinance
sector becomes more alert and report suspected cases of money laundering to the Anti-Money
Laundering Investigations Unit for corrective action. Money laundering, if left unchecked can erode the
integrity of our financial system.
Ladies and Gentlemen, in conclusion I wish to state that the Bank of Zambia is committed to the
development of a robust financial sector in Zambia, and I would therefore like in this particular
instance, to call upon the microfinance industry to play its role effectively by expanding its outreach so
that more poor people can have access to financial services.
I implore you to discuss issues openly and now declare this 8th Annual General Meeting of AMIZ
officially opened.
Thank you and God bless you.