TanzaniaInvest had the pleasure of interviewing for the second time Ms. Tusekile Kibonde, Resident Underwriter for Tanzania at the African Trade Insurance Agency (ATI) to discuss in details ATI’s core product: credit insurance.
ATI is a multilateral insurer, providing political risk and trade credit risk insurance products with the objective of reducing the business risk and cost of doing business in Africa.
ATI operates in Benin, Burundi, Democratic Republic of Congo, Kenya, Madagascar, Malawi, Rwanda, Tanzania, Uganda and Zambia. Ethiopia, and Zimbabwe, and is currently expanding to West Africa with Cote D’Ivoire, expected to join in Q1 2017.
TanzaniaInvest: Ms Kibonde, can you kindly remind us, what is credit insurance?
Tusekile Kibonde; Credit insurance is known by a variety of names including; trade credit insurance, bad debt insurance, debtor insurance, debtor protection, business credit insurance and export credit insurance, amongst others.
Credit insurance is an insurance policy and a risk management product offered by private insurance companies and governmental export credit agencies (known as insurers) to business entities and lenders wishing to protect their accounts receivable from loss due to credit risks such as protracted default, insolvency or bankruptcy.
This insurance product is specialised and should not be confused with such products as property, casualty insurance, credit life or credit disability insurance which individuals take to protect against the risk of loss of income needed to pay debts.
Credit insurance can include a component of political risk insurance (another one of our products) which is offered by the same insurers to cover the risk of non-payment by foreign buyers due to currency issues, political unrest, expropriation etc.
TI: What is the major role of credit insurance?
TK: The major role that credit insurance plays is facilitating trading activities at both the local and international level.
Credit insurance supports customers or borrowers as an alternative to prepayment or cash on delivery terms, providing time for them to generate income from sales to pay for the product or service.
For suppliers and lenders, accounts receivable is a loan and represents capital invested. If the customer’s debt is credit insured, risky asset becomes more secure and can be realised faster than other forms of collateral offers.
It helps to reduce transaction expenses and produce more trading activities. Credit insurance is therefore, a trade finance tool.
TI: From ATI’s perspective, who can benefit from such a product?
TK: Credit insurance is offered to both business entities and lenders to insure their accounts receivable from delayed payment, non-payment and loss due to the insolvency of the debtors.
The product is not available directly to individuals but companies can request the cover from their financiers.
Our main clients are financial institutions such as banks, both local and international, which currently account for over 80% of our business.
In Tanzania, we work with 80% of the banks, including local, international, developments banks and other DFI lenders.
Over the years, our products have become very well known among lenders as we provide alternative solutions to their businesses.
We also have a growing list of manufacturing clients, contractors, exporters from the agricultural sector, and importers from Europe and Asia. All of these seek for credit insurance to cover their business against potential losses.
We are also attracting more local companies and in this way we are helping to increase intra-African trade of goods, services and financing.
TI: Why do financial institutions and lenders need credit insurance?
TK: Financial institutions and lenders use credit insurance to protect their businesses against default by both corporate and government borrowers on their obligations under trade, commodity finance, export finance, project finance transactions, general corporate loans and other financial assets against default on scheduled payments.
The product’s broad applicability and flexible policy wordings offer benefits to financial institutions and lenders of all sizes. Advantages which come with credit insurance policies include, but are not limited to, the following:
• Helps financial institution adhere to standards for a qualified risk mitigant under Basel II/III. The Basel II & III framework stresses on the need for banks to have better collaterals and prudential requirements with a view to achieving a safer financial system. The guidelines on capital, liquidity, maturity and leverage aimed at reducing the incentives for building-up high-risk and highly leveraged banks assets.
Given the above, the banks in the region are today more willing to share their spreads with investment grade credit insurers such as ATI as an excellent collateral to minimize their non- performing assets and reduce their regulatory capital under Basel II & III;
• Maintain competitive advantage by holding the borrower in their books as opposed to down selling the loan or seeking a risk participation from another financial institution;
• Increase lending capabilities via management of single obligor and/or country limit constraints;
• Access to credit remains the biggest challenge for SMEs in the region; credit insurance cover will help extend credit facilities such as short term loans, invoice discounting, bank guarantees and letters of credit even where there is inadequate solid collateral as is the current practice;
• Helping local banks compete with international banks. This type of insurance allows banks to offer great conditions to their clients including capital relief of up to 100% for transactions backed by national ECAs. Subject to agreement of the local bank regulator, ATI can address this handicap.
TI: How do you differ from other insurance companies in Tanzania?
TK: Due to the nature of the business, offerings specialised products, ATI does not compete against local insurance companies. Our mandate is to help the local insurance market by bringing added capacity.
ATI was created to act similarly to the export credit agency (ECA) for African countries. In Africa when a transaction occurs in an ATI-member country it is not unusual for ATI to participate.
We partner with international ECAs and other insurers on many transactions in Africa because these partners have come to trust ATI’s risk assessment and because of our unique relationships with governments.
TI: How efficient is your claims Process?
TK: The true test of the relationship between an insurer and their customer is what happens when a claim is filed. We strive to fully support our customers throughout the process.
In the unfortunate event that a client incurs a loss, the claims process begins when they notify ATI of a potential loss. We will immediately start working to minimize or avert a loss within the waiting period specified in the policy.
If a claim materializes despite our best efforts at recovery, we would then launch a full-scale investigation with the objective of paying our client upon expiration of the waiting period.
TI: What are your plans in the future to bring more awareness to banks?
TK: That is a timely question! For the first time in Tanzania, we will host a Bankers’ forum that will be held here in Dar Es Salaam in early March 2017.
The purpose of this forum is to bring more awareness to our major clients (banks) on the various products we offer as solution to their business.
We have developed a specific product which banks will find very useful in increasing their lending portfolio.
In addition, at the request of banks, we normally hold in-house training to their key departments such as Business Generation units, Credit and Recovery departments.
Should any Bank request for such service, ATI – Tanzania office is available at Private Sector House – 1st Floor, 1288 Mwaya Road, Masaki.
Our telephone numbers: Landline: +255 22 260 1727/2751/2818 and Mobile: +255 782 390 531.
You can also read TanzaniaInvest first interview with Tusekile Kibonde about ATI’s role in Tanzania, and with John Lentaigne, Chief Underwriting Officer, explaining ATI’s ambitions in Tanzania and in Africa.