Zambian Laws Affecting Microfinance: Review and Recommendations for Reform

This paper analyzes the impact of Zambia's legal framework on microfinance activities, and identifies legislative changes that would help microfinance in Zambia gain legal recognition, liberalize and expand.

The paper states that:

• Microfinance institutions (MFIs) need to integrate themselves into local financial markets and mobilize private capital;
• This needs an appropriate and flexible legislative environment;
• Stakeholders and experts need to:
  • Review the existing corpus of relevant laws, regulations and court decisions to consider their content, implementation, and their impact on microfinance;
  • Identify areas where regulation limits MFI growth, and propose amendments that would open up the sector.

The paper reviews the following regulations in Zambia:

• Financial sector legislation such as the Banking and Financial Institutions Act;
• Legislation governing the establishment, form, and incentive structure of financial entities;
• Commercial legislation that impacts MFIs;
• Statutes, regulations, and case laws concerning enforcement of judgments and debt.

The paper suggests the following two types of reforms, immediate and long-term:

• Immediate reforms:
  • Revision of the Cooperatives Act in order to bring credit unions under central bank supervision;
  • Exemption of MFIs from the usury controls contained in the Money Lenders Act;
  • Revision of the Banking and Financial Services Act in order to define the status of MFIs within the formal financial markets.
• Longer-term legal reforms:
  • Those that deal with central bank autonomy, protections for low end borrowers, secured transactions legislation, bankruptcy rules, and debt enforcement.