IN the last two years, the Patriotic Front (PF) government seems to have effectively utilised the Bank of Zambia (BoZ) as a major channel of economic transformation.
With the advent of the new administration in September 2011, the Central Bank became a critical driver of change and has since then recorded undeniably more innovations than any other government wing.
By December 2011, the BoZ had revised the minimum statutory capital requirement from K12 million or US$2.3 million to about K104 million for local commercial banks and to about K520 million or $100 million for foreign banks.
The reserve ratio for both local and foreign currency deposits were pegged at five per cent from eight per cent, while the core liquid assets ratio came down to six per cent from nine per cent.
Systematically, the BoZ introduced the Policy Rate in March last year, while transforming the Base Lending Rate (BLR) into a mere lending interest rate.
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On December 19, 2012, the BoZ announced the capping of the effective annual lending interest rate that commercial banks can charge any borrower.
The BoZ moved a step further and introduced a cap on the effective annual lending interest rates that non-bank financial institutions it licenses charge their customers.
The single most important innovation the Central Bank has implemented is the Kwacha rebasing whose upshots affect all Zambian nationals and residents.
Effective January 1, 2013, Zambia has had a new currency.
The BoZ had become more proactive, the performance, which has enabled it to achieve all these feats.
For this year, it has introduced the Cheque Truncation System (CTS) for all commercial banks whose implementation, however, seems to have not achieved the desired goals and I will soon dedicate a week to look at that.
The government’s main headache in this sector was the sky-rocketing interest rates charged by the commercial banks and the access to the finance by Zambians with no collateral security to talk about.
We, therefore, saw government’s reduction of the corporate tax for the commercial banks from 40 per cent to 35 per cent which provided a relief of K65 million to banks under the 2012 National Budget.
This was in the hope that banks too will pass on that to the borrowers through reduced lending rates.
Generally, most of the measures in this sector have been aimed at helping to reduce the lending interest rates and avail more financial resources to the members of the public through the facility.
But at first, the interest rates remained high, while the loans did not seem to have reached the targeted people.
The BoZ remained systematic on the matter and introduced the Policy Rate in March last year while transforming the BLR into lending interest rate.
At first, the BoZ policy rate was vague as its effect on the market could not be quantified leaving everyone confounded as to its importance.
But soon, the scenario was to change with the use of the policy rate to cap the lending interest rates being charged by the banks.
On December 19, 2012, the BoZ announced the capping of the effective annual lending interest rate for commercial banks effectively providing the maximum interest rate chargeable by the banks on loans.
This has made borrowing from commercial banks more affordable and equitable to different classes of borrowers, including those in the low-income bracket.
According to the BoZ, this cap is arrived at by adding a factor of nine per cent to the monthly Policy Rate which stands at 9.75 per cent for this month.
Wary that not all borrowers rely on the commercial banks for loans, the BoZ moved a step further and introduced a cap on the effective annual lending interest rates that non-bank financial institutions it licenses charge their customers.
The move, which was announced on January 3, 2013, was prompted by the extortionate interest rates that some non-bank financial institutions had continued to charge their customers.
The capping of interest rates, therefore, is aimed at making borrowing from non-bank financial institutions affordable and equitable, especially to the vulnerable micro-borrowers.
The maximum effective annual lending interest rate for non-bank financial institutions designated as micro-finance service providers by the BoZ will now not exceed 42 per cent.
The maximum effective annual lending rate that will be charged by all other non-bank financial institutions will not exceed 30 per cent.
In all these measures, the BoZ seems to be ensuring that splendid economic indicators for the country have a bearing on the living standards of the people.
Previously, these indicators were mere statistics and somewhat contradictory to the standard of living for the people who became poorer amid splendid statistics.
The scenario has now, however, changed and all citizens can enjoy the lower interest rates being charged by both commercial banks and non-banking financial institutions.
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