The Regulation of Microfinance in Zambia

Publication Date: Mar 2006
Published by: Microfinance Regulation and Supervision Resource Center
Document Type: Paper (PDF)

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Will the new regulatory reform help Zambia improve access to financial services among the poor?

This paper attempts to discuss the microfinance regulations in Zambia and also its impact on the overall microfinance industry. Bank of Zambia, while initiating the regulations, had three objectives:

• Develop regulations, prudential reports and systems for effective supervision of MFIs;
• Develop Bank of Zambia’s capacity to effectively supervise microfinance institutions (MFIs);
• Educate MFIs to facilitate understanding and compliance with regulatory and supervisory requirements.

The paper discusses the following different legal frameworks:

• The Banking and Financial Services Act;
• The microfinance regulations;
• Rationale for government regulations.

It further elaborates on the analysis of the regulations:

• Attainment of objectives:
  • Maintain financial stability;
  • Safeguard depositors’ funds;
  • Protect investors;
  • Improve integrity and credibility of licensed MFIs;
  • Set minimum performance standards and reporting requirements.
• Benefits:
  • Reduce ambiguity;
  • Make information readily available to public;
  • Have high capital levels.
• Effects on competition:
  • High capital requirement leads to fewer MFIs obtaining license;
  • Heavy dependence on grants leads to lower financial viability of business.
• Compliance costs:
  • Fees to obtain license and annual charges;
  • Cost incurred to meet license requirements;
  • Cost to train staff.

The paper concludes by stating that Government’s desire to regulate MFIs was primarily to create an enabling environment for MFIs to maximize outreach in a sustainable basis so as to increase financial access by poor households, thus reducing poverty levels in Zambia.