Financial Sector Reforms and Savings Mobilization in Zambia

Why has savings mobilization failed?
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This paper explores the relationship between financial sector reforms and savings mobilization in Zambia. It considers the characteristics of banks and non-banking financial institutions (NBFI), especially microfinance institutions (MFIs), and savings levels and problems associated with relatively poor performance of savings.

The authors provides insight into macroeconomic conditions and financial health of leading Zambian banks and NBFIs in pre as well as post financial reform scenario. Some of the reasons they mention for the failure of these institutes are:

  • Interest rate control;
  • Inefficient payment system;
  • Inadequate legal framework;
  • Political interference;
  • Directed credit policies.

Despite reforms, these institutions fail to inspire confidence in Zambians who prefer to invest their savings in Swiss banks, foreign currency denominated financial assets, real estate or foreign banks located in Zambia, most of which are out of reach of, or deliberately exclude, the poor population.

The author believes that over dependence of Zambian economy on copper mining led to the under development of other sectors. This, coupled with low savings mobilization and high incidence of decline in health status (over 20% of 15 to 49 year old Zambians are infected with HIV/AIDS), has created a disastrous situation.

The paper concludes with a set of policy guidelines for:

  • Strengthening savings mobilization;
  • Improving macroeconomic stability;
  • Improving regulatory framework for MFIs;
  • Encouraging international and private sector initiatives;
  • Highlighting the expected effect on poverty-reducing growth.

About this Publication

By Maimbo, S. & Mavrotas, G.