The Bank of Zambia (BOZ) says it recognizes the relevant role Village banking groups play in communities including transitioning their members into formal financial services and in driving the financial inclusion agenda.
In a statement issued to Money FM News, the Bank however said Village banking or Savings groups do not fall under the entities that are covered by Banking and Financial Services Act, 2017 that BOZ regulates, licenses and supervises.
According to the Central Bank’s Communication Division, Village Banking or Savings groups should be distinguished from money circulation schemes because money circulation schemes involve combining and distribution of funds by recruitment of subscribers, which is an illegality.
“The Bank of Zambia reiterates its support to Village Banking or savings groups as they play an important role in providing community-based financial services although informally.”
“It must be noted that financial services are delivered through two main avenues, formal and informal. Formal Financial service providers include banks, non-financial institutions, and insurance and investment firms. These institutions are licensed, regulated and supervised by regulators in the financial sector namely the Bank of Zambia, the Securities and Exchange Commission and the Pensions and Insurance Authority,” the Bank said.
The bank also said Informal financial service providers include individuals or groups of people that are not licensed nor regulated by the state or financial sector regulators and they include chilimbas and village banking or savings groups.
It stated that it is easy to identity money circulation schemes because they tend to promise high returns or interest rates that are too good to be true, as their main area of interest depends on the continuous recruitment of subscribers and not any meaningful underlying economic activity.
“In a nutshell, it is an offence to conduct or participate in a money circulation scheme, or issue a notice circular, prospectus, proposal or other document inviting the public to subscribe to a money circulation scheme.”
The Central bank urged members of the public to remain vigilant in their financial dealings, especially in light of increased financial crimes as well as companies that entice people with the promise of high and unrealizable returns.