NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Thursday, January 15, 2015

The decision by Bank of Zambia (BoZ) to limit interest rates that licenced non-banking financial institutions can charge customers had a negative effect on micro-finance institutions (MFIs) performance last year.

In 2013, the BoZ introduced a cap on the effective annual lending interest rates that license non-bank financial institutions can charge customers, with the aim to make borrowing more affordable and equitable especially to the vulnerable micro-borrowers served by the sector.

Association of Microfinance Institutions of Zambia (AIMZ) president Webby Mate has said the capping of interest rates has put pressure on MFIs to cut costs to remain profitable.He said in an interview on Monday that over the past two years, the sector has faced a lot of challenges due to the capping of interest rate and has also discouraged new entrants in the sector.

“Broadly, the performance of the microfinance sector has been mixed because of the introducing of an interest rate cap for microfinance institutions by Government in January, 2013 and is still in effect to date.

“The performance has been mixed because the price at which MFIs provide the service is determined externally by the central bank which puts pressure on the institutions to cut costs to be profitable,” he said.