Access to finance in Africa remains a barrier on a continent of 1.1 billion and Mastercard estimates a 57% financial exclusion rate. Of the 85-100 million Small and Medium-sized Enterprises in Sub-Saharan Africa, only 20% of them have a line of credit as the African Development Bank reports. The International Finance Corporation (PDF) estimates that 60% of formal micro, small and medium enterprises are unserved or underserved when it comes to financial services.
But this is not a new situation:
The African market has a long history of limited funds, thus adversely affecting the scalability of businesses. Poor credit history is a mitigating factor playing in the inaccessibility of funds to businesses. Several SMEs do not have a credit history and financial institutions are not very keen on giving out funds to unverified customers.
Credit programmes in Africa
In recent times, alternative credit scoring methods have been adopted to determine the stability of businesses and their creditworthiness. Financial institutions are beginning to man up to the task by creating credit profiles for businesses. Just last week, Kenyan retail distribution platform, Kasha, landed a partnership with global payments technology company, Mastercard to include more businesses in its micro credit programme scheme, Jaza Duka. Jaza Duka is a Swahili term for “stock up your store.” The scheme has seen 20,000 signups with a 20% growth in the overall sales of its users.
Similarly, Mastercard partnered with FCMB to offer subsidised loans to 100,000 SMEs in Nigeria. Mastercard isn’t the only institution funding SMEs. The African Development Bank is also a leader in credit offering. In 2018 for instance, (AfDB) approved a $50 million credit to Fidelity Bank Plc to scale small and medium sized, and women-owned enterprises in Nigeria.
Several startups have also joined the credit gamble with flexible Buy-Now-Pay-Later features. Kenya-based Apollo Agriculture for one, offers credit to farmers based on assessment of a farm via satellite imagery. Nigerian business-2-business eCommerce platform, TradeDepot also offers to restock shops of SMEs on credit and have them pay in installments. And as the days go by, acknowledgement and awareness of business risk management keeps growing.
Insuring your goods
But beyond accessible credit schemes lie the undeniable yet so often ignored need for indemnification of a business. Out of the 41 million SMEs in Nigeria, 37 million of them are not insured, a risky undertaking for a market that accounts for 84% of employment and contributes 48% of national GDP. Business, however small the size is a risk and losses can occur at any time: a road accident leading to the spoilage of goods, fire accidents razing markets, burglary, and several other risks are associated with trading. Surely, you must have seen an overturned truck en route to a market. Or you must have heard of the frequent fire outbreaks in Onitsha burning up goods worth millions of dollars. How do these businesses survive after suffering these staggering losses? Despite all these factors under consideration, merchants ignore this indispensable aspect of trading at their own peril. But could paying for indemnity be a tall order for MSMEs?
Four insurance schemes that businesses can adopt:
1. Good-In-Transit Insurance:
This insurance package offers protection against loss incurred during the haulage of goods. Loss may come in the form of accidents, robbery or fire outbreaks. It provides indemnity to insured merchants as from the pick-up point of goods till final destination.
2. Business Interruption Insurance
This class of insurance covers for loss of income resulting from a halt in business due to certain factors like flooding, civil unrest. Whatever puts your enterprise out of business for a length of time, this insurance covers it.
3. Property Insurance
This policy protects physical goods, equipment and facilities against any loss resulting from fire outbreak, loss theft or any named peril. Named property insurance includes fire insurance, flooding insurance. All risk coverage however, insures against all types of damage to property.
4. Renters insurance
This scheme is for people renting building facilities. It offers coverage for your belongings and insures against damages including vandalism, theft, fire etc. It also protects you financially if a visitor to your home gets injured and takes legal action.
Daniel* , an SME owner confirms the report that penetration of insurance in Nigeria is low. Daniel for instance does not believe in the concept of insurance for small scale businesses. He told CrestHub that “the insurance company would gain and merchants would lose.” According to him, “insurance works best for big companies. Income from SMEs is low and they can’t afford to pay insurance.”
Daniel believes that admitting the possibility of disaster is an invitation for its occurrence. Sadly, he is the face of many Nigerians, given the Penetration rate 0.28% penetration rate of insurance in the country.
Insurances for small enterprises are an integral part of business education for merchants and the premium paid to cover for insurance could make the difference between the closure of a business and its survival.
Certain loans are insured to guard against the possibility of bankruptcy arising over inability to repay the loan in given time. This no doubt drives up the cost of the loan but enables the insured to sleep better at night.
The big question remains whether credit institutions aiding SMEs would include insurance covers as part of their credit policy to safeguard the businesses in case of a meltdown. Or would cheaper insurance packages spring up to cover the loan insurance gap of SMEs?
Daniel*: name has been changed to protect his identity.