BoZ revises K10bn stimulus fund terms

BUUMBA CHIMBULU writes @SunZambian THE Bank of Zambia (BoZ) has revised the terms and conditions under the Targeted Medium-Term Refinancing Facility (TMTRF), emphasising that Financial Service Providers (FSPs) do not increase interest rates on the funds in case of an upward adjustment on the pricing of money in the market. This means that, should at any time during the life circle of the facility the MPR be adjusted upwards, Financial Service Providers will not be allowed to pass on that to a customer thereby absorbing the burden. The Central Bank in April this year set up a K10 billion TMTRF meant to provide relief to businesses and households for them to survive the challenges caused by Covid-19 through affordable financing. According to the revised terms and conditions, the interest rate applicable on the facility would be fixed over the life of each advance at the prevailing Central Bank’s Monetary Policy Rate (MPR) at the time of granting the advance. The document indicates that interest will be paid annually with a 12-month grace period. “Interest rates on the Facility shall be priced off the MPR with a 12-month moratorium on both principal and interest. “The interest rate applicable for onward-lending by the FSP shall be fixed over the life of the advance,” BoZ said in the revised document. The Central Bank said much as FSPs were free to set the interest rate charged to clients on the advance obtained from the facility, they were obliged to pass on the benefits of the low interest rates on the facility to their clients and to demonstrate that they had done so at the time of disbursement. “FSPs that shall obtain advance (s) under this facility are therefore expected to restructure their portfolios to ensure the benefits, including provisions of repayment holidays, do actually reach their respective clients,” BoZ said. The bank said it reserved the right to change the pricing mechanism as conditions might dictate. It, however, explained that would not apply to already exiting advances made under the facility. The FSP that offered an interest rate to a client within five percentage points from the rate prevailing on the facility shall be entitled to an additional borrowing amount equivalent to 20 percent of the initial borrowing amount. “FSPs are obliged to report to the bank the interest rate and any other relief offered to their clients,” the BoZ said.