With respect to money market developments, commercial banks lending rates have been declining but not at the rate as inflation or treasury bill rates. Commercial banks nominal average lending rate declined from 33.9% in December 2005 to 27.6% in December 2006 and stood slightly lower at 27.3% in February 2007. This is still on the high side for most entrepreneurs. However, there are positive indications from commercial banks due to the growing confidence in the economy and lower lending rates are therefore expected given the current environment of low inflation. Mr. Chairman, in the Non-Bank Financial Institutions (NBFIs) sector, institutional growth has continued to be a challenge. The number of NBFIs supervised by the Bank of Zambia has increased in the last 6 years, by 15% from 52 in 2001 when a specialized NBFIs department was established, to 60 today. The establishment of this specialised department was in response to: •  2  the expansion of the NBFIs sector;  BIS Review 150/2007  •  the increased innovation in the sector; and  •  the increase in the number of NBFIs supervised by BoZ after amendments to the Banking and Financial Services Act (BFSA) in 2000. The increase in the number of new entrants in the NBFI sector has been due to the stability in the macro-economic environment in general and the financial sector in particular. To illustrate this further the BOZ receives on average about 7 applications per quarter, mainly from bureaux de change.

Since then, the financial sector has been liberalized while simultaneously strengthening the regulatory framework. Concerned with the limited contribution of the financial sector to economic development, the Government devised and formulated policy mechanisms for addressing a number of identified obstacles within the framework of the Poverty Reduction Strategy Paper (PRSP) whose implementation started in 2002. In line with the PRSP framework, the World Bank and the International Monetary Fund undertook an assessment of the financial system through the Financial Sector Assessment Programme (FSAP) which was complimented by our own review. Some of the principle areas of concern identified included: •  Low financial intermediation with limited access to financial services, especially for the rural and peri-urban population and the low-to-middle income earners;  •  Poor credit culture in the market;  •  Multiple and potentially conflicting roles of the government in the financial sector;  •  Weak regulatory framework for non-bank financial institutions, insurance and pension funds;  •  Undeveloped money and capital markets; and  •  Limited long-term development and housing finance. In recognition of the strategic importance of the financial sector to the country’s development and poverty reduction efforts, the Zambian government launched the Financial Sector Development Plan (FSDP) in 2004 to address weaknesses that had been identified in the financial sector. The FSDP is therefore a comprehensive strategy that is aimed at achieving a financial system that is sound, stable and market-based, that would support efficient resource mobilization necessary for economic diversification and sustainable growth.