range and reach of financial services that are available to our people. still a lot remains to be done to extend financial services to the majority of our people, particularly those that are economically active and to foster ongoing sustainability of our financial institutions. it is against this background that bank of zambia accepted your invitation to present the keynote address as a way of marking our commitment to ensuring that the financial system caters for all segments of the population. distinguished participants, the rapid growth of islamic finance raises a series of important questions, such as whether islamic finance should be regulated differently from conventional finance. because modern islamic finance is relatively new to most countries, rules for financial accounting, bank governance, and lending standards are continually evolving as business practices become more refined. bis central bankers ’ speeches ladies and gentlemen, you may wish to note that since october 2008, when the bank of zambia hosted the first ever islamic banking conference here in lusaka, work has been ongoing to develop a regulatory framework for islamic banking. the bank has held several consultations both internally and externally and has also subjected the islamic banking framework to expert review by internationally renowned islamic banking experts. the framework is now in its final stages and is expected to become operational before the end of the year. we are aware that the financial sector has waited for so long to start offering islamic banking products and services. as a central bank, we assure you that the regulatory framework is receiving active attention and the market will be informed once all the formalities have completed. ladies and gentlemen, although the muslim community constitutes only an estimated 12 per cent of zambia ’ s population, the community constitutes high value businessmen who control a very significant share of the zambian economy in various sectors. their exclusion from the financial sector therefore, has significant impact on the bank of zambia efforts on financial inclusion. you may wish to note that the majority of the muslim community shun the use of commercial banks due to lack of banking products and services that are compliant to their religious ethos and yet they control a significant share of economic activities in all the major sectors. the introduction of islamic finance may provide a solution to injecting the much needed liquidity currently being kept in homes on account of lack of shariah compliant banking products and services. it is the firm belief of the bank of zambia that a robust regulatory framework will not only seek to expand access to finance but will also have positive effects on the overall interest rates in the money markets and ultimately affect the rate at which financing for economic activity is being

favourable in 2010 due to the rebound of copper prices on the international market as well as the expected increase in copper production as some mines increase production to full capacity and the resumption of production at some mines. the rebound in the international price of copper in the second half of 2009 and the return of foreign portfolio flows resulted in an appreciation of the exchange rate of the kwacha by 4 % at the end of the year. however, fiscal performance in 2009 was weak, mainly due to the global economic crisis, which reduced domestic revenues. despite this, government remained within the programmed domestic financing for the year. december - 2009 inflation revised to 12. 0 % in the budget speech for 2010 presented to parliament on october 9, 2009. distinguished members, the financial sector has remained resilient despite the effects of the recent global financial crisis. currently, the zambian financial sector is characterized by high liquidity levels, reflecting tighter lending standards in the wake of the lessons from the global financial crisis leading to marked decline in private sector lending. as a result, the demand for the relatively risk free government securities has increased causing a decline in yield rates on government securities. the decline in government securities yield rates and relatively low inflation experienced since the beginning of the year should contribute to a decline in banks lending rates and thus stimulate borrowing by the private sector. i am aware that the high interest rates in the country pose a very big challenge for our manufacturers to borrow for recapitalisation and expansion of their businesses. access to finance is essential for the economy to grow and therefore it is necessary that we find ways that could reduce the cost of borrowing to allow key sectors to expand. ladies and gentlemen, i wish to reiterate that the economic fundamentals point to a reduction in lending rates. in a liberalised financial market environment, the central bank contributes to the reduction in lending rates by reducing inflation. the government also contributes by implementing prudent fiscal policy, thus limiting the incidence of crowding out of the private sector by the government. as a result, yield rates on government securities fall. as inflation and yield rates on government securities decline, lending rates are also expected to decline in the medium to long term as the two provide the relevant opportunity cost of lending to the private sector. another factor that commercial banks take into consideration in determining lending rates is the default risk arising from the poor credit culture in the economy in general. in resolving the problem of poor credit culture, the central bank through the financial sector development