##mediating between those with surplus resources ( depositors ) and those in need of resources ( investors ). in view of the foregoing, effective and efficient supervision is crucial to limit the risk of loss to depositors, henceforth maintaining public confidence in the financial system. in response to the liberalised environment, there has been a proliferation of linkages between institutions operating in various segments of the financial sector and a growing number of financial mergers and acquisitions, thus creating, in the process, huge financial conglomerates. for instance, banks and insurance companies are searching for growth through the diversification of their activities in such a way that they can no longer be considered as homogeneous institutions falling within the scope of one economic sector and one supervisory system! these conglomerates aim to exploit the synergies that exist among banking, insurance and investment. this market evolution towards huge financial conglomerates, with integrated product development is slowly blurring the traditional boundaries between banks and non - bank financial institutions, on the one hand, and the supervision of these institutions, on the other. in spite of these trends in the international financial markets, regrettably, supervisory systems, in our sub - region, are mainly structured along the traditional boundaries demarcating banks, insurance companies, investment and micro - finance institutions. these integration changes represent major challenges to the supervisors of the different sectors, especially as the financial institutions become more complex in their structures and operations. notwithstanding the foregoing, the sluggish growth of our economies in the sub - region has also created a difficult operating environment for financial institutions, especially banks. as a result, this has contributed to the mushrooming of non - bank financial institutions, such as, micro - finance. it is a fact that the financial sector in our sub - region is dominated by commercial banks, which have continued to service only a small section of the population. the majority of the people are denied access, largely, due to numerous reasons, including perceived risks, high costs involved in dealing in small transactions and the inability to provide marketable collateral for loans. it is against this background that financial sector supervision should also be directed at financial institutions that pose the greatest risks, such as, non - bank financial institutions. in this regard, the adoption of the risk - based approach allows the supervisor to devote more supervisory effort to those areas that have a high - risk profile. this therefore, entails that supervisory authorities should shift their focus from the traditional capital, assets, management, earnings, liquidity

caleb m fundanga : supervision of non - bank financial institutions speech by dr caleb m fundanga, governor of the bank of zambia, at the opening ceremony of a mefmi / acbf / imf - east afritac regional workshop on “ supervision of non - bank financial institutions ”, lusaka, 14 february 2005. * * * • the executive director, mefmi, dr. maruping • the executive director, africa capacity building foundation • representative from the imf • distinguished workshop participants • ladies and gentlemen on behalf of the macroeconomic and financial management institute for eastern and southern africa ( mefmi ), the african capacity building foundation ( acbf ) and the east african technical assistance centre ( afritac ), i wish to welcome you all to this important workshop and to the beautiful city of lusaka. may i also welcome our distinguished resource persons and thank them for accepting our invitations. i hope their participation will enrich the deliberations of this workshop as well as enhance the knowledge of the participants. having perused through your programme, i noticed that you have a tight schedule. however, i urge all of you to find time in your busy schedule to visit some interesting places that the city of lusaka has to offer, including shopping malls, museums, cultural villages, to mention but a few. allow me also to thank the executive director of mefmi, dr. maruping, for having invited me to officiate at this regional workshop on “ supervision of non - bank financial institutions ”. i am reliably informed that this workshop is organised by mefmi, in conjunction with the imf through the east afritac and the acbf. the workshop is indeed timely as it is aimed at building sustainable capacity for effective financial sector supervision at a time when our region is beset with a lot of non - bank financial institutions that are financially constrained. i, therefore, wish to commend these organisations for their collaborative efforts and hope that the cooperation exhibited by these institutions through the sponsorship of this workshop will not just end here, but will also grow from strength to strength. ladies and gentlemen the liberalisation and continued reforms of the financial sectors in our countries has brought interesting challenges to supervisors and regulators, alike. of particular importance, are the reforms currently taking place in the areas of regulation and supervision of financial institutions. as you are well aware, in a liberalised environment financial institutions play a critical role in the allocation of resources through inter