Like most developing countries, Zambia has a growing population, most of whom remain outside the formal economy.
The country also continues to struggle with a large refugee community fleeing from less stable neighbours, so finding ways to create an inclusive economy and lower the pressures on state funding have become a priority. The majority of Zambians (65%) live in rural areas, cut off from the national utilities grid, 64% still live on less than $1.25 a day and almost 87% survive on less than $2.50 a day.
With only 12% of the labour force in formal employment, creating a significant distribution mechanism remains a challenge for the insurance and other service sectors. The Zambian government appears to be serious about addressing the problem and has extended its five-year financial sector development plan (FSDP), formulated to address weaknesses in the financial system, to run through to 2012.
Speaking at the release of the findings of a FinScope survey in July this year, Dr Situmbeko Musokotwane, the Zambian minister of finance and national planning, said it was his hope to address the ongoing exclusion from the financial sector of the country’s most vulnerable people. “Access to a well-functioning financial system has the potential to empower the poor and low-income people as well as micro-enterprises economically and socially. This can help them to better integrate into the economy,” he said.
More importantly, he gave his ministry’s assurance that it would work with the private sector to find solutions to financial exclusion. The results of the survey showed the Zambian financial services sector had grown and now comprises 16 commercial banks and 71 non-bank financial institutions, among which are 15 microfinance institutions and 11 leasing and finance companies.
Despite the increase in the number of financial institutions in the country, the level of usage remains exceptionally low. Overall, using the most liberal definition of banking access, no more than 10% of micro, small and medium-sized enterprises in Zambia are banked.
The insurance landscape looks even bleaker and researchers say that many people they interviewed had little concept of what insurance was and why it was important. Just 6.6% of the adult population in Zambia report that they have insurance. When vehicle insurance and pension schemes for formal sector employees are removed, this is reduced to 3.8%. Moreover, less than 1% of small and micro businesses said they had insurance for their vehicles.
Bringing the low-income market into the financial fold bears significant challenges, and organisations such as the International Labour Organisation, the Finmark Trust and the United Nations Capital Development Fund have been assessing ways to bring financial services to the previously disenfranchised.
Micro-insurance, often delivered through new, innovative means, has been widely hailed as one of the most sensible ways to deliver financial empowerment to low-income communities that may otherwise be cut off from traditional access and remain reliant on the state. Zambia, as a reasonably stable and hospitable country, has found itself on the receiving end of a flood of people fleeing war, unrest and dire social hardship in countries such as Angola, Rwanda, the Democratic Republic of Congo and Somalia.
Recent figures place the number at 57 000, but it is impossible to count the refugees outside the state system. Like many of the Zambian rural population, refugees are seeking sanctuary and work in urban areas, adding to the growing informal sector in cities and towns. This additional pressure on an already stressed state social welfare system is taking its toll.
International aid agencies are increasing their attention on the rights of urban refugees, many of whom find themselves victims of distrust and xenophobia. One such agency is Refugees International. Established in 1979, it maintains strict financial and political independence from the UN or governments and regularly speaks out on policy issues affecting refugees.
Refugee International believes there is a reluctance to fund urban programmes because of the concern that needs cannot be properly identified and assessed. But, it says, rather than trying to exclude refugees, governments should be finding ways of including foreigners in the formal economy. In particular it has recommended that donor governments should increase their funding for microfinance programmes in urban areas, especially those aimed at women.
Professor Muhammad Yunus, founder of Grameen Bank, is often referred to as the father of microfinance and his work has resulted in governments around the world viewing microfinance as a key consideration when drafting financial policy. In January the Grameen Trust signed an agreement with the UN High Commissioner for Refugees (UNHCR) to provide microcredit to refugees displaced by war and natural disaster.
Under a memorandum of understanding, the Grameen Trust will set up programmes to provide microloans to displaced civilians, mainly refugees, and also some returnees and internally displaced people. The three-year agreement covers possible cooperation in an initial 14 countries in Africa, South America, Asia and Europe where the two organisations believe there is a demand for microfinance services to boost livelihoods.
An initial joint feasibility study will be conducted this year in three of these countries — Egypt, Tanzania and South Africa. UNHCR and Grameen Trust staff will assess the number and profile of beneficiaries, and the project will also look at the rehabilitation or improvement of existing UNHCR microfinance activities. The trust generally sets up programmes to provide seed or scalingup funding, based on an approach pioneered by the parent Grameen Bank and imitated worldwide.
In an effort to roll out services, the Zambian government has stated its interest in the use of mobile phones as a means to deliver financial services to the previously underserved communities. These types of services are already gaining significant traction in countries such as Kenya, which already has close to 10-million citizens connected to the M-Pesa mobile banking service. New services such as M-kesho will also allow customers to apply for insurance policies using their mobile phones, removing the need for physical infrastructure.
The Zambian government is taking financial inclusion seriously and has initiated a broad-based plan to stimulate the economy at all levels. Its National Vision 2030 has been developed to ensure Zambia can “become a prosperous middle-income country by the year 2030”. For this to become a reality, though, it will have to ensure that it has not only brought its own financially disenfranchised into the fold, but has also made reasonable and sensible allowances for its significant refugee population.