There has been a lot of discussion recently about money lenders in Zambia and the interest rates they charge. What many borrowers do not realise is that Zambian law already sets clear limits on what lenders can charge - and provides real remedies when those limits are exceeded.
The Money-Lenders Act (Cap 398) has been in force since 1938 and was last amended in 2021. It applies to anyone whose business is money lending - including informal lenders, commonly known as kaloba. This guide breaks down the key protections every borrower should know.
You can use our micro loan calculator to check whether the rate you are being charged exceeds the legal cap.
What is the Money-Lenders Act?
The Money-Lenders Act, Chapter 398 of the Laws of Zambia, regulates anyone carrying on business as a money lender. It was enacted in 1938 and has been amended by Acts No. 15 of 1952, No. 36 of 1970, No. 13 of 1994, and No. 51 of 2021. The 2021 amendment increased licensing fees but left all borrower protections unchanged.
The Act covers licensing requirements, contract formalities, interest rate limits, and borrower protections. It does not apply to banks, building societies, insurance companies, or other bodies whose primary business is not money lending (Section 2).
Interest is capped at 48% per year
Section 15 of the Act states that where the interest charged on a loan exceeds 48% per annum, the court shall presume that the interest is excessive and the transaction is harsh and unconscionable.
This is a rebuttable presumption - the lender can try to prove otherwise - but the burden shifts to them. In practice, any rate above 48% per year puts the lender at serious legal risk.
To put this in perspective, here is what common informal lending rates look like when annualised:
Rate charged | Period | Annualised | Multiple of legal cap |
|---|---|---|---|
5% | per week | 260% | 5.4x over |
10% | per week | 520% | 10.8x over |
10% | per month | 120% | 2.5x over |
20% | per month | 240% | 5x over |
30% | per month | 360% | 7.5x over |
A rate of 10% per week - common among informal lenders - translates to roughly 520% per year. That is more than 10 times the legal cap.
Compound interest is illegal
Section 10 makes it clear: any contract that provides for compound interest is illegal to that extent. A lender can only charge simple interest on the original principal.
This means your lender cannot charge "interest on interest". If you borrowed K1,000, interest is calculated on K1,000 for the entire term - not on a growing balance that includes previously accrued interest.
The only exception is a default provision: if you miss a payment, the lender may charge simple interest on the overdue amount at a rate no higher than the original loan rate (Section 10, proviso).
Your lender must give you a written contract
Section 9 requires that every loan agreement be recorded in a written note or memorandum, signed by the borrower before the money is lent. A copy must be delivered to the borrower within seven days.
The written contract must show:
The date of the loan
The principal amount
The interest rate expressed as a percentage per year
All other terms of the contract
If no written contract was signed before the money was lent, the contract is unenforceable. This is a powerful protection - if your lender never gave you a written agreement, they may have no legal basis to collect.
You can demand a loan statement at any time
Under Section 11, you have the right to request a written statement from your lender showing:
The date and amount of the original loan
The interest rate charged
All payments you have made and their dates
Any amounts still due and when they fall due
The lender must provide this within one month. If they fail to do so, they lose the right to sue for or recover any money owed under the contract for as long as the default continues, and interest stops accruing during that period.
Courts can reopen unfair transactions
Section 14 gives courts broad powers to intervene in money-lending transactions. If a court is satisfied that the interest or charges are excessive, or the transaction is harsh and unconscionable, it can:
Reopen the transaction and take a fresh account
Reduce the amount owed to what it considers fair
Order the lender to refund any excess already paid
Set aside or revise any security given for the loan
The court can do this even if you signed an agreement or a settlement. It can also act at your request before the repayment date arrives - you do not have to wait until you default.
Who does the Act apply to?
The Act defines a "money-lender" as anyone whose business is money lending, or who advertises or holds themselves out as carrying on that business (Section 2). This includes:
Informal lenders (kaloba)
Licensed microfinance institutions operating as money lenders
Any individual or company whose primary business is lending money
The Act does not apply to:
Banks and insurance companies (Section 2(c))
Building societies registered under the Building Societies Act (Section 2(d))
Pawnbrokers operating under pawnbroking law (Section 2(a))
Bodies specifically exempted by the Minister (Section 2A)
Money lenders are also required to hold a valid licence and operate under their registered name and address (Section 3). Operating without a licence is a criminal offence.
What this means for informal borrowing
If you are borrowing from an informal lender or kaloba, here is what you should do:
Insist on a written contract before any money changes hands. Without one, the lender has no legal basis to collect.
Calculate the annualised rate. Use our micro loan calculator to convert weekly or monthly rates to annual equivalents. If it exceeds 48%, the law is on your side.
Keep records of every payment you make - dates, amounts, and method. You may need these if you challenge the transaction.
Demand a loan statement if you are unsure of your balance. The lender is legally required to provide one.
Seek legal advice if you believe you have been charged excessive interest. Section 14 gives courts real power to reduce what you owe.
Worked example - K1,000 at 10% per week
A borrower takes K1,000 from an informal lender at 10% per week for 4 weeks.
Item | Value |
|---|---|
Principal | K1,000 |
Rate | 10% per week (flat) |
Term | 4 weeks |
Weekly interest | K100 |
Total interest (4 weeks) | K400 |
Total repayment | K1,400 |
Annualised rate | 520% |
Legal cap | 48% |
Over the cap by | 10.8x |
In this example, the borrower pays K400 in interest on a K1,000 loan over just 4 weeks. The annualised rate of 520% is more than 10 times the legal cap of 48%. Under Section 15, this transaction is presumed harsh and unconscionable, and a court could reduce the amount owed.
How to check your loan
We have added a legal cap warning to our micro loan calculator. Enter any interest rate and loan term, and the calculator will:
Show the total interest and repayment amount
Convert the rate to an annualised equivalent
Flag if the rate exceeds the 48% legal cap under the Money-Lenders Act
If you are comparing loan options, our loan repayment calculator shows the full amortisation schedule for formal bank and microfinance loans.
Pending change - Banking and Financial Services Act, 2025
The Banking and Financial Services Bill, 2025 (N.A.B 36) has been assented to by Parliament. When it commences, it will repeal the Money-Lenders Act (Cap 398) and replace it with a new regulatory framework under the Bank of Zambia.
Key changes for borrowers under the new Act include:
The fixed 48% annual interest cap will be replaced by lending rates set by the Bank of Zambia through regulatory statements (Section 184)
A new prohibition against penal interest - lenders can only charge interest on overdue payments, legal costs, and costs of realising security (Section 118)
Interest on a non-performing loan cannot exceed the outstanding principal (Section 119)
Borrowers can prepay unsecured loans without charge (Section 117)
Lenders must practise responsible finance and ensure the borrower can afford the loan (Section 114)
A financial ombudsperson will be established for consumer complaints (Section 128)
The new Act has not yet commenced - it requires a commencement date to be set by the Minister by statutory instrument. Until then, the Money-Lenders Act (Cap 398) remains in force and the protections described in this guide continue to apply.
We will update this guide and the microloan calculator when the new Act comes into force.