The Bank of Zambia’s – BOZ has revealed the targeted interest rate to be applied on the K10 billion Medium – Term Refinancing Facility to enable Financial Service Providers (FSPs) as not more than 17.5% to support businesses and households that are being impacted by coronavirus (COVID-19), questions on how this facility will be implemented and accessed have risen.
BOZ Head of Corporate Communications Besnart Mwanza told the Zambian Business Times – ZBT on May 14, 2020 that sectors identified in the seventh national development plan – 7NDP such as the agriculture, manufacturing, energy and tourism are priority and will receive 60% of the fund of the facility while the rest of the sectors shall access the remaining 40%.
She said FSPs will access this facility from BOZ at 12.5% and that this interest rate is arrived at by taking the current Monetary Policy Rate (MPR) of 11.5% and adding 1 percentage point, further FSPs will have a one-year grace period (moratorium) for both principal and interest payments on the facility.
Mwanza reiterated that Businesses and individuals can access the Facility through their FSPs adding that FSPs will determine the interest rates at which the funds will be on-lend to their clients.
“However, FSPs are obliged to pass on the benefits of lower interest rates, fixed interest rates and the possibility of a repayment holiday to their clients. BOZ will check on the benefits being passed on prior to the disbursement of funds,” She added.
Further, the Central Bank has provided additional incentives to FSPs which lend to their clients at no more than 5 percentage points above the cost of funds from BOZ. If FSPs borrow the funds at 12.5% from BOZ and lend to clients at no more than 17.5%, then they have access to more funds from the facility. It is one of the requirements stipulated under the terms and conditions of the Facility that FSPs should demonstrate how the benefits obtained on the Facility are passed on to their clients.
The BOZ will regularly monitor performance and any FSPs that fail to comply will be subject to mandatory repayment as provided for under section 13 with regard to interest rates, the Bank has provided incentives for FSPs that offer lower interest rates to their clients
