Commercial banks’ strategy limiting credit access to low income earners

Commercial banks’ strategy to focus on high net worth individuals specifically those with premium services subscription has stifled the credit market in Zambia.

While this strategy has minimised risk exposures, it has stifled credit growth and disadvantages majority of low income earners.

This is according to the Bank of Zambia (BoZ) in its September 2022 edition of the Zambanker magazine released recently in Lusaka.

The Central Bank pointed out that this strategy did not give an opportunity to those without credit history to build the much needed credit history.

“Despite the economic benefits of credit cards, the Zambian credit card market has remained extremely small but on the growth path, increasing from below 3,000 cards in 2015 to above 11,000 cards in 2021,” BoZ stated.

Information from the BoZ indicated that only three commercial banks disbursed K1.1 billion as revolving credit in 2021 which accounted for 26.5 percent of total revolving credit.

The Central Bank stated that average net income of Zambians was below the minimum net income criteria which credit card issuers set.

“The low uptake of credit cards in Zambia is due to credit card issuers’ conservative strategy to focus on high-net-worth individuals specifically those that have subscribed for premium services and or considered premium customer(s) excluding those that are below a certain income bracket.

“If credit card issuers with a focus to grow the retail or consumer loan portfolio revised the net income criteria to match the average net income in Zambia, there is no doubt that the uptake of credit cards would accelerate,” BoZ stated.

BoZ indicated the credit card business had potential to exponentially grow in Zambia, help to improve and or minimise the financing needs of households and individuals.

It stated that it would also provide access to cheaper and sustainable sources of credit, improve the quality of life of households and individuals by smoothening consumption and trade volumes of business and ultimately promotes economic growth.

The Central Bank however stressed that this would come through responsible lending and borrowing, and sound risk management practices.