Microfinance Regulation and Supervision in Zambia

This paper highlights the main problems caused due to lack of regulation, and raises the key questions that the sector faces if regulation is brought on.

The supervision of the financial system in Zambia is handled by:

• The banking supervision department commercial banks;
• Non-bank financial institutions (NBFIs) supervision department all NBFIs including MFIs;
• Pension and insurance firms other authorities.

The microfinance sector in Zambia is ungoverned, and hence risky, with significant gaps in accountability, transparency, stability and efficiency. This has resulted in:

• Erratic reporting by MFIs to clients and investors;
• MFIs not focusing on transparency, efficiency, and sustainability;
• Certain donors giving out money without sufficient safeguards.

The problems arising out of lack of regulation have created unstable conditions for the borrowers and the potential savers, and hence there is an immediate need for attention to regulation.The paper further highlights the key regulatory issues that need to be addressed:

• What are the options for microfinance regulation and supervision?
• What services should be allowed under microfinance licenses?
• Should MFIs be allowed to accept deposits from the public?
• Who should bear the cost of regulating the MFIs?

Concluding, the paper notes that:

• MFIs promise to be a fundamental delivery vehicle of financial services to the poor in Zambia;
• With the goodwill exhibited by the donors, government agencies, and the players themselves, it is a good time to develop a regulatory and supervisory framework to accelerate the development of the sector.