Credit Insurance: Zimbabwe’s Unsung Hero for Business Growth
In the bustling world of Zimbabwean commerce, where businesses constantly navigate economic shifts, a lesser-known but incredibly vital financial fool stands ready to offer a crucial safety net: Credit Insurance, While many are familiar with car or home insurance, credit insurance operates quietly in the background, a powerful guardian for business-to-business transactions.
At its core, credit insurance acts as a shield against the unexpected. It protects companies, whether they are suppliers or “bodies corporate.” from the risk of non-payment by their trade debtors. in an economy where credit often flows between sectors, both locally and globally. these unpaid debts can wreak havoc on a company’s cash flow and stability. This is where a specialist like Credsure Insurance Limited (Credsure), a specialist in Credist Insurance, Bonds and Guarantees as well as General Insurance, comes into play. As the country’s oldest and most established credit insurer, Credsure has a long-standing history of supporting Zimbabwean businesses.
From Post-War Europe to Modern Zimbabwe: The Purpose of Credit Insurance
The origins of credit insurance are rooted in necessity. Back in the early 20th century, around 1919, it emerged in Europe to facilitate trade between nations that were rebuilding after war. The concept quickly gained traction, spreading to South Africa by 1956 and arriving in Zimbabwe in 1965 seeing the establishment of Credsure Insurance Limited, then known as Credit Insurance Zimbabwe Limited. Since 2007, Credsure has further expanded its offerings to include General short-term insurance, demonstrating its adaptability to market needs.
But what exactly does credit insurance do for a policyholder? Its primary function is to safeguard one of a business’s most significant assets after its capital goods: its accounts receivable, in essence, it acts as a silent financial partner, working to:
Prevent bad sales: By setting a credit limit for each debtor, it helps businesses avoid extending credit to companies likely to default.
Compensate for unexpected defaults: When a buyer’s fortunes suddenly change and they fail to pay, the policyholder receives compensation.
Supervise debt collection: Even before a claim is made, the insurer assists in the collection of overdue debts.
Beyond its direct protective role, credit insurance serves a vital secondary purpose: facilitating financing. A credit insurance policy can be ceded to a bank as collateral for lending, strengthening a company’s borrowing power. The overall effect? Peace of mind for the business owner, their credit manager, and their bankers.
Tailored Protection: Export vs. Domestic Cover
Credsure offers two main types of credit insurance, catering to the unique needs of businesses operating locally and internationally
- Export Credit Insurance: This provides crucial protection against losses from non payment by foreign buyers, stemming from both political and commercial risks that are not typically covered by other insurance policies.
Political Risks: These include losses caused by wars, revolutions, boycotts, or strikes outside Zimbabwe, as well as losses arising from acts or omissions of foreign governments that prevent goods from reaching their destination or funds from being transferred back to Zimbabwe.
Commercial Riske: This covers scenarios where a foreign buyer faces liquidation or financial instability, fails to pay an undisputed debt within 120 days of its due date, or unjustifiably refuses to accept delivery of exported goods.
Exporters have flexible options, including pre-shipment, post-shipment, consignment stock, transit risk, and short-term export finance and payment guarantees. Premiums are calculated upfront, providing transparency for exporters.
- Domestic Credit Insurance: This cover is designed for local buyers, shielding suppliers from unexpected trade debt losses that other insurers don’t cover. The primary risks include protracted default and insolvency or liquidation. Similar to export cover, domestic policies also offer services like debtor investigation, credit supervision, and compensation, and can be used as collateral for bank borrowings.
When Disaster Strikes: Understanding Claims
Claims are assessed at specific junctures as stipulated in the policies. For protracted default, this is typically 120 days past the due date, for insolvency or liquidation, 30 days after a provisional order, and for repudiation, as soon as reasonably applicable. Political risk claims are handled on a case-by-case basis, adhering to policy terms.
The insured percentage generally stands at 80% for most domestic policies, while for export policies, it ranges from 85% to 95%, depending on the specific type of cover. Ultimately, credit insurance does more than just mitigate risk, it incentivizes businesses to explore new markets and engage in transactions they might otherwise have shied away from. This confidence, in turn, acts as a powerful catalyst, boosting industry and strengthening the Zimbabwean economy as a whole. By Patrice Chiremba
