##saka at which views of various stakeholders on what needs to be done to address binding constraints to the sme sector were considered. the fact that the discourse on sme financing continues underpins two significant positions. firstly, it gives recognition to the fact that we are all aware of the potential of this sector in generating employment, promoting economic growth and reducing existing poverty levels. in low income sub - saharan african countries, smes and micro - enterprises make up about 90 % of all enterprises. however, due to the various constraints they face, their overall contribution to gdp can in some countries be as low as 20 % although estimates show that this could be scaled up to 60 % with the greater realization of the sector ’ s potential. contribution to employment can be as high as 63 %. for most low income countries, smes are the main bis central bankers ’ speeches source of jobs and income after subsistence agriculture. particularly significant is that they are a great source of livelihood for women who own more than half of smes while over 70 % of africa ’ s rural population survives through the formal and informal sme sector. there is little doubt, therefore, that smes form a solid basis for sustainable economic development on our continent. secondly, the continued discourse on smes reminds us of the possibility that we have probably done more talking about the problem than fixing it. although the development of smes is varied extensively across africa, what is clear is that in most countries a major obstacle to their growth is the lack of sustainable and cost effective financial products. south africa and mauritius in this region and north africa have done a commendable job in developing flourishing smes sectors. part of the reasons for success in these countries can be attributed to their modern financial systems and clear policies that support the growth of the sector. however, the fact still remains that for most african countries, a sustainable way of financing smes has yet to be found. as i mentioned earlier, the programme for this meeting is broad and extensive. but i would wish to draw your attention to a number of broad areas of reflection which i believe can help in delivering greater finance to the sector. the first area is that there is a need to accept that not all banks can or should even be expected to provide sme financing products. the cost structure and skills orientation simply make some financing institutions completely unsuitable to deliver sme products cost effectively. the implication of this is that greater effort must be placed on developing financial institutions that see sme financing as the

plan, facilitated the establishment of a credit reference bureau which collects information on borrowers to be used by credit providers. furthermore, in order to increase competition in the financial sector the bank of zambia has registered a number of commercial banks and other financial institutions to operate in zambia. in 2009, the number of registered banks increased from 14 to 17. in addition, the bank of zambia is developing a framework to migrate from the use of monetary aggregates as the anchor of inflation expectations to the use of interest rates. inflation expectations are fundamental to the process of interest rate determination and low inflation expectations are entrenched not only by the implementation of appropriate monetary and fiscal policies at any given time, but also by past inflation developments. low inflation expectations were becoming entrenched in 2008 following two consecutive years of single digit inflation in 2006 and 2007. however, towards the end of 2008, the increase in food prices and the impact of the global financial crisis caused inflation to increase to a double digit figure of 16. 6 %. in spite of this, the prospects for low inflation, now look positive, creating an appropriate environment for interest rate reduction. mr president, as you may have noticed from the newspapers in the recent days, a number of banks have reduced their lending base rates though not as much as we would like to see. we hope that this is just a start, and that banks will continue adjusting their rates downwards consistent with developments in other macroeconomic indicators. distinguished members, allow me to comment on the statutory instrument regarding the us $ 5000 over the counter limit on deposits. these regulations are meant to encourage the use of the banking system in order to assist in curbing money laundering. doing away with this would deprive the central bank of a mechanism for detecting fraudulent activities and create a healthy environment for money to be laundered in our financial system. ladies and gentlemen, the bank of zambia recognises the importance of long term finance for growth. we are also aware of the important role that the development bank of zambia and others institutions that provide long term finance can play in this process. it is for this reason that the bank of zambia monitors the performance of these institutions to ensure that they are financially viable to be able to play this important role. rather than thinking of government recapitalising these institutions, we should think more in terms of developing the capital markets to enable these institutions raise resources for long term financing from the private sector. on the issue of the foreign exchange market, i wish to emphasis