Banking Sector Reform and Financial Regulation: It’s Effects on Access to Financial Services by low Income Households in Zambia

Publication Date: 7 Sep 2004
Published by: IDPM - Institute for Development Policy and Management
Document Type: Paper

View this Document   Email this Document

Can the Zambian economy be pulled up by developing the informal sector?

This paper examines the economic reforms that the Zambian Government undertook in 1991 that led to decentralization, liberalization and privatization of the financial sector. The paper argues that the Government’s liberalization policy resulted in decreased access to financial services for low income households and the rural poor.

The paper makes the following comments:

• Liberalization initially led to the proliferation of financial institutions in the financial sector. However, it also led to a number of bank failures.
• Access to financial services was constrained by the closure of unprofitable rural commercial bank branches as well as a number of government-owned financial institutions with a pro-poor focus.
• The reforms resulted in the shrinking of the formal employment sector and an increase in informal sector employment.

The paper:

• Looks at Zambia’s economic performance since the early 1990s and financial liberalization;
• Provides an overview of the Zambian financial sector;
• Describes Government led initiatives in the provision of financial services;
• Outlines the banking sector reform measures;
• Assesses the impact reforms have had on the provision of financial services.

It concludes that without a more proactive stance by Government to provide financial services to low income households and the rural poor, the private sector is unlikely to take up the challenge and recommends policy support to the informal sector, including the development of specialized financial institutions, such as microfinance institutions (MFIs).