The Development of the Credit Reference System: a Case Study of Zambia

Abstract

"Today credit...has become the lubricant of economic life...a driving force for economic growth and the well-being of consumers. "Linked to the above, is the role of consumer credit reporting which has evidently become the most extensively used instrument employed by lenders to underwrite decisions on borrowing particularly as regards evaluation of a consumer's credit application and his or her creditworthiness. This is largely premised on the understanding that "the best predictor of future behaviour is past behaviour." In the case of Zambia, recent initiatives have been initiated to stimulate the growth of the financial sector and specifically that of the extension of credit, emanating from the recognition that "low financial intermediation, high cost of borrowing and poor credit culture in the financial market." In response to the recognition of an inherently weak credit culture, and particularly the recognition of the possibility of notable default on loans and the detrimental effect it possess to the Zambian financial system, the Zambian Government pursued a consultative agenda and developed and implemented Credit Reference Services Legislation, and further licensed one credit reference agency that is since operating. It is however apparent that though this agency has been operating for close to three (3) years with the legislation having been substantially passed five (5) years ago, the development process of the credit reference system in Zambia seems largely unattained particularly in light of the low usage and overall effectiveness of the agency. Said simply, the operationalization of the credit reference system in Zambia seems more like a protracted journey, as opposed to it having been an event, a situation this research sets out to determine why.