microfinance zambia

Zambia is a mineral-rich country and the second largest producer of copper on the continent. With an average GDP growth rate of 6.33 percent over the past decade, Zambia has achieved relative macroeconomic stability, and in 2011 was reclassified by the World Bank as a middle income country, with a GNI of between US$1 830 and US$3 070 a year. The economy grew by 6.5 percent in 2013, and was projected to grow by 7.1 percent in 2014 and 7.4 percent in 2015, making Zambia one of the world’s fastest growing economies. Inflation rose to 8.0 percent in August 2014 (from 7.1 percent in August 2013), and is expected to rise slightly over the coming year. The country is increasingly a destination for foreign investment due to its positive economic indicators and burgeoning mining industry.

In September 2012, Zambia launched its first US$750 million, 10-year Eurobond – the most successful bond launch in Sub-Saharan Africa, with bids more than 15 times the amount on offer. The proceeds from the bond have been used to fund road and railway infrastructure, as well as

Zambia is a mineral-rich country and the second largest producer of copper on the continent. With an average GDP growth rate of 6.33 percent over the past decade, Zambia has achieved relative macroeconomic stability, and in 2011 was reclassified by the World Bank as a middle income country, with a GNI of between US$1 830 and US$3 070 a year. The economy grew by 6.5 percent in 2013, and was projected to grow by 7.1 percent in 2014 and 7.4 percent in 2015, making Zambia one of the world’s fastest growing economies. Inflation rose to 8.0 percent in August 2014 (from 7.1 percent in August 2013), and is expected to rise slightly over the coming year. The country is increasingly a destination for foreign investment due to its positive economic indicators and burgeoning mining industry.

In September 2012, Zambia launched its first US$750 million, 10-year Eurobond – the most successful bond launch in Sub-Saharan Africa, with bids more than 15 times the amount on offer. The proceeds from the bond have been used to fund road and railway infrastructure, as well as harmonise salaries of civil servants. On 1 January 2013, the Zambian currency was rebased, and a new currency symbol, ZMW, was adopted. One Kwacha of the rebased currency (ZMW) is equivalent to 1 000 ‘old’ Kwacha (ZMK). The intention was to strengthen the use of the currency by pegging its value at a more convertible rate with foreign currencies, and provide a more usable value for transaction on local goods and services. In 2014 the government launched another 10-year dollar bond of US$1 billion. This bond, although also oversubscribed like the 2012 bond, was offered at a much higher cost, priced at 8.625 percent as compared to 5.625 percent for the 2012 Eurobond. This higher cost reflects a weaker Zambian economy, burdened by a depreciating currency and a budget deficit of 8.5 percent of GDP in 2013.

Zambia’s population (estimated at 14.5 million in 2013) is very young: 54 percent are under the age of 18, partly a consequence of the high prevalence of HIV/AIDS (14 percent of the population between the ages of 15 and 49). Most of the population is rural; 40 percent live in urban areas. A 4.3 percent urbanisation rate (versus a 3.2 percent population growth rate) suggests that this will soon change. UN-Habitat expects that Zambia will be 50 percent urban by 2030. With only 11 percent of the working population estimated to be in formal employment, and an informal sector that comprises over 50 percent of the economy, the small tax base impedes government’s fiscal capacity. Recent economic growth has exacerbated inequality. In 2010, according to the World Bank, the GINI index was measured at 57.5, up from 54.6 in 2006.

Access to finance

General access to financial services remains low. In 2012, the World Bank launched the Global Financial Inclusion (Global Findex) Database, exploring levels of financial inclusion around the world. According to this, only 22 percent of rural and 14 percent of urban Zambians over 15 years of age have an account with a formal financial institution. Credit is widely used, with 52.6 percent of adults over 25 years of age saying they had a loan in the past year to 2011. Very few Zambians have an outstanding loan to purchase a home: 1.1 percent of the top 60 percent of income earners and 1.4 percent of the bottom 40 percent of income earners. According to FinScope 2009, 86 percent of adults are unbanked, and 63 percent of adults use no financial products at all. Some 17 percent use products from non-bank financial service providers and 22 percent use informal products. FinScope found that more people save informally (17 percent) compared to those who save through formal channels (10 percent). The extent and use of housing finance is even more limited.

Zambia has a diversified financial sector with 19 commercial banks licensed to operate. The sector has been growing rapidly in recent years. Thirteen banks are subsidiaries of foreign banks, four are locally owned private banks, and two are partly owned by the government. The Lusaka Stock Exchange lists 24 companies, of which three are commercial banks. The Bonds and Derivatives Exchange (BaDEx) has been licensed and promises to be central in developing the bond markets in Zambia.

Zambia’s mortgage market is small, but also growing rapidly. Between 2008 and 2012, mortgages grew from ZMW698 million (US$139.6 million) to ZMW1 208 billion (US$241.6 million); a 256 percent increase. The total residential mortgage loan portfolio stood at ZMW1 493 million at the end of July 2014[1] (US$287 million), of which 80 percent was held by commercial banks and 20 percent by the building societies.   Assuming an average loan size of about US$50 000 (based on March 2014 interviews with three building societies and two commercial banks, loans range in size from US$20 000 to US$600 000), this could suggest a total of almost 5 700 mortgages.

As of December 2013, the three building societies (Finance Building Society, Pan African Building Society and Zambia National Building Society) held a mortgage portfolio of around ZMW298.7 million (US$57 million), combined.[2] Zambia National Building Society (ZNBS) held ZMW111.9 million in mortgages as of March 2014. In December 2013, 1 238 people had access to mortgages via ZNBS, a figure which President Michael Sata hoped to increase by 159 percent by end of 2014—in part through the government’s ZMW167 million recapitalisation of the building society. In his declaration of the recapitalisation, Mr. Sata indicated that this would increase access to housing finance, both in terms of mortgages and incremental housing construction/renovation loans. A key challenge for residential mortgage lenders is access to funding, as the wholesale finance sector and capital market remains underdeveloped. Short maturities on available funds also mean that credit providers struggle to find matched funding for long term credit products like mortgages. This and other risk factors, including the potential of loss given default and high transaction costs, contribute to the high interest rate. As a result, only the highest income earners can access mortgages.

Interest rates offered by mortgage lenders – whether commercial banks or the building societies – are high. The lending interest rate offered by commercial banks in 2014 is 13.6 percent for long-term financing to prime customers. Building societies’ interest rates were higher – hovering around 20 percent. Zambia National Building Society reports mortgage interest rates of 12-16 percent, although their ability to offer cheaper financing as compared to its competition is likely the result of the government recapitalisation mentioned previously.

In late 2012, the Bank of Zambia (BoZ) introduced a Policy Interest Rate as a benchmark indicator against which retail financial institutions are expected to adjust their lending rates. Since then, in January 2013, the BoZ introduced interest rate caps. The cap for commercial banks was set at 9 percent above the Policy Rate, which at February 2014 was 10.25 percent, giving a cap of 19.25 percent. For non-bank financial institutions (including building societies), the policy determines that the maximum interest rate charged shall be a factor of 1.644 relative to the bank rate (i.e. currently 31.6 percent), whilst for microfinance institutions the maximum interest rate charged shall be a factor of 2.302 (i.e. currently 44.3 percent). In this case, the following criteria has been used to define microfinance: At least 80 percent of the total loan portfolio should be serving MSMEs, less than 20 percent of the total loan portfolio should be serving individuals in formal employment and the average loan size per borrower not exceeded ZMW2.5 million. Taking this definition into account, most microlenders in Zambia are therefore classified as non-bank financial institutions.

Zambia’s microfinance sector comprises 35 licensed MFIs. Of these, most are payroll based consumer lenders, accounting for 92 percent of the microfinance sector’s total assets. Only four MFIs are microenterprise lenders, and six are registered as deposit-taking financial institutions in terms of the 2006 Banking and Financial Services Act. As of 2013, 10 MFIs had reported to the Mix Market (an online source of microfinance performance data and analysis) at some point over the previous seven years; together, they indicated a gross loan portfolio of US$21.2 million, with 64 247 active borrowers. The MFIs also held a total of US$4.5 million in deposits from 10 934 depositors. Following the introduction of interest rate caps, the Bank of Zambia has observed that a number of MFIs have sought to streamline their operations, closing marginal branches with high operating costs. Furthermore, some MFIs have reported a decrease in small loan sizes and group lending, in an effort to make lending more cost effective given the interest rate caps.

Housing loan products appear to be increasingly popular – many MFIs already have products and others are in the product development stage. Home improvement loans range from approximately ZMW5 000 to ZMW350 000 (about US$950 to US$65 000) with maximum loan terms of 60 months and charged now at the cap of 31.6 percent or 44.3 percent annually (depending on the type of institution). Building materials company Lafarge is currently undertaking a housing finance pilot project in collaboration with BancABC. The company is also planning a partnership to link building supplies like cement to housing loans from ZNBS.

Pension-backed lending is permissible by Zambian law, but not common, and the role of pension funds in housing financing is limited.

The first credit bureau was formed by the Bankers Association of Zambia in 2006. In 2008, the Bank of Zambia made it mandatory for banks and other financial service providers in Zambia to go through the Credit Reference Bureau (CRB) before granting a loan. In 2012, TransUnion purchased CRB and remains the sole credit bureau in Zambia today.  The system has limited coverage, however; according to the World Bank’s 2014 Doing Business Report, only 12 percent of the population as at 2014. Still, Zambia ranks fairly high internationally in terms of ease of getting credit: 13 th out of 189 countries in 2014.


Affordability levels for conventional housing finance are low, and a recent study suggests that households spend a considerable proportion of their income to address their housing needs. Some

seven percent of the population (about 185 000 households) live in high and medium cost urban areas or large-scale rural areas. Their household expenditure is on average above ZMW2 500 (US$500) a month, and their housing costs are about ZMW400 000 (US$80 000). On average, the monthly expenditure on rental for this group can be up to 50 percent of their income. About 30 percent (835 000 households) live in low cost urban areas, or medium cost and scale rural areas. Their monthly household expenditure is about ZMW1 500 to ZMW2 500 (US$300 to US$500). Housing in this segment costs between ZMW100 000 (US$20 000) for a house constructed with basic materials to ZMW500 000 (US$100 000) for a quality constructed house, and monthly rental expenditure can be as much as 40 percent of income. The majority of the population (63 percent, or 1.765 million households) have a monthly household expenditure of less than ZMW1 500 (US$300). Their housing affordability is for units costing less than ZMW100 000, and they can also spend up to 40 percent of their monthly income on rental. Only 11 percent of employed adults earn a formal salary or wage, undermining access to mortgage finance even further. Stringent terms such as high deposit requirements (as high as 20 percent) and relatively short loan terms from two to ten years make it difficult to afford mortgage finance. Due to the general unavailability of mortgages, many buyers purchase finished units with cash.

The government has made statements regarding improved housing delivery, but its capacity to make a difference is limited by fiscal constraints. Although the National Urban Development Plan projects the delivery of 500 000 units between 2011 and 2016 (based on a projected 15 percent allocation of the national budget to housing), this has never transpired. In 2014, the government has allocated ZMW661 million to Housing and Community Amenities, which is 1.5 percent of the budget. Within this allocation, ZMW417.8 million will be used to enhance access to safe water and good sanitation in both rural and urban areas. In addition, ZMW6 billion (US$1.2 billion) has been allocated for titling of land.  It is estimated that around 60 percent of the population has informal title deeds. The titling process hopes to provide property owners access to title deeds and thereby access to finance.

A relatively cheap newly built house by Silver Rest Housing developer costs US$79 800, and is 84m 2. The minimum stand for residential property in urban areas is 400m 2 .

Housing supply

There is a definite shortage of housing supply in many urban centres, but particularly in rapidly growing towns in the Copperbelt and North Western province, where mining activities have resurged. Employers in these areas report difficulty in retaining staff where a housing shortage exists. A UN-Habitat estimate suggests a backlog of 1.3 million units across the country, and recommends an annual delivery rate of 46 000 units until 2030 (or one every two minutes of the working day for 19 years). Between 2001 and 2011, however, the delivery rate was only 11 000 units per annum.

Most urban growth is informal. UN-Habitat has determined that 70 percent of housing in Lusaka is informal. This stock accommodates about 90 percent of the city’s population but occupies only 20 percent of the residential land. In rural areas, almost 90 percent of stock is traditional or improved traditional housing; traditional housing in urban areas comprises 20 percent of all stock.

More frequently, attention has been on middle upper income earners, even by state sponsored organisations. Both the National Pension Scheme Authority (NAPSA) and the NHA have promoted housing delivery (some in partnership with the private sector) for higher income earners. In August 2013, NAPSA came under fire from the government for targeting its investments poorly, and not focusing on the need for low income housing. The NHA has entered into a 10-year partnership with MBC Construction (an Australian joint venture company) to build 500 000 houses. In 2014, the government of Zambia announced a partnership with three private entities to construct 100 000 housing units a year, to increase the stock of affordable housing in the country.

Middle and high income housing is also getting attention from the private sector. A growing number of developers are interested in supplying housing in the US$40 000 to US$80 000 range, focusing on Lusaka. SmartHomes Africa is a subsidiary of an American real estate and development company focusing on affordable housing in Africa. Operating out of Lusaka, SmartHomes targets the delivery of middle income and affordable housing, workforce and student housing. Their most recent development offers two- to four-bedroom units, starting at US$40 000. The increasing interest in housing supply in Zambia is putting pressure on the mortgage system to grow in parallel. There is also pressure on the land governance system.

Recent macroeconomic developments have had a negative impact on the formal construction industry. In the past, developers have sought foreign denominated loans offered at lower interest rates to finance new development. In May 2012, however, the Minister of Finance introduced a Statutory Instrument (SI 33) prohibiting the use of foreign currency in domestic transactions. This was followed with instrument SI 68, which prohibited indexation (referencing the contract amount to another currency or commodity) in contracts. While designed to strengthen the use of the Zambian Kwacha, these measures have undermined the financing approach developers were using to support housing affordability. The industry has had to find new mechanisms to hedge against exchange rate risk, and as a result, a number of projects have been put on hold.

NGOs such as Homeless International are involved in helping to fund the housing efforts of the very poor. The People’s Process on Housing and Poverty in Zambia and UK-based Homeless International have worked with the Zambia Homeless and Poor People’s Federation to mobilise 48 000 urban poor families into the federation, to secure land in 42 municipalities and to sign a Memorandum of Understanding with the NHA to commit land to federation members. With support from Lafarge, which donated 1 008 bags of cement, Habitat for Humanity Zambia has built 2 150 houses. While important, these efforts are small compared to the need.

A standard 50kg bag of cement costs ZMW80.00, while a standard sheet of corrugated iron for roofing costs the following: IT4 Norm Colour per metre – ZMW47.00 and IT4 norm 0.40 GI/ Silver ZMW 35.00/metre.

Property markets

There is enormous potential for residential housing and sentiment is positive. For example, cement manufacturer, Lafarge, recently identified Zambia as a prime untapped market. The shortage of quality housing at the higher end of the market is driving several developments of modern cluster-style homes, particularly in the south and east of Lusaka. According to real estate agent Knight Frank, the growing supply side is creating better competitiveness and improving affordability in the residential property market. Knight Frank highlights the middle, affordable housing market as having the most growth potential.

Resale housing stock in Zambia is limited, especially given that 80 percent of Zambia’s total housing stock is classified as informal. Lower income groups have a greater problem in obtaining affordable housing, as this end of the market has little formal development.

Policy and regulation

While the National Housing Policy of 1996 continues to be in force, its commitment to government spending of 15 percent of the national budget on housing is felt to be too ambitious, and indeed, this has never been achieved. A new housing policy is being drafted, but has not yet been concluded.

The limitations on mortgage finance are apparent in this country where less than 40 percent of the population hold formal title. The title registration system is improving. According to the World Bank’s 2014 Doing Business Report, it takes on average 43-50 days to go through the five procedures involved in registering a property in 2014. The cost of the registration process is about 8.2 percent of the property’s value. Globally, Zambia ranks 102 th out of 189 countries in terms of its property registration process.

Zambia has targeted improvements in its land administration system with some success. Acknowledging informality, the Housing (Statutory and Improvement Areas) Act is progressive land tenure legislation that allows for incremental and flexible housing development. The Act limits tenure security to an occupancy licence, with collective title held by the local authority. This is especially suitable for building methods financed through housing microfinance. In fact, progressive land laws and the low reach of conventional forms of housing finance create enormous potential for housing microfinance. Zambia passed its Urban and Regional Planners Act in 2011. This is important given the limiting effect of past urban management legislation in allowing for sufficient supply of well-serviced land. In its Sixth National Development Plan (2011-2015), the government proposes building 150 000 homes a year through 2015 – 500 000 of which would be for low income households. Still, UN-Habitat suggests that legislated plot sizes will significantly undermine the state’s capacity to deliver on this and its earlier goal of 1.3 million houses by 2030. At 15 units per hectare (as suggested in the Fourth National Development Plan), the area of four Lusakas would be required, just for residential land.

The Zambian judiciary is undergoing substantial reform to ensure that it is faster, more secure and transparent. Significant challenges remain in reforming laws in other areas, in particular the need to improve legislation around collateral and credit recovery.


Zambia’s relative political stability, recent economic growth spurred by its mining activities and growing middle class means that housing demand should continue to grow in major urban areas around the country. Progressive legislative reform around the land sector suggests that mortgage markets should have a supporting land administration system to sustain their growth. Increased investments from China and South Africa, together with growth in mining and agriculture, are driving residential and commercial property demand. Demand is especially unmet in the affordable housing segment, which presents good opportunities. Zambia has a relatively undeveloped microfinance sector by regional standards. Housing microfinance lending needs specialised and dedicated institutions rather than merely using traditional microfinance institutions as a platform for this type of lending.

Bank of Zambia (2013). Announcement of the Bank of Zambia Policy Rate. August 2013.

Bank of Zambia (2013). Annual Report 2012.

Bank of Zambia (2014). Annual Report 2013.

Bank of Zambia (2013). Governor’s Press Statement on Recent Economic Developments. June.

Demirguc-Kunt, A. and Klapper, L. (2012). Measuring Financial Inclusion: The Global Findex. World Bank Policy Research WP 6025.

Drummond, R. Chongo, B. and Mususa, P. (2013). Scoping Study: Overview of the Housing Finance Sector in Zambia. Report prepared for the FinMark Trust

Gardner, D. (2007). Access to Housing Finance in Africa: Exploring the Issue (No. 1) Zambia. Paper commissioned by FinMark Trust.

Interviews with various banks and building societies. March 2014.

Knight Frank (2013). Africa Report.

KPMG (2014). Zambia Fiscal Guide 2013/14.

World Bank (2013). Doing Business in 2013: Zambia.


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