Choosing between banks and microlenders depends on your specific financial needs, business size, credit history, and how quickly you need funding.
Here's a breakdown to help you decide:
Banks
Best for:
- Established businesses
- Good credit scores
- Larger loan amounts
- Lower interest rates
Pros:
- Lower interest rates and fees
- Larger loan amounts available
- Longer repayment terms
- Access to additional financial services (checking, savings, credit lines)
Cons:
- Strict eligibility requirements (credit score, revenue, time in business)
- Lengthy application process (can take weeks)
- Less flexible for startups or unconventional businesses
- Banks add tenure when lending rates increases
Microlenders
Best for:
- Startups or small businesses
- Limited or poor credit history
- Borrowers needing smaller amounts
- Businesses in underserved communities
Pros:
- Easier qualification process
- More flexible underwriting criteria
- Tailored support, including mentoring and education
- Faster approval (sometimes within days)
- Existing loans don't get affected by change in lending rates
Cons:
- Higher interest rates
- Smaller loan amounts (typically K5000 to K50,000)
- Shorter repayment terms
How to Choose
Ask yourself:
-
How much do I need?
-Over K50,000? → Bank
-Under K50,000? → Microlender -
How’s my credit?
-Strong (680+)? → Bank
-Limited or bad? → Microlender -
How fast do I need the money?
-ASAP (within days)? → Microlender
-Can wait weeks? → Bank -
Is my business new or established?
-Less than 2 years? → Microlender
-2+ years, strong financials? → Bank
Microlenders in Zambia
Here are some notable microlenders and microfinance institutions operating across Zambia, well-suited for small businesses, entrepreneurs, and individuals needing flexible, smaller-scale funding:
Deposit‑taking Microfinance Institutions (MFIs)
These accept deposits and offer a broader range of services:
- Micro Finance Zambia Limited
- AB Bank Zambia
A commercial bank with microfinance focus, targeting micro, small & medium enterprises (MSMEs) and small-scale farmers
Non‑Deposit Taking MFIs
Licensed by the Bank of Zambia, these focus primarily on credit services:
From published lists as of early 2021, active players include
- Agora Microfinance Zambia
- Meanwood Finance Corporation
- Microloan Foundation (international charity)
- Izwe Loans Zambia
- Xtenda Finance Limited
- YesCash Zambia
- Unifi Credit
- Goodfellow Finance
- Emerald, Moneta, Nchanga, and others
Plus, regional branches across provinces (e.g., Eastern, Central, Luapula provinces) include players like Bayport, FINCA Zambia, VisionFund, Madison Finance, Pulse Financial, MicroFinance Zambia, and more
Specialist & Niche Lenders
- Umodzi (Umoja) Microfinance – Focused on low-income female entrepreneurs, offering loans from ZMW 2,000–10,000 with flexible terms and group-based lending
- Libunge Micro Finance Limited – Founded recently by civil servants, offering salary advances and payroll‑backed loans at ~6% installment rates
- MicroLoan Foundation Zambia – UK-based charitable MFI providing small loans and business training to rural women; part of Lendwithcare’s Zambian programs
Causes of high interest rates
Loans in Zambia often carry high interest rates due to a combination of economic, structural, and regulatory factors. Here's a clear breakdown of why this happens:
1. High Inflation
- Zambia has faced volatile and high inflation (often over 10%).
- Lenders raise interest rates to protect against inflation eroding the value of repayments over time.
If inflation is 12% and the loan interest is 20%, the real return is only ~8%.
2. High Central Bank Policy Rate
- The Bank of Zambia’s Monetary Policy Rate (MPR) is used to control inflation. It has been relatively high in recent years (e.g. 10–12% or more).
- Commercial banks and microlenders peg their interest rates above the MPR, pushing up lending rates.
3. Cost of Funds
- Zambian banks often borrow money at high costs themselves (e.g. via government bonds, deposits with high interest, or external loans).
- This expensive capital gets passed on to borrowers through higher rates.
4. Risk of Default
- Many borrowers (especially small businesses and individuals without collateral) are seen as risky.
- There's limited access to credit history and formal income documentation.
- To cover potential losses from defaults, lenders charge high interest across the board.
5. Weak Credit Infrastructure
- Limited access to reliable credit scoring or borrower databases makes risk assessment harder.
- Lenders “price in” uncertainty with higher interest rates.
6. Low Competition Among Lenders
- A small number of dominant banks and relatively few major MFIs create a less competitive lending market.
- Less competition means less pressure to lower rates.
7. Currency Risk & Dollarized Loans
- Some loans are denominated in USD or influenced by forex risk (especially for importers).
- Fluctuating exchange rates increase the risk for both lender and borrower — and result in higher rates to hedge against currency depreciation.
8. Regulatory and Operational Costs
- Compliance with Bank of Zambia regulations, licensing, and reporting comes at a cost.
- Lenders, especially microlenders, also face high operating costs (e.g. field agents, mobile systems), which are passed on to borrowers.
