Caleb M Fundanga: Improving the savings culture of Zambians Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official launch of CETZAM’s “Tusunge” Savings Product, Lusaka, 8 July 2011. *  *  *  The Board Chairperson of CETZAM Financial Services Limited, Mr Frederick Nduna; Members of the Board of CETZAM Financial Services Limited; The Chief Executive Officer of CETZAM Financial Services, Mr Dyson Mandivenga; Chief Executive Officers and Representatives of various organisations present; Distinguished Invited Guests; Members of the Press; Ladies and Gentlemen. Let me begin by thanking the Board of Directors and Management of CETZAM Financial Services Limited (CETZAM) for inviting me to this occasion, which marks the official launch of the “Tusunge” Savings Product. May I commend the Management of CETZAM for their foresight in developing this new savings product, which will go a long way towards inculcating a savings culture and enhancing financial inclusion within our financial sector. As a financial sector regulator, the Bank of Zambia is pleased to be associated with the achievements of the institutions we regulate, particularly where these developments lead to increased access to financial services for the Zambian public. This is what CETZAM is doing this morning. CETZAM’s focus to introduce innovative products is adequate testimony of its commitment to serve the financial needs of the Zambian people. I am informed that one of the key objectives of CETZAM Financial Services Limited is to provide sustainable microfinance services to the economically disadvantaged citizens of Zambia.

Chart: Excess return, cumulative annual since inception and quarterly The long-term return and the wide annual variations in the Fund’s value are largely dependent on financial market developments. The most important questions therefore relate to the Fund’s strategy. We have nevertheless continuously sought to exploit the scope for profitable active management. The contribution from active management to the overall annual return was set at 0.25 percentage point by the Executive Board in 2001, which may appear to be neither considerable nor demanding. According to the Ministry’s calculations, the expected real return on the Fund rose by 0.4 percentage point when the equity allocation was increased from 40 per cent to 60 per cent 10 . In this context, a contribution of 0.25 percentage point does not seem small. It is also fairly demanding to achieve this. The degree of efficiency in financial markets is generally high. In a model, Nobel prize winner William Sharpe divides investors into two groups: passive and active investors. In this model, all passive investors will achieve a return in line with the general market. The return earned by active investors will on average be lower than the market return because of higher management costs 11 . The idea that rational and profit-motivated participants should, on average, lose money is a paradox, as pointed out by Sanford Grossman and Joseph Stiglitz in 1980 12 . For investors and managers to expend resources on gathering and analysing information, opportunities for profit in the markets must be sufficient to cover their costs.