The poor weigh in on the state

Like most developing countries, Zambia has a growing population, most of whom remain outside the formal economy.

The country also continues to struggle with a large refugee community fleeing from less stable neighbours, so finding ways to create an inclusive economy and lower the pressures on state funding have become a priority. The majority of Zambians (65%) live in rural areas, cut off from the national utilities grid, 64% still live on less than $1.25 a day and almost 87% survive on less than $2.50 a day.

With only 12% of the labour force in formal employment, creating a significant distribution mechanism remains a challenge for the insurance and other service sectors. The Zambian government appears to be serious about addressing the problem and has extended its five-year financial sector development plan (FSDP), formulated to address weaknesses in the financial system, to run through to 2012.

Speaking at the release of the findings of a FinScope survey in July this year, Dr Situmbeko Musokotwane, the Zambian minister of finance and national planning, said it was his hope to address the ongoing exclusion from the financial sector of the country’s most vulnerable people. “Access to a well-functioning financial system has the potential to empower the poor and low-income people as well as micro-enterprises economically and socially. This can help them to better integrate into the economy,” he said.

More importantly, he gave his ministry’s assurance that it would work with the private sector to find solutions to financial exclusion. The results of the survey showed the Zambian financial services sector had grown and now comprises 16 commercial banks and 71 non-bank financial institutions, among which are 15 microfinance institutions and 11 leasing and finance companies.

Despite the increase in the number of financial institutions in the country, the level of usage remains exceptionally low. Overall, using the most liberal definition of banking access, no more than 10% of micro, small and medium-sized enterprises in Zambia are banked.

The insurance landscape looks even bleaker and researchers say that many people they interviewed had little concept of what insurance was and why it was important. Just 6.6% of the adult population in Zambia report that they have insurance. When vehicle insurance and pension schemes for formal sector employees are removed, this is reduced to 3.8%. Moreover, less than 1% of small and micro businesses said they had insurance for their vehicles.

Bringing the low-income market into the financial fold bears significant challenges, and organisations such as the International Labour Organisation, the Finmark Trust and the United Nations Capital Development Fund have been assessing ways to bring financial services to the previously disenfranchised.

Micro-insurance, often delivered through new, innovative means, has been widely hailed as one of the most sensible ways to deliver financial empowerment to low-income communities that may otherwise be cut off from traditional access and remain reliant on the state. Zambia, as a reasonably stable and hospitable country, has found itself on the receiving end of a flood of people fleeing war, unrest and dire social hardship in countries such as Angola, Rwanda, the Democratic Republic of Congo and Somalia.

[Mail & Guardian Online]