Workshop on Enhancing Financial Inclusion in the COMESA Region through Enhancement of the Regulatory and Supervisory Framework

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1 Workshop on Enhancing Financial Inclusion in the COMESA Region through Enhancement of the Regulatory and Supervisory Framework Presented By Sylvester Mutale Kabwe Senior Analyst Licensing and Enforcement Bank of Zambia 23 February 1 March 2016 Nairobi, Kenya

2 Issues to add from the list of selected issues discussed in Lusaka in 2014 Regulatory Framework Because of the growing complexity of payment systems, separate legislation or more elaborate provisions in existing legislation is required to enable mobile financial services. There is need to consider amending the regulatory framework to enable branchless/ agent banking in our jurisdictions Regulatory framework to include aspects of consumer protection Avoidance of indebtedness; Transparent pricing Appropriate collection practices Ethical staff behaviour Mechanisms for redress of grievances Privacy of customer data Consider developing outsourcing guidelines

3 Innovative Feature in the Regulatory and Supervisory Framework Simplified know your customer due diligence; Proposal to reduce the number of directors or members on the board of a non-deposit taking MFI to at least two (2) from the current requirement of five (5); Proposal to amend the current Microfinance Regulations to give an incentive to MFIs that intend to open new branches to do so without paying branch application fees as a way of encouraging outreach especially to the unbanked population.

4 Tendency of Regulators to be rigid and non-receptive when it comes to Innovation and new products being introduced in the market Supervisors and overseers should not stifle innovation by quickly rejecting applications for new products and services that they do not understand. They should not be afraid to require the FSPs to help them understand these new products and services. Request the FSPs to provide the following: a detailed outline of the new products (nature, delivery channels to be used for distribution); Outline of the IT system to be used, its capabilities (including production of reports), level of interface with core banking system, weaknesses and how these are to be addressed; Risk reports detailing risks inherent and risk management systems put in place to mitigate the risks; Require applicants to bring independent experts to present on the product; Require FSP to conduct pilot tests before officially launching the product; Conduct market intelligence, research and provide training in new areas of concern; and Staff attachments should be considered.

5 The need to update, harmonise, where appropriate, legislation in the financial sector so as to minimise regulatory arbitrage In order to ensure that the Microfinance Regulations remain current and relevant to microfinance activities, the BoZ has amended the Regulations to address a number of shortcomings including: the redefinition of microfinance service to align it with international best practice and be consistent with the conventional definition of microfinance, which is the provision of financial services to poor and low income households without access to basic financial services from formal financial institutions. By so doing, this will exclude consumer lenders from being considered as MFIs; In order to address the issue of regulatory arbitrage which currently is the case on account of the existence of the Money Lenders Act administered by the Ministry of Finance, the BoZ is proposing that the Money Lenders Act be amended to make the BoZ administrator of the Act, which will bring all entities registered under the Money Lenders Act under the regulatory ambit of the BoZ.

6 Requirement to have traditional collateral to access finance The BoZ in conjunction with the Patents and Companies Registration Agency (PACRA) developed the Moveable Property and Security Interest (MPSI) Bill which was approved by Cabinet and is under Parliamentary consideration. The MPSI Bill will facilitate the establishment of the collateral registry.

7 Poor financial literacy and capability Zambia has a National Strategy on Financial Education which was approved by the Government in Further, a number of financial education intervention programmes, under the coordination of the Financial Education Coordinating Unit (FECU) which is housed at the BoZ, have been undertaken and financial education materials have been developed and also translated into seven local languages. In addition, Zambia participates in the financial literacy week each year which involves a number of schools country-wide.

8 Insufficient inadequate capacity and supervisory BoZ has adopted and implemented the risk-based supervision approach; Considering to implement delegated supervision framework; Develop systems of transferring knowledge acquired through seminars and workshops within our organisations e.g. back to office reports, sharing resource materials.