Inclusivity in Action: The Progress of Financial Inclusion in Zambia

Bernadette Deka-Zulu (PhD Researcher-Public Enterprise)

The World Bank Group considers financial inclusion a key enabler to reduce extreme poverty and boost shared prosperity.

Financial inclusion has been at the forefront of policy discussions in Zambia since 2005, when the first FinScope Zambia study was conducted to assess the access to financial products. Despite progress in the financial sector, the 2015 study showed that a significant portion of the adult population, 40.7%, still lacked access to basic financial services. This underscores the persistent challenge of financial exclusion and the need for continued efforts to improve financial access for all. In this article, we will delve into the history of financial inclusion in Zambia, the current state of financial inclusion, and the future prospects for increasing financial access and inclusion.

So far, we have seen many institutions, including the Bank of Zambia, develop various financial inclusion based research and initiatives especially financial literacy programs, especially for women and young people. We also see government efforts through the Ministry of Finance and particularly the Economic Management Department; develop a “National Financial Inclusion Strategy 2017-2022” to further enhance all efforts.

This has helped improve economic activity in the society, which in turn can lead to the fostering of economic growth. 

What is Financial Inclusion?

Financial inclusion refers to the provision of financial services, such as savings, credit, and insurance, to individuals who are excluded from the formal financial sector. In the context of Zambia, financial inclusion can be defined as the process of improving access to and usage of financial services by the unbanked and underserved population in the country.

This includes ensuring that the unbanked, such as rural residents, low-income households, and small businesses, have access to affordable financial products and services. This can be achieved through a variety of means, such as the establishment of microfinance institutions, mobile banking services, and government-led initiatives aimed at increasing access to financial services for underserved communities.

The goal of financial inclusion in Zambia is to promote economic growth and development by providing access to capital, reducing poverty and inequality, and encouraging entrepreneurship and small business growth. By increasing access to financial services, individuals and businesses can more effectively manage their financial resources, invest in their futures, and participate in the larger economy.

The history of Financial Inclusion in Zambia

Financial inclusion in Zambia has a relatively short history, dating back to the early 2000s. The country has made significant progress in recent years in terms of increasing access to financial services, particularly for those in rural areas.

Before the turn of the 21st century, access to formal financial services in Zambia was limited. Banks were primarily concentrated in urban areas, leaving the majority of the population without access to basic financial services such as savings accounts and loans.

In the early 2000s, the government of Zambia began taking steps to increase financial inclusion. This included promoting the use of mobile banking and other digital financial services, as well as increasing access to microfinance services. The government also introduced regulatory reforms to support the growth of the microfinance sector and encourage investment in financial technology.

The introduction of mobile banking services was a significant milestone in the country’s journey towards financial inclusion. This allowed millions of Zambians to access basic financial services, including savings, loans, and insurance, through their mobile phones. The success of mobile banking has led to the growth of other digital financial services, such as mobile money transfers and digital wallets.

In recent years, the government of Zambia has continued to invest in financial inclusion initiatives, including the promotion of financial literacy and education programs. The country has also introduced a number of policies and regulations aimed at increasing access to finance for small and medium-sized enterprises, which are critical to the country’s economic growth.

Overall, Zambia has made significant progress in increasing financial inclusion over the past two decades. However, there is still much work to be done, particularly in terms of expanding access to financial services in rural areas and increasing the financial literacy of the population.

Current State

The current state of financial inclusion in Zambia is characterized by both progress and ongoing challenges.

On the positive side, Zambia has made significant progress in increasing access to financial services in recent years, particularly through the growth of digital financial services such as mobile banking. This has helped to bridge the gap between urban and rural areas and has increased access to basic financial services, such as savings accounts and loans, for millions of Zambians.

Challenges

However, despite this progress, thereare several challenges faced in Zambia’s journey towards financial inclusion, including:

1. Low Financial Literacy Levels: According to FinScope 2020, financial literacy in Zambia is 23.6% and is skewed towards the urban population at 31.9% while rural households stand at only 16.2%. Financial literacy remains low in many areas of Zambia, particularly in rural areas, which can discourage people from using financial services.
2. Access to Finance for Small and Medium-Sized Enterprises (SMEs): Access to finance is still limited for many SMEs in Zambia, which can limit their ability to grow and contribute to the country’s economic development.
3. Lack of Financial Infrastructure: In many rural areas of Zambia, there is a lack of basic financial infrastructure, such as ATMs and banking branches, which can make it difficult for people to access financial services.
4. Lack of Trust in the Financial System: There is a lack of trust in the financial system in some areas, which can discourage people from using financial services and limit the growth of the financial sector.
5. Digital Divide: While digital financial services have made it easier for many Zambians to access financial services, there is still a digital divide in the country, particularly in rural areas where access to technology is limited.
6. Regulatory Challenges: The government and other stakeholders face challenges in regulating the financial sector and ensuring that financial services are accessible, affordable, and secure for all.
7. Fraud: Financial fraud can take many forms, including counterfeiting, embezzlement, and identity theft, among others. In the context of financial inclusion, fraud has pose a particular challenge because it can discourage people from participating in the financial system, which undermines the goal of increasing access to financial services.

Despite these challenges, Zambia has made significant progress in increasing financial inclusion in recent years and has the potential to continue making progress in the future.

Recommendations

To address these challenges, the government of Zambia needs to be consistent in policy formulation and implementation. We witnessed a lot of programs that were aimed at increasing financial literacy and improving access to finance for SMEs but recently there’s been less emphasis on these efforts for the desired impact. With so much emphasis placed on economic activity, it would be vital for the Government to consistently promote activity centered around financial inclusion.

To address the challenges facing financial inclusion in Zambia, the following recommendations can be considered:

1. Financial Literacy: The government should continue to invest in financial literacy programs (by partnering with more media institutions and even Universities to host public lectures and workshops), particularly in rural areas, to increase awareness and understanding of financial services. This can help to build trust in the financial system and encourage more people to use financial services.
2. Access to Finance for Small and Medium-Sized Enterprises (SMEs): Implement policies and programs to improve access to finance for SMEs, such as providing tax incentives for banks that lend to SMEs or creating loan guarantee programs.
3. Infrastructure Development: Invest in the development of financial infrastructure, such as ATMs and banking branches, in rural areas to make it easier for people to access financial services.
4. Regulation: Implement regulations to ensure that financial services are accessible, affordable, and secure for all. This includes ensuring that digital financial services are properly regulated and that the privacy and security of customer data is protected.
5. Partnerships: Foster partnerships between the government, private sector, and civil society to increase financial inclusion in Zambia. For example, partnerships between banks and mobile network operators can help to increase access to digital financial services in rural areas.
6. Digital Inclusion: Invest in digital inclusion programs, particularly in rural areas, to ensure that everyone has access to technology and digital financial services. This can include providing training on how to use digital financial services and providing access to affordable technology.

By taking these steps, Zambia can make progress towards its goal of increasing financial inclusion and ensuring that everyone has access to the financial services they need to secure their financial well-being.

In conclusion, the current state of financial inclusion in Zambia is characterized by progress, but also by ongoing challenges. The government and other stakeholders will need to continue to invest in financial infrastructure, literacy (education), and regulation to ensure that everyone has access to the financial services they need to secure their financial well-being.

bernadettedekazulu@gmail.com