The Design,Development and Implementation of Bank Licensing Policies and Procedures in Zambia (1980-2000)

Abstract

This study reviews the design, development and implementation of licensing policies in the years preceding the 1995-1997/98 bank failures in Zambia (1980-1994), and the licensing reforms that were followed thereafter (1995-2000). It documents important weaknesses in licensing practices that hindered regulatory effectiveness: inadequate minimum capital standards, insufficient ownership/management quality assessments, inadequate consideration of the convenience and needs of the financial sector and political interference in the licensing process. In addressing these and other weaknesses, however, the paper calls for research on prudential entry requirements to go beyond identifying desirable minimum requirements to establishing practical tools and techniques for regulators, especially for evaluating the quality of prospective bank owners and managers. It nevertheless cautions against adopting an overly cautious licensing policy, especially towards domestic banks as they provide valuable services to domestic economies.