The Regulation of Microfinance in Zambia

Paper presented at conference "Microfinance Regulations: Who Benefits?" March 15-17, 2010
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This paper reviews the regulatory and supervisory framework for microfinance in Zambia.

The Bank of Zambia undertook microfinance regulation in two phases. The first phase aimed to understand the market and its players, and develop an appropriate regulatory and supervisory framework. The second phase focused on developing and implementing regulations and establishing and commencing operation of a supervisory framework for MFIs. The process culminated in the development of the Banking and Financial Services (Microfinance) Regulations, which became law on January 30, 2006. Outcomes of microfinance sector regulation have been mixed. Benefits include:

  • Clarification of MFI legal position;
  • Treatment of insurance fees, compulsory and forced savings as deposits;
  • Increased confidence in the sector;
  • Increased transparency and capital levels;
  • Increase in number of licensed institutions;
  • Reduction in level of customer exploitation.

Microfinance regulation has also had negative effects. These include high compliance costs and decreased outreach. Regulations have placed restrictions on the types of MFI products and services. There has been an increase in concerns regarding rising levels of over-indebtedness.