PROGRESS REPORT ON THE IMPLEMENTATION OF THE FINANCIAL SECTOR DEVELOPMENT PLAN (FSDP) PHASE II (January 2010 June 2015)

Transcription

1 Bank of Zambia PROGRESS REPORT ON THE IMPLEMENTATION OF THE FINANCIAL SECTOR DEVELOPMENT PLAN (FSDP) PHASE II (January 2010 June 2015) PHASE II REPORT FOR THE PERIOD ENDING 31 MARCH 2015 Updated May 2015

2 LIST OF ACRONYMS AND ABBREVIATIONS BAZ - BANKERS ASSOCIATION OF ZAMBIA BoZ - BANK OF ZAMBIA BIS - BANK FOR INTERNATIONAL SETTLEMENTS BSA - BUILDING SOCIETIES ACT CRB - CREDIT REFERENCE BUREAU DBZ - DEVELOPMENT BANK OF ZAMBIA DDACC - DIRECT DEBIT AND CREDIT CLEARING DFI - DEVELOPMENT FINANCE INSTITUTION DPS - DEPOSIT PROTECTION SCHEME FSDP - FINANCIAL SECTOR DEVELOPMENT PLAN GRZ - GOVERNMENT OF THE REPUBLIC OF ZAMBIA HFIs - HOUSING FINANCE INSTITUTIONS IMF - INTERNATIONAL MONETARY FUND IVL - ITEM VALUE LIMITS LuSE - LUSAKA STOCK EXCHANGE MFIs - MICROFINANCE INSTITUTIONS MoFNP - MINISTRY OF FINANCE & NATIONAL PLANNING NBFIs - NON BANK FINANCIAL INSTITUTIONS NSCB - NATIONAL SAVINGS AND CREDIT BANK PIA - PENSIONS AND INSURANCE AUTHORITY PSD - PRIVATE SECTOR DEVELOPMENT (PSD) PROGRAMME SADC - SOUTHERN AFRICAN DEVELOPMENT COMMUNITY SEC - SECURITIES AND EXCHANGE COMMISSION TA - TECHNICAL ASSISTANCE VAT - VALUE ADDED TAX ZNBS - ZAMBIA NATIONAL BUILDING SOCIETY ZRA - ZAMBIA REVENUE AUTHORITY

3 TABLE OF CONTENTS PAGE 1.0 INTRODUCTION APPROACH TO IMPLEMENTATION ESTABLISHMENT OF INSTITUTIONAL FRAMEWORK FOR THE FSDP PROGRESS ON THE ACTIVITIES OF THE FSDP FSDP PHASE II FINANCING ARRANGEMENT OUTLOOK APPENDICES A. ORGANISATIONAL STRUCTURE OF THE FSDP B. MEMBERS OF THE FSDP STEERING COMMITTEE (FSDPSC) C. MEMBERS OF THE FSDP IMPLEMENTATION COMMITTEE (FSDPIC) D. LIST OF FSDP WORKING GROUPS & RESPECTIVE CHAIRPERSONS E. LIST OF WORKING GROUP MEMBERS (& tables of institutional representation/ attendance at Working Group Meetings) F. PRACTICE NOTE: ANTI MONEY LAUNDERING CUSTOMER DUE DILIGENCE G. FSDP IMPLEMENTATION MATRIX ii P a g e

4 PROGRESS REPORT ON THE IMPLEMENTATION OF THE FINANCIAL SECTOR DEVELOPMENT PLAN PHASE II FOR THE PERIOD JANUARY 2010 TO MARCH INTRODUCTION In recognition of the strategic importance of the development of the financial sector, in June 2004, the Government formulated the Financial Sector Development Plan (FSDP) for Zambia whose first phase covered a five year period from In view of various outstanding issues from the initial FSDP and other challenges arising from the 2008/09 global financial crisis, a three-year extension of the FSDP into phase II was approved by the Government of the Republic of Zambia in January FSDP phase II initially ran from January 2010 to December 2012 and was extended further by two years to run until December The project is now expected to commence winding down from 1 January to 30 th June, 2015 following a six months extension which was approved by the Government to facilitate a smooth closure. The FSDP is both a vision statement and a comprehensive strategy by the Government to address the current weaknesses in the Zambian financial system. It is aimed at guiding efforts to realise the vision of a financial system that is stable, sound and market-based and that would support efficient resource mobilisation necessary for economic diversification and sustainable growth. The FSDP-II therefore draws extensively on FSDP Phase I insights as well as on the recommendations of the follow up Financial Sector Assessment Programme (FSAP) Update conducted in 2008 by the IMF and World Bank. The second phase of the FSDP is focused on three main pillars, namely: (i) (ii) (iii) Enhancing market infrastructure; Increasing competition; and Increasing access to finance. 2.0 APPROACH TO IMPLEMENTATION The FSDP Phase I involved developing policy priorities from the specific recommendations under each key financial sub sector. Key priority areas included the following: (a) Establishment of an institutional framework for the implementation of the FSDP; (b) Review of the financial sector legislation which in the immediate term included: i. Reviewing the Banking and Financial Services Act (BFSA); ii. Drafting repeal and transitional legislation with regard to the three priority non-bank financial institutions, namely, the Development Bank of Zambia (DBZ), Zambia National Building Society (ZNBS) and National Savings and Credit Bank (NSCB); iii. Drafting new legislation relating to the three critical areas of, Rural Finance, Housing Finance and Development Finance; and iv. Reviewing and harmonising the laws governing financial institutions, to avoid inconsistencies with the Banking and Financial Services Act (BFSA). (c) Resolution of weaknesses in the then insolvent state-owned financial institutions; (d) Production of market knowledge on the supply and demand of financial services in Zambia (mainly through the FinScope studies); and, 1 P a g e

5 (e) Introduction of a regulatory framework for the establishment of a credit reference bureau. The second phase 1, formally approved in January 2010 and scheduled to run until December 2014, is envisaged to deal with longer-term issues including the following: i. Prioritising, sequencing and costing of the remaining FSDP recommendations for Phase II; ii. Harmonisation of wider financial sector legislation; iii. Strengthening the autonomy and enhancing the capacities of the regulatory authorities namely, the Bank of Zambia (BoZ), Pensions and Insurance Authority (PIA) and Securities and Exchange Commission (SEC); iv. Improving corporate governance among institutions; v. Enhancing the payments systems; vi. Awareness campaigns on financial services & costs. vii. Bringing National Pensions Scheme Authority (NAPSA) under some independent supervisory authority and implementing the investment allocation guidelines for contractual savings providers; viii. Developing appropriate professional information databases, recruitment and gender policies at places of work; and, ix. Capacity building for key stakeholders. 3.0 ESTABLISHMENT OF INSTITUTIONAL FRAMEWORK FOR THE FSDP IMPLEMENTATION In order to effectively and efficiently coordinate the implementation of the FSDP, an implementation structure was developed in the first phase and comprises the FSDP Steering Committee (FSDPSC), the FSDP Implementation Committee (FSDPIC), the FSDP Secretariat and the FSDP Working Groups. This institutional framework has been maintained from the first phase. However, the working groups under this structure were divided among the three strategic pillars and streamlined accordingly into six specialised areas. The organisational structure of the FSDP is illustrated below and detailed in Appendix A. 1. FSDP II was approved by Government to run as an extension of FSDP I for three years effective January The focus of the extended mandate was completion of issues outstanding from FSDP I and integration of policy recommendations from the World Bank and IMF Financial Sector Assessment Programme (FSAP) report of November, An additional two years extension of FSDP II was approved (to December 2014) by Government following the recommendation of an independent review and assessment of the programme by Genesis Consulting (a DFID appointed independent consultant). 2 P a g e

6 Figure1: FSDP Implementation Structure FSDP Steering Committee FSDP Implementation Committee FSDP Secretariat Working Groups 3.1 FSDP Steering Committee The FSDP Steering Committee (FSDPSC) oversees and provides overall direction and advice on the implementation of the FSDP programme. The FSDPSC is domiciled at the Ministry of Finance (MoF) and comprises key stakeholders who individually and collectively have an integrated view of issues and direction of the financial sector. The FSDPSC is chaired by the Secretary to the Treasury at the Ministry of Finance. Details of the members of this Committee are provided in Appendix B. 3.2 FSDP Implementation Committee The FSDP Steering Committee is supported by the FSDP Implementation Committee (FSDPIC) which is domiciled at the Bank of Zambia. The FSDPIC is responsible for reviewing the sequencing of activities for implementing the FSDP and monitoring performance targets in line with the Implementation Matrix. To ensure effective implementation of the FSDP, the BoZ chairs the FSDPIC and also provides the FSDP Secretariat function. Details of the members of this Committee are provided in Appendix C. 3.3 FSDP Working Groups Under FSDP Phase II, the FSDPIC is supported by six (6) Working Groups composed of subject experts focusing on the technical aspects of implementing the recommendations of the FSDP. Under FSDP Phase I, there were twelve FDSPWGs, comprised of an average of twelve members each, which provided regular reports to the FSDP Implementation Committee (FSDPIC) through the FSDP Secretariat. However, there were challenges relating to the composition as well as commitment of some of the Working Groups. To facilitate greater output focus and implementation agility, the working groups under the second phase were categorised under the three pillars, and subsequently rationalized to the six (6) Working Groups as indicated below: 3 P a g e

7 Table 1: FSDP Phase II Working Groups PILLAR PILLAR I: MARKET INFRASTRUCTURE PILLAR II: INCREASING COMPETITION PILLAR III: ACCESS TO FINANCE NEW WORKING GROUPS UNDER PHASE II 1. Legal Reforms and Corporate Governance Working Group 2. Payments Systems Working Group 3. Market Efficiency and Contractual Savings Working Group 4. Financial Education Working Group 5. Access to Finance Working Group 6. Financial Markets Working Group PREVIOUS PHASE I WORKING GROUPS RATIONALISED - Legal & Regulatory Infrastructure - Corporate Governance - Payment Systems - Macroeconomics - Accounting and Auditing - Taxation - Contractual Savings - Financial Access - Human Resources - Banking - Non-Bank Financial Institutions - Financial Markets Details of the FSDP Working Group representatives are provided in Appendices D and E. 3.4 FSDP Secretariat The implementation process is coordinated by the FSDP Secretariat which is domiciled at the Bank of Zambia. The FSDP Secretariat provides coordination and administrative services aimed at synchronizing activities of the FSDP programme, the Committees with technical input from the various working groups. More specifically, the FSDP Secretariat is responsible for: Receiving and consolidating Working Group reports; Identifying and drawing up research and project proposals; Preparing monthly progress reports for the FSDPIC; Maintaining financial records and preparing financial reports on the utilisation of project funds for the FSDP implementation; and Monitoring progress and follow up issues from the FSDP Implementation matrix and FSDP Activity Plans and Cost Estimates; Carrying out secretariat functions and any ad hoc assignments given to it by the FSDPIC and FSDPSC. The terms of reference and functions of the FSDP Secretariat staff are set out in line with the three-thematic pillars 2 and the FSDP recommendations for action. 2 (i) Enhancing market infrastructure; (ii) increasing competition; and (iii) increasing access to finance. 4 P a g e

8 The Bank of Zambia Directorate for Non-Bank Financial Institutions spearheads the FSDP Secretariat as its Chairperson. In addition, in order for the FSDP Secretariat to serve effectively as a conduit for the flow of information and take responsibility for the day to day management and coordination function, a five-person team consisting of the Project Coordinator and 4 Project Officers have been appointed on a full-time basis for the two-year extended duration of the FSDP Project. Officers have been attached from the Bank of Zambia (BoZ), the Ministry of Justice (MoJ), the Pensions and Insurance Authority (PIA) as well as the Securities and Exchange Commission (SEC). 4.0 PROGRESS ON THE ACTIVITIES OF THE FSDP 4.1 Recent Project Developments Background The FSDP Implementation and Steering Committees were constituted in the first quarter of 2010 by the Ministry of Finance and subsequently held their first meetings under FSDP II in the second quarter of the year. The meetings considered and endorsed the structure and terms of reference for the FSDP Secretariat and working groups (which were rationalised from twelve to six). The Steering Committee, since then has continued to meet, mostly on a quarterly basis. The endorsed FSDP II structure includes a total of six officers comprising of one Secretariat Chairperson, one Project Coordinator and four Project Officers, as alluded to in the section above. The said Officers have since been attached to the FSDP Secretariat by the Bank of Zambia, the Pensions and Insurance Authority, the Securities and Exchange Commission, and the Ministry of Justice as part of the public sector contribution to this national reform programme. In addition, the working groups developed comprehensive activity plans and budgets to facilitate the implementation of the activities from the second half of 2010 to end Implementations of activity plans from the initial FSDP phase II is expected to continue in the extended period with additions were necessary of activities from emerging priority areas Funding for FSDP Phase II The Finland FSDP Financial Support Agreement for 3.5 million (about K22.7 million) was finalised and signed in mid-2011 by both the Government of the Republic of Zambia and the Republic of Finland following the approval by the Attorney General. The Minister of Finance and National Planning signed the agreement on behalf of the Zambian Government and the Finnish Ambassador signed on behalf of the Republic of Finland on 26 May The release of the 1 st tranche of Finnish Funding amounting to 517,693 (about K3.2 million) was received in July 2012 while the second tranche of the balance was received in January Government Monitoring and Evaluation Meetings The FSDP is subject to a monthly Government Monitoring and Evaluation process spearheaded by the Ministry of Finance. The monitoring and evaluation process monitors progress in the overall performance of reforms in the economic sub sectors in the country including the FSDP and is achieved through a monthly reporting framework. The FSDP Secretariat participated in these meetings during 2010 and 2011 convened, then, by the Honourable Minister of Finance on a monthly basis. A revised framework is currently being developed for 2014 and beyond. 5 P a g e

9 4.1.4 Financial Education Awareness Programmes Following the launch of the National Strategy on Financial Education in July, 2012, the FSDP has spearheaded various financial education awareness campaigns aimed at empowering Zambians with the knowledge, understanding, skills, motivation and confidence that will help them secure positive financial outcomes for themselves and their families, especially those that are disadvantaged by less education and/or poverty. Notable local and international financial education efforts under the FSDP 3 have included: Inaugural Financial Literacy Week The FSDP Secretariat in conjunction with the Child and Youth Finance International (CYFI) and Image Promotions in 2013 for the first time took part in the Global Money Week (or Financial Literacy Week) from 15 th 21 st March Close to 5,000 participants in Zambia were among others from 80 countries in the world that celebrated the Global Money Week (or the Financial Literacy Week). The FSDP Secretariat organised a series of activities in Lusaka and on the Copperbelt that included; the Kick-off event of the Financial Literacy Week; a financial sector exhibition in Lusaka; Presentation of the National Strategy on Financial Education for Zambia in the Copperbelt Province; and, financial sector representatives offering job shadows and giving financial education talks to youths and school children at various forums, including in classrooms. The financial literacy week is an annual event in which all financial sector players are be expected to take part Runner s up Global Money Week Award for Africa As a follow on to commemoration of the Financial Literacy week, Zambia attended the 2 nd Global CYFI Summit and awards ceremony in Istanbul, Turkey from 7 th to 9 th May, 2013 at which, Zambia received a runner s up Global Money Week award for emerging as one of the five finalists out of 107 countries in the world (or the first among African countries) that participated in the event. The Global Money Week award is given to CYFI member countries in recognition of their efforts in promoting financial literacy among young people The 2 nd Annual Child and Youth Finance International (CYFI) regional meeting for Africa - 19 th 20 th September 2013 Zambia hosted the 2 nd annual Child and Youth Finance International (CYFI) regional meeting for Africa in Livingstone from 19 th 20 th September 2013 under the theme reshaping the future of finance. The Regional Meeting for Africa was a multicultural and multi-stakeholder event attended by approximately 200 participants from 20 countries in Africa (including Zambia), Europe and the United States of America. The Minister of Finance Hon. Alexander Chikwanda officially opened the meeting while the event was closed by the Minister of Education in a speech read on his behalf by the Deputy Permanent Secretary in the Ministry of Education. The experience of participants was heightened through various interactive sessions. Outcomes of the meeting included designing a comprehensive strategy and a coordinated action plan for the CYFI at a national and regional level, working out technologically based solutions to overcome barriers and, increasing access to financial services and education for children and youth. 3 Following the Financial Education Coordination Unit (FECU) becoming operational in 2 nd quarter, 2014, financial education efforts have been undertaken by the Unit. An update on recent financial education activities is covered in Section 5.0 under FECU. 6 P a g e

10 The 2 nd CYFI meeting in Livingstone was built on the momentum created during the 2012 Regional Meeting in Abuja, Nigeria, and also towards attaining the Child and Youth Finance Movement s global agenda to reach 100 Million Children and Youth in 100 countries with Economic Citizenship Education and Access to Safe and Secure Financial Services by the year Gender mainstreaming in the financial sector In recognition of the important role played by women in national development, gender mainstreaming has been adopted as one of the key focus areas under the Financial Sector Development Plan. The initial phase of gender mainstreaming in the financial sector is being spearheaded by the Bank of Zambia. As part of the overall gender mainstreaming policy, the Bank has embarked on mainstreaming gender in the financial sector to promote financial inclusion of women. The main initiatives so far have included: a) Making the FSDP budget gender-responsive by including a budget line for gender mainstreaming; b) Conducting a Participatory Gender Audit of the Bank; c) Conducting a research on women s access to financial services in Zambia; d) Co-hosting the 3 rd African Women s Economic Summit (AWES) held from July, 2014 in Lusaka, Zambia; and e) Implementing the Female and Male Operated Enterprises (FAMOS) Check tool, with three banks having been piloted. This tool is intended to enable financial service providers undertake a systematic assessment of the extent to which they target women entrepreneurs, their needs and potentialities. The FAMOS Check tool also assists financial service providers to develop appropriate strategies to extend their outreach to women entrepreneurs as well as develop products to meet the needs of women entrepreneurs Establishment of the Financial Education Coordinating Unit (FECU) With the National Strategy on Financial Education having been launched on 12 July 2012, the Financial Education Coordination Unit (FECU), that is responsible for the implementation of the Financial Education Strategy, was established in early The unit has an approved structure of four members of staff comprising of a Coordinator, Project officer, Monitoring and evaluation officer, and Communication officer. The FECU team is currently comprised of an acting Project Co-ordinator (from the Ministry of Justice) a Project Officer (from the Pensions and Insurance Authority) and an intern from the Bank of Zambia. The German Savings Banks Foundation for International Cooperation (SBFIC) has also seconded a long term Adviser to the FECU who will be resident in Zambia, until Africa Carbon Credit Exchange The Government is working with financial market players to develop a Carbon Market through the Africa Carbon Credit Exchange (ACCE). The ACCE agenda was incorporated into the Financial Sector Development Plan (FSDP) following a recommendation of a workshop by the National Climate Change Programme under the Ministry of Finance in June The ACCE was identified under the National Climate Exchange Strategy as a key mechanism through which Zambians can access climate, carbon and innovative structured finance; and building resilience in the economy to adverse climatic changes. The exchange will be the first of its kind in Africa thereby positioning Zambia on the international stage as a global financial centre and locally 7 P a g e

11 enhance access to finance in rural areas. A follow up workshop for all FSDP working groups was held in the second quarter of 2013 to consider inclusion of selected Carbon Market activities into the Financial Sector Development Plan. The terms of reference to set up the Carbon Market and governing regulations are currently under consideration. It is expected that the establishment of the exchange will be among the activities which will be adopted under the Financial Inclusion Strategy for Zambia after Sovereign Credit Rating In the first quarter of 2011, Zambia obtained two international sovereign ratings through Standard & Poors (S& P) and Fitch ratings. Both firms have given Zambia a positive rating of B+. This development is expected to allow the country access to relatively low cost international finance. Following this rating, Zambia successfully issued a US$750m Eurobond for various national developmental projects Risk-Based Know Your Customer (KYC) Guidelines Following a review of the KYC guidelines, Bank of Zambia issued a Practice Note on Anti- Money Laundering Customer Due Diligence. This followed discussions by various stakeholders about the need to create an environment that is more permissive (or relaxed) for enhancing financial inclusion, with among others Government expressing concerns over rural communities being unable to access banking services and products due to stringent KYC requirements. The Practice Note was subsequently issued to banks and non-bank financial institutions in October It was also publicised in the national daily newspapers in 2012 and later placed on the BoZ Website for public information. The Practice Note is intended to guide financial institutions to exercise flexibility on KYC requirements for opening and maintaining bank accounts and accessing other forms of financial services Strategic Forum on the Role of Finance in Unleashing the Potential of Zambian Businesses The FSDP Secretariat participated in organising the Strategic Forum on the Role of Finance in Unleashing the Potential of Zambian Businesses including the Small and Medium Sized Enterprises (SMEs) held at the Taj Pamodzi Hotel in Lusaka on June 14, The Forum was officiated by the Minister of Finance, and the main focus was to facilitate policy dialogue among the Government, Bank of Zambia, the private sector and financial sector players on how to expand financial services to Zambian businesses including SMEs. The World Bank and other development partners were also in attendance to share international perspectives on this important agenda. Going forward, the FSDP Secretariat was tasked to follow up the implementation of the recommendations through an appropriate monitoring and evaluation framework. Accordingly, it was proposed that a follow up forum be held in SME local content and Business Linkages forum The FSDP Secretariat and the Bank of Zambia in collaboration with the World Bank organised a Small and Medium Enterprises (SMEs) local content and business linkages forum which was held at the TAJ Pamodzi hotel in Lusaka on 28 th November, The forum under the theme Encouraging local content and business linkages: Role of the financial sector was a follow up meeting to the Strategic forum on the role of finance in unleashing the potential of Zambian businesses which was held in June, The forum was officiated by the Minister of Finance and closed by the Minister of Commerce Trade and Industry. 8 P a g e

12 The meeting highlighted efforts being undertaken by Government and various development partners to promote local content and business linkages among SMEs in Zambia; and the role of the financial sector in facilitating the process. Among recommendations arising from the forum for policy consideration were to: Include the definition of SMEs in the country s SME policy; Provide incentives to financial service providers that are involved in lending to SMEs; Establish a Credit Guarantee Scheme (that would also include insurance); Encourage SMEs to form consortiums when dealing with large orders; Enhance capacity building for SMEs; and, Implement sensitisation (or financial education) campaigns for the SMEs. The Minister of Commerce Trade and Industry in closing the event committed to adopt the resolutions of the meeting once the final report was submitted to his Ministry Financial Literacy and Consumer Protection Diagnostic Review by the World Bank The World Bank has agreed to offer technical support to Zambia following a diagnostic review of consumer protection and financial literacy in Zambia during a mission undertaken in June, Recommendations from the study were adopted at a stakeholder dissemination workshop held in December, A committee with representation from the Bank of Zambia, Competition and Consumer Protection Commission, Pensions and Insurance Authority, Security and Exchange Commission and the Financial Sector Development Plan Secretariat was also formed to work with the World Bank to spearhead the implementation of the recommendations. Since then, there has been a series of communication on the provision of both technical and financial support to Zambia. The support is expected to run up to June, 2015 and any outstanding work shall be carried forward under the envisaged Financial Inclusion Support Framework (FISF) under World Bank support. The support from the World Bank will focus on the following four key recommendations from the diagnostic report: (i) Introduce key provisions on consumer disclosure for retail financial products and services, including requirement for Key Facts Statements, in the newly proposed draft financial sector laws; (ii) Introduce legal provisions allowing cooling-off period for credit and non-life insurance products during which new customers are allowed to withdraw from already signed contracts; (iii)assess various options for effective institutional setup for external dispute resolution mechanism for financial sector; (iv) Develop requirements for an internal dispute resolution process for all financial service providers. A Mission by the World Bank to commence the work was undertaken from 17 th to 21 st November, During this period, the team met various stakeholders in the financial sector with respect to the four key areas for the support. A draft report on the findings is expected to be ready in the 3 rd quarter of P a g e

13 National Strategy on Financial Education The National Strategy on Financial Education was officially launched by the Government in Lusaka on 12 July The primary objective of the national strategy on financial education is to: Empower Zambians with the knowledge, understanding, skills, motivation and confidence that will help them secure positive financial outcomes for themselves and their families, especially those that are disadvantaged by less education and/or poverty. As part of the implementation of the National Strategy on Financial Education and also to increase awareness of the subject matter among the public, members of the FSDP took part in a five week interactive programme on Radio Phoenix in the second half of 2012 that tackled several topics. Some of the topics were; what is the new National Strategy on Financial Education all about? How and when was the strategy developed? What is the current situation in terms of financial education in Zambia? and, What is the significance of having a national strategy on financial education? Going forward, the National strategy will be implemented through the Financial Education Coordinating Unit (FECU) which is being supported by the three financial services regulators; Bank of Zambia, Securities and Exchange Commission, and the Pensions and Insurance Authority; and other stakeholders. In addition, the German Savings Banks Foundation for International Cooperation (SBFIC) and the Bank of Zambia signed a memorandum of Understanding that will facilitate the provision of technical and financial support for the establishment and running of the FECU. The FECU was established in the 1 st quarter of 2013 and is now operational Financial Sector Law Review As part of the law review exercise, a four-day consultative workshop was held in Lusaka in May The main objective of the meetings was to solicit comments from the stakeholders on financial sector laws that are currently being reviewed. The laws which were subjected for review include the Securities (Amendment) Bill; Insurance Bill; Pensions Scheme Regulation Bill; and the Banking and Financial Services Bill. Following the incorporation of comments from the stakeholders workshop, the draft Bills of the key financial sector laws were finalised and legal consultants were engaged to undertake the harmonisation process of financial sector laws towards the end of the first quarter of After the conclusion of the harmonisation process and incorporation of comments, the principle laws from all the regulatory institutions were submitted to the Ministry of Finance in May 2013 and have since been granted Cabinet approval and have been transmitted to the Ministry of Justice. In 2014, the FSDP Secretariat commenced reviewing of the second batch of laws which include the following: 1) Leasing Law; 2) Building Societies Act; 3) National Payment Systems Act; 4) Bills of Exchange Act; 5) Cheques Act; and 6) Credit Reporting Law 7) Personal Property Security Interest Bill 10 P a g e

14 Review of the stated laws by a team of legal consultants commenced towards the end of the first quarter of 2014 and a final report of the findings in all the laws under review was submitted to the FSDP Secretariat by the consultants in November 2014 for consideration. Once cleared and stakeholder input incorporated in the first quarter of 2015, the laws will be submitted to Ministry of Finance in the second quarter of Financial Sector Tax Review Study The FSDP Secretariat constituted a study team in mid-2011 to review the impact of and distortions in taxation on the financial sector. The Tax Study was aimed at recommending enhancements to the tax regime that would minimise tax distortions, enhance tax neutrality and ultimately stimulate increased usage of formal financial services. The study enlisted respondents from banking, non-bank financial institutions and entities in the insurance, pensions and capital markets and further included a regional comparison of other jurisdictions. The draft report was reviewed by a stakeholder s consultative workshop on 18 July The updated report with comments from the stakeholder s conference was submitted to the Ministry of Finance on 31 July 2012 for Government s National Budget and policy consideration. Two recommendations of the Financial Sector Tax study report were adopted and incorporated in the 2013 National Budget including; (i) abolishing the medical levy charged on interest earned on savings or deposit accounts, treasury bills, government bonds or other similar financial instruments and (ii) removal of withholding tax on interest earned by individuals from savings or deposit accounts held with financial institutions such as banks or building societies. Further deliberations on recommendations from the financial sector tax review study which were not adopted for implementation by the Ministry of Finance have been undertaken and resubmitted. It is hoped that the outstanding items will be considered by the budget office for adoption in the Government s National Budget and policy Financial Identification System Following the proposal by the Government of the Republic of Zambia to enhance the National Registration Card (NRC), the Bank of Zambia (BoZ), through the FSDP Secretariat embarked on an extensive consultative process aimed at improving financial identification in the financial sector. During the process, and after consultations with the Ministry of Home Affairs, in 2013 and 2014, it was agreed that the FSDP stakeholders come up with possible features to be embedded on the proposed NRC as a way to accelerate financial inclusion. A technical expert from Germany was engaged with funding support from the Alliance for Financial Inclusion (AFI) to develop a position paper outlining key components to be considered for inclusion onto the NRC. Notable among the key features identified, include the following: (i) Identification function: The card could act as a basis for personal identification but could further include address verification as a necessary feature for the assessment of Know Your Customer (KYC) requirements by financial institutions; (ii) ATM card functions: It was proposed (as an option that could be embedded) that the NRC include functionality for use at the ATM for money withdrawals, making deposits or money transfers, account inquiries; and such related ATM services. (iii)payment and e-cash functions: This proposal if added to the functionality will enable the NRC to be used as a substitute for cash. The card owner can deposit funds on the card and pay with the card at accepting points of services. 11 P a g e

15 The position paper has since been submitted to the Ministry of Home Affairs for Government consideration Professional Information Database for the Financial Sector The FSDP Secretariat has developed a framework for a professional information database (to be housed at Bank of Zambia) for professional staff in the financial sector. The development of a comprehensive professional information database system was recommended as one step towards establishing the professional skills and gaps available in the financial sector, as well as identifying a suitable sector approach in staff recruitment, training and development, as well as retention activities. In addressing this issue, all Banks and Non-Bank Financial Institutions (NBFIs) were requested to upload information about their professional employees in order to populate the database on the BoZ website. The non-confidential information obtained will be analysed and will be made available (by 2015) to the public in aggregate form only Extension of FSDP II Project In view of various outstanding issues from the second phase of the FSDP and other challenges arising from the lengthy procurement procedures and delayed release of funding, the FSDP Secretariat engaged cooperating partners, on a possible no-cost extension to the project for a further 1 2 years. The FSDP was to come to an end in December Some development partners committed to provide technical assistance in reviewing and assessing the impact and progress of the project as a basis for developing a no-cost extension project document for Government and donor approval. Further, this process was expected to allow both the FSDP stakeholders and Government to incorporate other priority reform areas that may be in line with the new Government s manifesto and agenda (and may not have been in the initial project document of the FSDP II). The revised roadmap and updated project document was outlined in a concept note prepared by the Secretariat and endorsed by the FSDP Steering Committee in the third quarter of The Government, through the Ministry of Finance, subsequently approved a two-year no-cost extension to the FSDP Phase II project to run January 2013 to December This was also intended to facilitate the conclusion of various on-going initiatives under FSDP Phase II Project Closure The closure of the FSDP Phase II was deferred to June, 2015 following the approval of a six months no cost extension from 1 st January to 30 th June, 2015 which was approved by the FSDP Steering Committee and the Government of Finland in the 4 th quarter of The extension is intended to facilitate a smooth wind down of the project. The six months extension will commence with the conclusion of outstanding activities from January to March, 2015, while the winding up work will run from April to June The winding down activities will include a self-assessment of the FSDP project in April/May 2015 with technical support from Finland and an audit which will be undertaken by a private or public auditor Rebasing of the Zambian Kwacha The Government of the Republic of Zambia approved the recommendation of the BOZ Board to rebase the national currency. Consequently, the Bank of Zambia set 1st January 2013 as the changeover date when the rebased currency would become legal tender. 12 P a g e

16 The Zambian currency, the Kwacha was rebased by dividing the old currency by 1000 units, in order to address costs associated with an accumulated loss in the value of the currency that undermined its basic function as a store of value, medium of exchange and measure of value. This loss of value was as a result of high inflation rates over a prolonged period of time, particularly in the 1990 s The Financial Sector Development Agenda beyond 2014 Following the no cost extension of the FSDP Phase II for an additional six months, the project is now expected is now expected to end on 30 th June, 2015, However, there remains a need for a comprehensive strategy to guide efforts towards realising the vision of a modern financial system in Zambia. A Financial Sector Strategy for Zambia is envisioned to carry forward outstanding activities from FSDP Phase II and incorporate specific interventions aimed at strengthening the Financial Sector in Zambia. The implementation of the strategy is proposed to be undertaken within similar but streamlined structures of the FSDP. Consultations are already underway with cooperating partners including with the World Bank and Financial Sector Deepening Zambia (FSDZ) on the way forward with a multi stakeholder approach envisaged. In this regard, the Secretariat in December, 2014 hosted a consultant from the FSDZ and a World Bank mission under the Financial Inclusion Support Framework to undertake preliminary work for the Strategy. The proposed road map for the development of the new financial sector Strategy is outlined in below: Planning & Stakeholder Input (Q Q ) Development of Draft Strategy (Q1 Q2 2015) National Buy In and Launch (Q2 Q3 2015) 4.2 Financial Sector Indicators A number of financial sector indicators are provided below for information highlighting the trend of various economic areas since the start of the FSDP programme. However, a more detailed summary of progress made to-date under Phase I & II is highlighted in the tables that follow at the end of section P a g e

17 4.2.1 Table 2: Financial Sector Development Indicators Selected Macro-Economic Indicators Private Credit/GDP -% Stock Market Cap/GDP Ratio (%) Change in Liquid Liabilities (M3) (%) Lending Margin (%) GDP Growth (% in constant 1994 Prices) Annual Inflation (%) Source: Bank of Zambia Table 3: Lusaka Stock Exchange (LuSE) Indicators No. of Trades 2,519 3,662 6,199 8,384 6,619 7,610 7,117 5,681 5,829 5,373 Volume of Shares (million) ,801 1, ,420 1,148 2, Market Capitalisation (US$ m) 2,456 3,188 4,827 4,106 5,273 6,302 9,409 9,399 10,484 10,271 Exchange Rate (K Per US$) 3,500 4,100 3,910 4,985 4,730 4,905 5,200 5, Total Turnover (US$ million) ,102 Market P.E Ratio Source:LuSE Year End Statistics ( Table 4: Financial Sector Development Indicators-Fin Scope Zambia Survey Results 14 P a g e Overall Adult Financial Access (%) Adults Financially Excluded (%) Adults Formally Served (%) Adults Informally Served (%) Adults Banked (%) Source: FinScope Zambia 2009 Survey Report Table 5: Zambia Financial Inclusion Indices for the period FinScope Zambia Survey Bank of Zambia Financial Inclusion Index % 23.2% 5 Weighted % 30.1% 30.7% 39.6% Non-weighted % 33.4% 32.1% 39.9% Source: Bank of Zambia 4 There are 22 listed companies and 6 stock broker members on the Lusaka Stock Exchange (LuSE). 5 The measure of financial inclusion encompassing both formal and informal financial service providers for 2009 was at 37.3%. 6 With regard to the three indicators of financial access, the weight for financial access points is twice that of either the number of administrative units with at least one access point or the proportion of population living in an administrative unit with at least one access point. 7 All the indicators of access and usage have equal weights.

18 4.2.5 Table 5: Financial Sector Development Indicators Banking and NBFIs Sector NUMBER OF BANKS AND NON-BANK FINANCIAL INSTITUTIONS (Under BoZ Supervision) Q2 Banking Sector - Commercial banks Non-Bank Financial Institutions Sector - Leasing Companies Building Societies Bureau De Change Savings and Credit Banks Microfinance Institutions Development Finance Institutions Credit Reference Bureaux Money Transfer Services Financial Businesses Total No. of Licensed Entities Source: Bank of Zambia (BoZ) Mobile Money Subscribers Versus Mobile Phone Subscribers Name Number of Mobile Phone Subscribers Number of Mobile Money Subscribers MTN Mobile Money 5,386,099 1,070, % Airtel Mobile Commerce 3,721,439 4,185, % TOTAL 9,107,538 5,243, % Percentage of mobile money subscribers to total subscribers Source: Bank of Zambia (BoZ) * As at 31 st March Designation of Money Transfer Service institutions commenced in The discrepancy between the number of mobile phone subscribers and number of mobile money users is due to the fact that previously the system used to allow multiple mobile money wallets on a single simcard 15 P a g e

19 INSURANCE Table 6: Financial Sector Development Indicators No. of ATMs and Points of Sale Total Number of Automated Teller Machines (ATMs) and Points of Sale (PoS) countrywide Automated Teller Machines (ATMs) No. of ATM Cards Points of Sale (PoS) Machines No. of PoS Transactions Source: Bank of Zambia (BoZ) 20 Quarter N/ A N/ 357, 434, 584, 879, 1,082, 1,359, 1.676, 2,104, 2,552, A ,275,655 N/ A ,119 1,784 2,025 2,578 3,266 3,899 N/ 256, 403, 468, 543, 805,00 1,210, 1,677, 1,983, 2,937, A ,236 Note: Comprehensive collection of above statistics commenced Tables7 (a c): Financial Sector Development Indicators - Pensions & Insurance Sector Table 7(a) Reinsurers General Insurers Long Term Insurers Agents and Brokers (Including Insurance and Reinsurance Brokers, Composite, Loss Adjustors and Assessors, Claims Agents & Risk Surveyors) Total No. of Licensed Entities Source: Pensions and Insurance Authority Table 7(b) Gross Written Premiums (K Million): General Insurance , , , Long Term Insurance Gross Written Premiums (GWP) , , , , , GWP/ GDP (at current prices): % 1.19 % 1.20 % 1.36 % 1.45 % 1.42 % 1.38 % 1.30 % 1.31% 1.26% 1.12% Source: Pensions and Insurance Authority and CSO 9 These were licensed entities as at 1 st January P a g e

20 4.3 Performance against Monitoring & Evaluation (M & E) Milestones A summary of progress made to-date under Phase I & II is highlighted in Table 8 below. The assessments of progress against set milestones are colour-coded, with green representing an activity that is on track for completion in the proposed timeframe; yellow representing an activity that has made some progress, but which still requires a lot of work to achieve the target; and red, when little or no action has been taken to date, and activities have been delayed. Table 7(c) PENSIONS Fund Managers Fund Administrators Custodians Pension Schemes Members , , , , ,315 91,320 96, , , ,755 Net Fund Values (in K Billion) Table 8 (on the next page) provides the status of milestones set out in FSDP II for reporting during the year 2011, and 2013 with an update for 2014 as at the time of this report. At end of the fourth (4 th ) quarter of 2014, out of the 37 milestones under the FSDP set out for the year, there was 1 red coded milestone (down from 2 as at end 2013), 18 yellow coded ones (up from 16 as at end 2013), and 18 green milestones (down from 19 as at end 2013), respectively. There were no red milestones at the end of the 4 th quarter of The status on the repeal of the Money Lender s Act was changed to green following the decision by the Bank of Zambia not to repeal the law but bring it under its regulatory ambit.. 10 NAPSA members excluded but PSPF is included just up to ( figures are estimates). 11 It should be noted that the monthly MoF monitoring meeting held on January 11, 2011, resolved to remove all previous green coded milestones from the reporting matrix and only report on those milestones intended to be implemented thereafter. 17 P a g e

21 FSDP PROGRESS REPORT AS AT DECEMBER 2014 Table 8 - Performance against FSDP Milestones 12 Item Legal and regulatory Reform Serial Number Amount Expected Output 1. Finalisation of Amendments to the BoZ Act 2. Finalisation of proposed amendments to the Banking and Financial Services Act Revised Time Progress to Date Frame for nd Qtr The Bank of Zambia finalised the incorporation of comments initially made by the Ministry of Finance (MoF) and resubmitted the draft Bill to the MoF. Cabinet approval has been granted and the bill has been submitted to the Ministry of justice for further legislative process. 2 nd Qtr A layman s draft Bill of proposed amendments was submitted to the Ministry of Finance in May, Cabinet approval was granted in the 2 nd quarter of 2014 and the bill has been submitted to the Ministry of justice for further legislative process. Colour Code GREEN GREEN 3. Amendments to Building Societies Act and Housing Finance regulations submitted to MoF th Qtr The Building Societies Act (BSA) was initially amended under FSDP Phase I in conjunction with the amendments to the Banking and Financial Services Act (BFSA). However, the BSA is currently being reviewed following engagement of legal experts under the FSDP The BFSA will be the principal piece of legislation for the financial sector and will be supported by sector specific Acts, such as the BSA. It is expected that the revision of the Bill will be finalised during the 4th quarter of 2014 after which it will be submitted to MoF for further consideration. YELLOW 12 The assessments are colour-coded, with green representing an activity that is on track for completion in the proposed timeframe; yellow representing an activity that has made some progress, but which still requires a lot of work to achieve the target; and red, when little or no action has been taken to date, and activities are much delayed. 13 As part of the rationalization to harmonise related milestones, the finalization of housing finance and development finance regulations (indicated above) has been separated. Amendments to the Building Societies Act and the development of housing finance regulations have been incorporated as one under section (9) as they are complimentary. A Statutory instrument is required to effect the regulations once approved by Govt. 18 P a g e

22 Item Serial Number Amount Expected Output Revised Time Frame for 2014 Progress to Date 4. Securities Act 2 nd Qtr A layman s draft Bill of proposed amendments was submitted to the Ministry of Finance in May, Cabinet approval was granted in the 2 nd quarter of 2014 and the bill has been submitted to the Ministry of justice for further legislative process. 5. Pension Scheme Regulation Act (PSRA) 2 nd Qtr A layman s draft Bill of proposed amendments was submitted to the Ministry of Finance in May, Cabinet approval was granted in the 2 nd quarter of 2014 and the bill has been submitted to the Ministry of justice for further legislative process. 6. Insurance Act 2 nd Qtr A layman s draft Bill of proposed amendments was submitted to the Ministry of Finance in May, Cabinet approval in principle was granted in the 2 nd quarter of 2014 and the bill has been submitted to the Ministry of justice for further legislative process. 7. Money lenders Act 4 th Qtr The Act was initially considered for repeal after a framework for the delegated supervision of the smaller tier 3 MFIs is in place. However, the course has changed following a decision by the Bank of Zambia not to repeal the Act but bring it under its regulatory ambit. Colour Code GREEN GREEN GREEN GREEN 8. Leasing Laws 4 th Qtr The FSDP Secretariat in collaboration with the BoZ, the Leasing Association of Zambia, the Bankers Association of Zambia and other relevant stakeholders in the financial sector held a series of meetings to chart the way forward on this matter. Leasing sector consultative meetings took place in 2011 and 2012 and comments were consolidated as a basis for further research. YELLOW 19 P a g e

23 Item Serial Number Amount Expected Output Revised Time Frame for 2014 Progress to Date Going forward, it has been resolved that the relevant provisions be incorporated in the BFSA, currently under Government consideration, and where necessary proposals for amendments to the Hire Purchase Act be submitted. Colour Code In the interim, a separate leasing law is also being developed to allow for legal provisions that are specific to the sub sector. In addition, legal consultants have been engaged under the FSDP to further develop the leasing Law. It is expected that the proposed law will be finalised during during the 4 th quarter of 2014 after which it will be submitted to the Ministry of Finance for further consideration. 9. Final proposed harmonisation of financial sector legislation under the 2 nd round of the Law review: Building Societies Act and Housing Finance Regulations Bills of Exchange Bill Leasing laws Cheques Act National Payment Systems Act Personal Property 4 th Qtr Lawyers to undertake review of the laws were engaged in the 1 st quarter of The harmonisation process of the draft laws will be undertaken once the laws are comprehensively reviewed. It is expected that this exercise will conclude during the of the 4 th quarter of 2014 after which the draft laws will be submitted to the Ministry of Finance for onward transmission to the Ministry of Justice by year end. YELLOW 20 P a g e

24 Item Serial Number Amount Expected Output Security Interest Bill Revised Time Frame for 2014 Progress to Date Colour Code Payment Systems 10. A National switch to ensure sharing of infrastructure for retail payment systems. 4 th Qtr The technical team met in the 1 st quarter of 2014 to finalise the Request For Proposal (RFP) in line with the recommendations from the study tour.the tender was floated in the various print media and closed on 17 th April A team comprising officers from Bank of Zambia, Zambia Electronic Clearing House Limited and Commercial banks met to evaluate the bids in April However, no successful bidder emerged from the evaluation and the tender was re advertised. The tender was re-advertised June, 2014 and procurement process is well advanced. A revised timeframe has been has been drawn and it is anticipated that a contract will be awarded by the third quarter of The national switch is now expected to be implemented and operational by the end of YELLOW Accounting and Auditing Standards 11. Draft regulatory framework for Payment System operations and oversight 12. Harmonized accounting and Companies Act 4 th Qtr The draft electronic money directives were finalised and submitted for approval and publication in the Government Gazette. 2 nd Qtr Following the amendment of the Accountants Act enacted in September 2008, the Companies Act was partially reviewed in 2011 but was scheduled for a comprehensive review at the end of 2012 through to early 2013 which would include the harmonisation with the Accountants Act. This work is underway at PACRA although delayed into YELLOW YELLOW 21 P a g e

25 Item Serial Number Amount Expected Output Banking 13. Draft framework for branchless banking Revised Time Frame for th Qtr Progress to Date The branchless banking regulations were drafted and presented to stakeholders for review in 2012.The comments from stakeholders have since been incorporated with the draft regulations were submitted to MoF in Colour Code GREEN 14. Review Know Your Customer (KYC) Requirements 1 st Qtr The BoZ in consultation with the FSDP Access to Finance Working Group developed a risk based (or relaxed) KYC framework and Practice Note which also received input from the Financial Intelligence Unit. The Practice Note has since been issued to banks (in October 2011) and is intended to guide financial institutions to exercise flexibility in applying the KYC regime. GREEN 22 P a g e

26 Item Non-Bank Financial Institutions Serial Number Amount Expected Output 15. Develop and implement a Unified Collateral Registry Revised Time Frame for th Qtr Progress to Date Following a request by the Bank of Zambia, International Finance Corporation (IFC) accepted to provide technical assistance to develop a framework for the implementation of a unified collateral registry in Zambia. An IFC team of experts visited Zambia in the 4 th Quarter 2012 to conduct a diagnostic review of existing legislative framework and mapping of existing registries. The IFC conducted its second visit with a legal expert to provide technical advice on the legislative framework in January On 11 March 2013, the IFC consultants submitted a draft Security Interests and Collateral Registry Bill for consideration and review by Zambian stakeholders. Since then PACRA and BoZ have held countrywide stakeholder meetings to discuss the draft bill and receive public input before finalisation. The draft bill has since been finalised with consideration of stakeholder comments. The bill was submitted to the Ministry of Commerce Trade and Industry in May, 2014 for further legislative process. Colour Code YELLOW In addition, BoZ, PACRA and IFC entered into a trilateral Memorandum of Understanding for technical assistance from the IFC in the development of the collateral registry. As part of the technical assistance, the IFC facilitated a study visit to Ontorio Canada during the fourth quarter of Further study visits have been scheduled for In addition, IFC conducted a mission visit to Zambia during the last quarter of 2014 to sensitise stakeholders on the collateral registry and obtain stakeholder input on the text of the Security Interests and Collateral Registry Bill. 23 P a g e

27 Item Serial Number Amount Expected Output Financial Education 16. Develop and commence implementation of the National Strategy on Financial Education Revised Time Progress to Date Frame for st Qtr The strategy was developed and is intended to facilitate the coordination of various activities at a national level and includes the stock-take of existing financial education programmes in Zambia, as well as identifies possible financial education programmes and opportunities. The aim of the strategy is to improve the knowledge, understanding and financial education skills of the Zambian population in order to increase their participation in the financial sector and improve their financial choices and livelihoods. The Strategy was launched on 12 July 2012 and the Financial Education Coordinating Unit (FECU) has been established to oversee implementation of the strategy. To date, a Project Co-ordinator (from the Bank of Zambia) and a Project Officer (from the Pensions and Insurance Authority) have been seconded to the FECU. The German Savings Banks Foundation for International Cooperation (SBFIC) has also seconded a long term Adviser to the FECU who will be resident in Zambia until 2017 to assist in the implementation of the strategy. The development of the national financial education strategy for Zambia followed a one and half year consultative process, and stakeholder discussions of the draft document that had been presented.. Colour Code GREEN 24 P a g e

28 Item Serial Number Amount Expected Output Contractual Savings 17. Amend the Pension Scheme Regulation Act that exempts the National Pension Scheme Authority (NAPSA) from supervision. Revised Time Progress to Date Frame for st Qtr The Pension Scheme Regulation Act has been reviewed but is awaiting Government approval. The proposal for independent supervision of NAPSA by PIA has been accepted in principle by the technical review team. In late 2011, the Secretary to the Treasury at MoF appointed a committee to consider the modalities for executing the proposal. The committee comprises representatives from PIA, NAPSA, BoZ, MLSS and MoF but is yet to commence its review meetings. However, there are wider discussions for pension reforms at national level under the Ministry of Labour, which include revisions to the retirement age from 55 to 65 in the public sector. Colour Code GREEN Corporate Governance 18. Model Board Charter 1 st Qtr The Model Board charter was presented at a stakeholders meeting with financial sector players on 25 and 26 October 2011 respectively. This will complement the corporate governance guidelines for banks & NBFIs already in place and issued under Phase I. GREEN 19. Undertake Corporate Governance Status Audit 1 st Qtr The FSDP Secretariat engaged the Institute of Directors (IoD) in October 2012 as consultants to undertake this activity. A Status Audit on Corporate Governance in the financial sector has been undertaken and a report submitted to the FSDP Secretariat in December As the initial work focussed on a sample of institutions, it was recommended by the regulators that the corporate governance audit be extended to all licensed financial sector entities. This was done during the second half of 2014 and the stakeholder review is envisaged in 2015 GREEN 25 P a g e

29 Item Serial Number Amount Expected Output 20. Develop Ethics and Corporate Governance Codes Revised Time Progress to Date Frame for st Qtr To support the model board charter, a corporate governance code (to cover other financial sector players as well) has also been developed by the Institute of Directors (IoD) who were engaged as consultants to undertake this activity in October A final report was developed and submitted to the FSDP Secretariat in December Colour Code GREEN As a follow on to this, it was resolved that corporate governance training be extended to Board Chairpersons of regulated institutions under BoZ, PIA and SEC which was done in 2013 and Corporate Governance Seminars targeted at Executives in Financial Institutions 1 st Qtr The 1st Consultative workshop on sector wide board charter was held in Lusaka in March Follow up corporate governance seminars for corporate leaders on the Copperbelt and in Lusaka took place in November and December GREEN 26 P a g e

30 Item Crisis Management & Market Exit Mechanism Serial Number Amount Expected Output 22. Draft Contingency planning framework/ Draft Bank Resolution mechanism Revised Time Frame for rd Qtr Progress to Date Proposals of names for the BOZ Financial Stability Committee and for the Joint Financial Stability Committee have been made to conclude the establishment of the institutional structures under the framework. Further, the legislative arrangements underpinning the framework from BoZ are also under consideration by MoF. Colour Code YELLOW So far the Financial Stability Unit has been established, whilst the BOZ Financial Stability Committee and the Joint Financial Stability Committee are yet to be put in place. Work on the Crisis Management Handbook is underway and will be finalised by the Committee that was set up to establish the framework which will be handed over to the Financial Stability Unit by the end of Financial Identification System 23. Draft technical proposals of the new financial identification system 4th Qtr A technical expert from Germany (Dr. Nicola Jentzsch) was engaged with funding support from the Alliance for Financial Inclusion (AFI) to develop a position paper outlining key components to be considered for inclusion onto the NRC. GREEN The position paper was finalised and submitted to the Ministry of Home Affairs for consideration during the 3 rd quarter of P a g e

31 Increasing Efficiency Item Market Serial Number Amount Expected Output 24. Develop Curriculum for training Actuaries Revised Time Progress to Date Frame for th Qtr A Post graduate Diploma in Actuarial Science has been developed by the University of Zambia following award of the contract to undertake the work in December, A draft syllabus was submitted to the FSDP Secretariat in the 2 nd quarter, 2014 and was subjected to a wide stakeholder consultative process both local and international. Following incorporation of stakeholder comments the final syllabus was approved by the FSDP in the 3 rd Quarter of Colour Code GREEN The pilot programme has now been rolled out at UNZA, the first intake for the Post Graduate Diploma In Actuarial Science commenced in November, Human Capital 25. HIV/AIDs Guidelines for financial institutions approved by FSDP Steering Committee. 1 st Qtr HIV/AIDS Guidelines were developed under FSDP phase I. However, the FSDP Implementation Committee recommended that financial institutions be required to follow the national HIV/AIDS policy as endorsed by the National Aids Council and not to have separate policies. In this regard, it was proposed and resolved that this milestone be removed from the FSDP framework. GREEN 28 P a g e

32 Item Serial Number Amount Expected Output 26. Develop a comprehensive personal information data base in financial sector Revised Time Progress to Date Frame for th Qtr The Bank of Zambia developed an ICT-based framework 14 for an information database (to be housed at Bank of Zambia) for professional staff in the financial sector Initially this will cover all banks and nonbank financial institutions under Bank of Zambia s supervisory ambit and will later be extended to institutions under the Pensions and Insurance Authority and, the Securities and Exchange Commission. Colour Code YELLOW Presentation of the system by BoZ to Human Resources and ICT staff in banks and NBFIs was held in mid A Circular was sent by the FSDP Secretariat to all Banks and Non-Bank Financial Institutions (NBFIs) to request information about their professional employees as at 2012 in order to populate the database on the BoZ website. The aggregated information once analysed was intended to be availed to the public by 2013 in a consolidated and would be used to highlight gaps or areas of limited technical skills and facilitate training initiatives in such fields. However, following technical challenges in rolling out the database, the project was discontinued. A new database was developed in 2014 and it is currently undergoing internal testing. A pilot test run involving selected institutions is expected to be undertaken early in 2015 before the system becomes fully operational. 14 Proposed framework will allow authorized representatives in banks and NBFIs to log on to the BoZ website and upload the information. This platform is now expected to be ready by1 st quarter P a g e

33 Item Serial Number Amount Expected Output 27. Gender policies at places of work in financial sector developed Revised Time Progress to Date Frame for th Qtr. The Bank of Zambia issued a circular in mid-2011 to Commercial Banks and NBFIS requesting them to submit data on gender issues. The returns have been consolidated but to ensure efficiency, the Gender questionnaire and the professional information data questionnaire (referred to above) are being amalgamated into one. Colour Code YELLOW Financial Development Market 28. Finalise Strategy and Implementation Plan for SEC 1 st Qtr Strategy developed and finalised. To operationalize it fully, SEC awaits approval of new securities bill by Government and Parliamentary legislation. GREEN* 29. The development of the Money Market reference rate to develop a link between the domestic foreign exchange market and the money market to assist with the pricing of derivatives Instruments. 4 th Qtr A paper on the development of the money market reference rate (i.e. The Lusaka Interbank Offer rate) has been done. Commercial banks have provided initial comments on the draft document which have been consolidated. The revised document has been shared with the market for validation before the implementation is undertaken. YELLOW 30 P a g e

34 Item Serial Number Amount Expected Output Micro-finance 30. Strengthen micro-finance regulations 31. Draft Regulations for consumer lending Micro Insurance 32. Develop Micro-insurance National Strategy Revised Time Progress to Date Frame for th Qtr The BoZ has proposed amendments to the Microfinance Regulations. Following consultations with stakeholders during the 2 nd quarter of 2014, one of the key recommendations was that the Regulations be turned into a stand-alone Act as opposed to them being issued under the Banking and Financial Services Act, which piece of legislation has provisions that mainly suit the banking institutions. In this regard, the Draft Microfinance Services Bill will be re-circulated to stakeholders and a stakeholders consultative meeting was re-circulated to stakeholders and a stakeholders consultative meeting was held 30 September The bill has been updated with the stakeholder comments and is being reviewed by the Bank of Zambia Legal Services Department in readiness for submission to the Ministry of Finance. 4 th Qtr BoZ has initiated studies for the development of guidelines for both consumer lenders and borrowers through re-categorisation, as indicated above. 4 th Qtr Micro-Insurance Action Plan and draft strategy was prepared under the PIA led Technical Advisory Group. Official launch of the micro-insurance national strategy was undertaken during the commemoration of the Insurance week which was held in the 4 th quarter of 2013 from 14 th to 18 th of October, Colour Code YELLOW YELLOW GREEN 31 P a g e

35 Item Serial Number Amount Expected Output Rural Finance 33. Develop Rural Finance Policy/Strategic Framework through the Rural Finance Programme Policy to incorporate the development of a warehouse certificate program. Revised Time Frame for nd Qtr (completed in 2013) Progress to Date Following the Rural Finance Programme tender for a consulting firm to develop the Rural Finance Policy, Oxford Policy Management of UK were engaged to develop the Rural Finance Policy and Strategy. Work commenced late in the fourth quarter of 2011 after signing the service contract and an Inception Report as well as a Draft Report has been produced. As part of the development process, a Stakeholders Rural Finance Forum was held in May Colour Code GREEN The Rural Finance Policy and Strategy which was finalised in form of a Cabinet memorandum and submitted to the Government was approved in May Study to consider agricultural supply chain completed. 2 nd Qtr (completed in 2013) Status on this milestone is tied to the one above. GREEN Development Finance 35. Development Finance regulations submitted to MoF. 4 th Qtr A draft copy of the Development Finance Regulations was developed. However, following extensive study and review of the proposal to develop regulations, the BoZ was of the view that the current legislative framework was adequate for the prudential oversight of Development Finance Institutions (DFIs). The provisions of the Banking and Financial Services Act (BFSA) and existing regulations apply to DFIs, and can be amended to suit development finance business. In this regard it was concluded that separate regulations for Development Finance were not required. GREEN 32 P a g e

36 Item Serial Number Amount Expected Output 36. Establish a Development Fund Revised Time Progress to Date Frame for th Qtr In April 2011 Development Bank of Zambia (DBZ) and Zambia Development Agency (ZDA) had signed the MOU relating to the creation of the Zambia Enterprise Development Fund (ZEDF), the core of which would be an SME fund. The two parties intended to proceed with the implementation of the MOU in earnest, with the launch of the Fund initially scheduled for 2013 but later rescheduled. Colour Code YELLOW The ZED Fund has, however, mutated and DBZ has decided not to go ahead with the establishment of the ZED Fund following a review of their strategic plan.. The ZDA will channel funds in this respect to DBZ for the establishment of a credit line to on-lend to Small and Medium Enterprises (SMEs). The Access to Finance Working Group has since resolved to review the initial objective of setting up the ZED Fund to assess if it could still achieve the establishment of an Apex Fund. 33 P a g e

37 Item Study on reform of financial sector tax regime in Zambia Serial Number Amount Expected Output 37. Consultants Identified and Final Report Produced Revised Time Frame for st Qtr (completed in 2013) Progress to Date In 2011, the FSDP Secretariat commissioned a study to review the tax regime in the financial sector and its implications on the sector s development in Zambia. One of the key objectives of this study was to examine the role taxation and other regulatory measures can play in the promotion of financial access, particularly in areas that remain underserved by financial institutions. The Study Team s research included the review of previous submissions to the MoF Annual Tax Review Committee. In addition to the in-country research, the study team carried out regional comparisons to appreciate the design of financial sector taxation in related countries and draw relevant lessons. Colour Code GREEN The report was presented to a wider stakeholder s workshop on 18 July 2012 for further scrutiny and input before submitting the updated report for Government s National Budget and policy consideration on 31 July Two recommendations of the Financial Sector Tax study report were adopted and incorporated in the 2013 National Budget including; Abolishing the medical levy charged on interest earned on savings or deposit accounts, treasury bills, government bonds or other similar financial instruments and removal of Withholding Tax on interest earned by individuals from savings or deposit accounts held with financial institutions such as banks or building societies. TOTAL YELLOW PERFORMANCE Note: The initial five-year period for the FSDP Programme approved by Cabinet came to an end on June 30 th, Following this, and given the numerous outstanding issues and new developments since 2004, Government on 14th January 2010 approved the extension of the FSDP programme, under phase II, to December In December 2012, the Government approved a further extension of the FSDP phase II programme to run until December P a g e

38 5.0 FINANCIAL EDUCATION COORDINATION UNIT (FECU) 5.1 Financial Literacy Week 2015 The 2015 Financial Literacy Week was held under the theme Saving with the slogan; A Better Life Through Saving, Every Ngwee Counts. The 2015 Financial Literacy Week built on the Saving campaigns conducted during the 2014 Financial Literacy Week, whose theme was A Better Life Through Saving. The week was observed from March 2015 with activities undertaken in all the 10 provinces of the country reaching over 26,000 people directly. With a robust media programme in place during the campaign, which included radio and television programmes, an estimated 5 million people were reached. Other activities that were lined up for the week included the following: a. A launch on the Zambia National Broadcasting Corporation (ZNBC) and Muvi television by the Honourable Minister of Finance, Mr Alexander Chikwanda; b. A Kick-Off event on 13 March 2015 at the Olympic Youth Development Centre (OYDC) in Lusaka; and, c. Provincial activities undertaken through the Provincial Permanent Secretaries and their staff which included: mini-launches held mainly in the Provincial capitals; exhibitions by financial institutions; financial education talks, visits to schools and market events. 5.2 Coin-A-Thon Competition During the first quarter of 2015 the Financial Education Coordination Unit (FECU) organised a savings competition for young people called Coin-A-Thon. The objective of the competition was to promote the culture of saving among young people and to bring back coins into circulation. The competition had 17 schools that were given piggy banks in which they collected coins over a period of 6 weeks. The climax of the competition was at the Kick-off event of the Financial Literacy Week where the coins collected by the participating schools were counted. The winners of the competition were Mary Queen of Peace Secondary School, while Matero Girls Secondary School and Matero Boys Secondary School got second and third place, respectively. The total value of coins collected was close to K8, Collaboration with Mobile Phone Network Operators The FECU engaged the three Mobile Network Operators (Airtel, MTN and Zamtel) with a view of having them in disseminating financial education messages via mobile phones on the sms platform. As part of the Financial Literacy Week, Zamtel and MTN sent out text messages on various financial sector concepts. The combined market share for MTN and Zamtel is 62% (10 million subscribers) implying that approximately 6 million subscribers were reached. 5.4 Development of the Financial Education Website Through the support from the German Savings Banks Foundation for International Cooperation (SBFIC) a financial education website was developed and launched in February It is envisaged that the delivery of financial education through the website will encourage more people to have access to financial literacy. 35 P a g e

39 5.5 Training of Trainers in the Micro Business Simulation During the first quarter of 2015, the FECU continued its collaboration with SBFIC and other stakeholders by training trainers in the Micro-Business-Simulation through a Training of Trainers (ToT) programmes. Since May 2013 a total number of 60 trainers have been trained and these have conducted trainings for more than 3,250 MSMEs. It is expected that these trainers shall train an additional 1,000 MSMEs in the next three months. The focus for the current phase is to reach out to other provinces outside Lusaka Financial Education for Children and Youth The Financial Education Coordination Unit (FECU) participated at a youth outreach event which was held on 12 March 2015 by the Deeper Life Church. The FECU made a presentation on the National Strategy on Financial Education and on the importance of saving in relation to the opportunities available in the market. The event was attended by more than 400 young people drawn from Lusaka some townships. 5.7 Financial Education for Adults The Financial Education Coordination Unit (FECU) in collaboration with the Zambia Police Gender Office conducted two full-day training sessions for the Zambia Police Service, one for 50 senior officers and the other for 50 junior officers. The training was delivered by a consultant from Africa Trust Academy and covered topics such as setting financial goals, budgeting saving and fundamentals of entrepreneurship. The objective of the training was to improve the financial capability of Police officers to enable them manage their income efficiently and prepare for retirement. 5.8 Cross-cutting Financial Education Programmes The FECU in collaboration with the Savings Banks Foundation for International Cooperation (SBFIC) produced a ten-series soap called Get to Know Your Numbers. The soap is based on the Business Simulation Game and aims at teaching Micro, Small and Medium Entrepreneurs the basic skills required for one to successfully run a business. The series were broadcast on national television during the month of March A periodical on financial education for Zambia was published during the first quarter. The periodical contains articles on financial education initiatives being undertaken by various stakeholders. 6.0 FSDP PHASE II FINANCING ARRANGEMENT The financing arrangement and budget summary for the second phase of the FSDP will consist of several participants, with the main funding expected to be provided by the Government of the Republic of Zambia, Bank of Zambia and international cooperating partners, led by the Government of Finland. Support arising from technical assistance has however not been incorporated at this stage, but will be highlighted as and when provided. A breakdown of the financing is provided below: FINANCIER K Million US $ Government of Zambia (K3 Million) , Bank of Zambia FSDP Secretariat (K6 Million) ,153, Bank of Zambia FSDP Allowances (K690,800) , Cooperating Partners (K28.3 Million) ,446, Grand Total ,310, P a g e

40 7.0 OUTLOOK FSDP II proposes three project components, namely, (i) market infrastructure, (ii) increasing competition, and (iii) access to finance. FSDP II has kept the participatory approach used under the FSDP I, with working committees grouped into the three identified strategic pillars. The focus of the FSDP programme going forward, among others, will include implementation of the following project activities: Consumer awareness/ literacy on banking and other financial services; The national strategy on financial education; Facilitation of the adoption of good corporate governance principles to encourage investments in institutions that observe good corporate best practices; Finalization of the proposed modernization and harmonization of financial sector legislation under the law review exercise (including finalisation of the law for credit reference services); Implementation of the national switch; Strengthening payment systems and oversight; Expanding access to savings and credit; and, Further developing the securities market. The FSDP Secretariat will continue to prepare progress reports on a quarterly basis which will be made available to the public through the BoZ website, 37 P a g e

41 8.0. FINANCIAL INCLUSION - DISTRIBUTION OF COMMERCIAL BANKS AND NATIONAL SAVINGS AND CREDIT BANK (NSCB) BRANCHES IN ZAMBIA 38 P a g e Colour Key Districts where there is no branch of either a commercial bank or NSCB (currently 19) Name Number of Bank Branches Number of NSCB Branches Zanaco Express/ Agents 1. Batoka Chadiza Chama Chavuma** Chembe** Chibombo Chiengi Chikankata Chilanga Chililabombwe Chilubi** Chingola Chinsali Chipata Chipili Chirundu Chisamba** Chitambo Choma Chongwe Gwembe** Ikelenge Isoka ItezhiTezhi Kabompo Kabwe Kafue Kalabo** Kalomo Kalulushi Kaoma KapiriMposhi Kaputa Kasama Kasempa Katete Kawambwa Kazungula Kitwe Total Branches

42 40. Limulunga** Livingstone Luampa Luangwa Luano Luanshya Lufwanyama** Lukulu Lundazi Lunga Lusaka Luwingu Maamba Mambwe Mansa Mafinga Manyinga** Masaiti Mazabuka Mbala Milenge** Mitete Mkushi Mongu Monze Mpika Mpongwe** Mporokoso Mpulungu Mufulira Mufumbwe Mulobezi Mumbwa Mungwi** Mwandi** Mwansabombwe Mwense** Mwinilunga Nakonde Nalolo Namwala Nchelenge Ndola Ngabwe Nkeyema** Nsama Nyimba** Pemba** P a g e

43 88. Petauke Rufunsa Samfya Senanga Serenje Sesheke Shangombo** Shibuyunji** Shiwang andu Siavonga Sikongo Sinazongwe Sinda** Sioma Solwezi Vubwi Zambezi Zimba TOTAL NB: Following the new Governments decentralisation policy after the September 2011 General elections, the Government has created new districts as highlighted above. ** Districts reported as initially unbanked in the year The partnership between Zambia National Commercial Bank Plc (Zanaco) and Zampost has fallen through, and Zanaco has since partnered with some SMEs as their agents, currently standing at 107. This led to the reduction in the number of agents from 130 reported in the 2 nd quarter, of P a g e

44 8.1 COMMERCIAL BANK BRANCH DISTRIBUTION BY PROVINCE AS AT 31 st DECEMBER 2014 ABBREVIATIONS AB - AB Bank Zambia Ltd Access - Access Bank (Z) Ltd BBZ - Barclays Bank Zambia Plc BancABC - African Banking Corporation (Z) Ltd. BOC - Bank of China (Z) Ltd. Cavmont - Cavmont Bank Ltd Citi - Citi Bank (Z) Ltd Eco - Ecobank Zambia Ltd. FBZ - Finance Bank Zambia Ltd FAB - First Alliance Bank (Z) Ltd. FNB - First National Bank (Z) Ltd. Indo - Indo-Zambia Bank Ltd Intermarket - Intermarket Banking Co. (Z) Ltd. ICB - International Commercial Bank (Z) Ltd. Investrust - Investrust Bank Plc Stanbic - Stanbic Bank (Z) td. Stanchart - Standard Chartered Bank (Z) Plc UBA - United Bank for Africa (Z) Ltd. Zanaco - Zambia National Commercial Bank Plc Source: Bank of Zambia 41 P a g e

45 8.2 NON BANK FINANCIAL INSTITUTIONS BRANCH DISTRIBUTION BY PROVINCE AS AT 31 st MARCH 2015 NORTH WESTERN Building societies (2) Microfinance institutions (3) Bureaux de change (1) Savings & credit institutions (4) COPPERBELT Building societies (8) Microfinance institutions (24) Bureaux de change (22) Savings & credit institutions (5) Leasing companies (3) LUAPULA Microfinance institutions (2) Savings & credit institutions (3) NORTHERN Building societies (1) Microfinance institutions (2) Savings & credit institutions (4) MUCHINGA Building societies (1) Microfinance institutions (2) Bureaux de change (7) EASTERN Building societies (1) Microfinance institutions (8) Bureaux de change (4) WESTERN Building societies (1) Microfinance institutions (4) Savings & credit institutions (4) 9 22 SOUTHERN Building societies (3) Microfinance institutions (7) Bureaux de change (11) Savings & credit institutions (1) 141 LUSAKA Building societies (4) Microfinance institutions (44) Bureaux de change (79) Savings & credit institutions (6) Leasing companies (6) Development finance institutions (1) Credit reference bureau (1) CENTRAL Building societies (2) Microfinance institutions (6) Savings & credit institutions (1) Source: Bank of Zambia 42 P a g e