Smes And Need For Insurance Cover

By Nkasiobi Oluikpe, Lagos


Stakeholders and many players in the Small and Medium Enterprises sub sector have argued that the role of insurance policy to mitigate against losses for small scale business owners cannot be over-stressed.

Analysts believe that for the Small and Medium-Scale Enterprises (SMEs) in Nigeria, the frequency of entry and exit, due to a very hostile economic environment, is really putting fear in the minds of intending investors or entrepreneurs.

Fire incidence

Fire incidence

According to experts, a good number of these businesses are closed down largely due to factors beyond the control of their owners, arguing that anybody who invests his or her money into a particular venture or transaction expects that such business will not only survive but also grow.

They noted that not only will such investor or entrepreneur earn his or her means of livelihood from the business, but he or she, in one way or the other would have contributed his quota to the economic growth and development of the country.

They lamented that when an operator is faced with uncontrollable situations such as flood, fire outbreak, machine breakdown, building collapse and some other forms of natural disaster, it becomes absolutely impossible to continue, saying that is why, risk management is a very important factor in the survival of any business, be it micro or macro.

For instance, last week on this page, Daily Independent published the account of Keziah Udoh, a credit officer in one of the microfinance banks in Lagos, whose salary was withheld for four consecutive months. Her offence: Giving out a N150, 000 loan to a supposedly prospective client for starting clothing business. She did all the needful before issuing out the loan, such as going to inspect the place of business, visiting the client at her home, having a round of talks with her as to the various terms and conditions for collecting and refunding the loans.

After all said and done, the client stocked her shop and began the business only for a heavy downpour to flood her shop and destroy everything she collected microfinance loan to buy. She decided to send the credit officer a text message narrating her ordeal and then disappeared.

The credit officer confirmed that after receiving the text message, she decided to pay her a visit at home and met her absence. The following day, she headed to the shop and saw things for herself. Unfortunately, the woman in question was nowhere to be found.

Of course, Udoh’s accounts officer made it clear to her that all he wanted to hear from her was how she was going to pay the money back. Nothing in the least, suggested to Udoh, that she would be the one to end up paying back the N150, 000.

The client in question is not lazy. She didn’t want to be a nuisance by depending on anyone for survival. She took a bold step of collecting a loan, with a good intention of paying back as at when due. But circumstances beyond her control, has portrayed her in a different light before her creditors and the society at large.

This client is not alone on this. From what can be deduced, there are several other stories of like manner. Many have collected micro finance loans and when confronted with circumstances beyond them, they will disappear and will be nowhere to be found. Some could even die for not able to withstand the shock.

It is clear that it is not enough for micro finance banks to offer loans to these ‘all important sector’ of the economy and then leave them to their fates. A good number of them, despite their good intents, do not have the experience and right exposure to sustain their enterprises.

From the picture painted above, the micro finance might not have lost anything since the credit officer has ended up paying. But what if the money is quite substantial and the credit officer herself decides to abscond also, leaving the micro finance to lick their own wounds. And if such situations persist, the multiplier effect would be such that the micro finance would gradually close shop, and all their employees will automatically lose their jobs and become dependants again, even the premises housing the micro finance, will not yield any income for the landlord.

Many are of the view that besides what the promoters of SMEs are doing, it is also quite important for financial institutions to educate the SMEs on the insurability of their enterprises because a good number of them do not know that their businesses can be insured.

They also argue that it will not be out of place for the micro finance banks to partner with insurance companies on how to offer micro insurance covers to their clients. Covers that will ensure they pay minimum premiums that will accommodate or is commensurate to their level of risk.  Thereafter, they would need to go back to their clients to educate them on the needfulness of insuring their business. This should not be an option. Since most of these situations arise as a result of ignorance or non-availability of required information, the micro finance banks should take time out to sell the idea of insurance to their clients. That way, they will be sure of getting their money back, should any risk arise and their client will also be assured of continuity in business.

During the last Balogun market inferno, many traders lost their goods to the outbreak. A particular man just restocked his shop with goods from overseas. He was not able to pick a single pin out of there. If at all he is able to continue in business, he will have to start from the scratch and it can never be the same again. Had he insured his business, he would not have felt the impact much.

When Governor Babatunde Fashola visited the site of the accident, he stressed the importance of insurance in mitigating loses during fire outbreaks.

Prince Saviour Iche, the president of Association of Micro Entrepreneurs of Nigeria (AMEN) supported the governors views as he mentioned that even though everybody needs insurance, they at AMEN, have been encouraging their members to insure their goods, no matter how small. At the same time, he said, they have had cause to invite insurance companies to educate their members on the need to insure their products.

Speaking to the spokesman of the Coalition of Markets and Traders Association in Lagos, Sir Nnamdi Nwigwe, on the importance of traders and small business owners insuring their goods against risk, his response indicated that small business owners are actually not ignorant of the importance of insurance, but are only skeptical on the sincerity of the insurance firms in paying claims.

“The reason why we have not taken them serious is that insurance will give you too many clauses that you can’t meet and when anything happens, you find it difficult to make claims.

“It is only that government does not want to assist by giving certain assurances or surety on behalf of the traders to the insurance company. For instance, if anything happens to any of the banks, insurance companies come in to pay, including the cash in the safe. But if traders go to insure something that is within the same place, the insurance company will tell them, there should be a fire service, adequate package etc, yet the banks you are insuring within the same area gets insurance whereas the trader does not.

“This is because the traders are considered as one of the informal sectors; people who cannot ascertain the volume of their trade or quantum of money that passes through them. Yet the traders we see are the highest employers of labour in this country. They employ more people than the labour congress, yet nobody takes them serious.

“What I am saying by all these things is that government should be the one that will guarantee the insurance company to put in structures that will fit-in the traders, because there should be elements of assurance for insurance to be able to insure cubicles as they are built in such places because the insurance man will give you conditions even if you do not meet up with it, they will still come and collect your money and now put it in a very tiny line as a clause. So if anything happens, they will go to that particular clause and be asking if the person install fire extinguisher in the shop or not. They will say we instructed that you do so, so and so but discovered that you did not do it, for that reason, we are not going to pay.

Nwigwe reiterated that traders, on their own, cannot go and negotiate insurance policies with insurance companies. Government, he insists, should be the one to make insurance available for the traders and then ask them to go and pay a particular amount of money.

“When these men are out of business, it is equally a risk to government, because so many young people will be on the streets. People in government will also not find it safe to walk on the streets even with all their sirens. Government should be able to take care of that on their behalf, that is also why they pay business permit, but government do not want to go and negotiate or guarantee insurance companies. They pay taxes. Their VATs are paid at the sea port. You cannot double-pass the government on that. Check the bill of laden when they are clearing their goods, you will see the VATs. That it is an open market, by law it is considered duty free, but if you buy anything from the shop, that is where you pay VAT. These people are contributing immensely to the economy of this country. Even people who are selling things on ordinary table also pay business permit. Yet when it comes to protection, they don’t protect them, I think it is wrong.

He went further to blame the government for not creating the enabling environment. The traders, he said, will want to insure, but they do not have the capacity to do so on their own because of the informal nature of their businesses. He also asks, if government can come, collect and itemize business permit, why will they not come and negotiate insurance for the traders?

“If they are paying you N5,000 per year, take away 20 per cent of that amount and organize a good insurance for them because when anything happens, there are things you as a government will also gain if you negotiate it for them, but the government is not doing so.

The director-general of Nigerian Insurers Association (NIA), Sunday Thomas, commented that the insurance companies are very well willing to do business with the traders and SMEs, noting that the only problem is that most of them see the money they pay on insurance as a waste.

“Our doors are open for business. If they are saying that they are ready to do business with us, that is why we are in business. We will try and meet with them, discuss and find out what we can do for them, so as to arrive at a comfortable level playing ground,” he said.

There is no doubt that the survival of the micro finance banks is heavily dependent on the survival of the SMEs. Basically, micro finance banks are established to serve the SMEs. Since they are the ones with a direct link to the SMEs, people argue that they should be the ones to mediate between the SMEs and the insurance companies.

This, according to SMEs operators, does not rule out government’s responsibilities in creating the right environment for businesses to thrive and ensuring that the insurance companies incorporate policies that will accommodate the SMEs.

Source : Independent

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