Background

Commercial banks - mostly subsidiaries of foreign banks - are the most dominant and oldest financial institutions in Zambia. The banking system is comprised of 14 commercial banks. Commercial banks hold about 90 percent of financial system assets and foreign equity participation is significant, accounting for three quarters of the banking system capitalisation. Commercial banks also have a wider outreach than any other financial institution and as of 2003 had a total branch network of 163.

A financial sector diagnostic identified poor credit culture as a general weakness of the sector and in particular for the banking sector. And a study by the Bank of Zambia on credit reference services found that insufficient credit available and a volatile macro economic environment, coupled with a poor credit culture, have increased the cost of credit and reduced the number of borrowers. The poor credit culture is attributed to the lack of precision in identifying deserving borrowers, which can be mitigated through the activities of credit reporting agencies (CRAs). The credit culture has implicitly forced the best credit risks to subsidize the worst credit risks, which has impinged on the general growth of credit and prevented the provision of diverse credit products that could have been introduced in Zambia

Project

The GOAL of this project is to deepen the banking sector by strengthening the credit culture.

The PURPOSE of this project is to develop a framework for best practice regulation and supervision of a CRA for Zambia that provides timely, accurate, and reliable data regarding individual and corporate payment and credit behavior.

The main BENEFIT of this project will be the establishment of a CRA in line with best practice regulation and supervision.

The key OUTPUTS of the project are: (i) Provision of the most effective regulatory and legislative options available to the BoZ to develop a regulatory framework for the CRA (a) in the short term, to enable the CRA to start operations quickly, and (b) in the medium to long term, if different, to provide a more robust framework; (ii) Recommendations on appropriate provisions and structure for the licensing agreement between the BoZ and the CRA; (iii) Recommendations on the appropriate information and frequency for reporting requirements of the CRA; (iv) Basic training material on use of reporting information; (v) Recommendations relating to the proposed service level agreement with the CRA; (vi) Agreed roadmap and action plan, with options, for a robust and sustainable CRA framework (including short-term and medium to long-term milestones).
The TORs for the consultant are: (i) Hold a workshop for all stakeholders to explain key issues surrounding CRAs and their operations and highlight international best practices on CRA establishment and operation based on experience of other countries; (ii) Determine the status of any initiatives taken in the creation of a CRA; (iii) Determine the status of initiatives already taken relative to regulation/ legislation that would provide the framework for a CRA; (iv) Determine if there are any restrictions to prevent the sharing of credit information between banks and between banks and non-banks; (v) Establish key outstanding issues that need to be addressed to enable the commencement of operations of the proposed CRA; (vi) Hold meetings with the BoZ, the Bankers

  Back  |    Top of page