Zambia has established a mechanism aimed at eliminating the problem of poor repayment of loans obtained from commercial banks, the country's central bank said in lusaka on Sunday.

Zifa Mpande, senior inspector for Non Bank Financial Institutions Supervision of the Bank of Zambia (BOZ), told journalists at a media seminar that the establishment of Credit Reference Agencies would provide banks with factual information on credit worthiness of borrowers.

"The information provided will help in distinguishing desirable candidates from undesirable candidates," Mpande said.

According to the guidelines developed by the BOZ in collaboration with the Bankers Association of Zambia (BAZ), the agencies would be private sector companies that will have database of all clients in the banking sector outlining their backgrounds.

The information will then be used to establish whether one was a good borrower or a bad one.

The official said one private company has since been provided with a license for business and is scheduled to start operation in this October.

The need to establish credit reference agencies was first realized in 2002 following a study undertaken by the World Bank and the International Monetary Fund (IMF), Mpande said.

The study identified a poor credit culture in the country as one of the obstacles inhibiting financial sector's contribution to the country's development.

Source: Xinhua