ZIMNAT partners financial institutions to develop a trade finance market in Zimbabwe
By Insurance24
HARARE, Zimnat says is offering credit insurance in a transitioning environment which demands the adoption of a structured credit insurance model.
In that regard, “Zimnat formed a partnership with BankABC intending to do the same with all other financial institutions that have an objective of developing the trade finance market in Zimbabwe, while capitalising on the security offered by trade credit insurance facilities.”
This was said by Zimnat Trade Credit Insurance, Bonds and Guarantees Division general manager Shepherd Tembo last week at a Zimnat Trade Credit Insurance Conference.
“It is necessary to respond to market needs,” he said, adding that Zimnat was offering credit insurance in a transitioning environment which demands the adoption of the structured credit insurance model.
A regional reinsurance expert, Continental Reinsurance Kenya, Managing Director, Souvik Banerjea told the same conference that up to 85% of trade transactions across the world are conducted on open account terms, supported by a purchase order and invoice with mutually agreed payment terms as the basis for trust, but the percentage was however much less in Africa.
He said the remaining 15% of trade transactions is used trade finance instruments, such as export letters of credit and export collections that provided more security against the risk of non-payment.
Extending such credit, he said, carried with it the risk of non-payment due to bankruptcy, delayed payment or simple refusal to pay due to some reason that might or might not be valid.
He added that credit risk could be mitigated by risk-based pricing, diversification of the pool of borrowers, reducing the amount of credit permitted, reducing the payment period or taking out credit insurance.
“Credit insurance protects your business from non-payment of commercial debt. It makes sure that your invoices will be paid and allows you to reliably manage the commercial and political risks of trade,” he said.
Insurance could be provided for a transaction between just one seller and one buyer or for transactions between one seller and many buyers (whole turnover policy). The premium for insurance covering just one buyer was normally high.
A lenders’ all risk policy could be provided for lenders and to cover receivables discounted by a bank.
A whole turnover policy could be taken out by banks to cover a portfolio of their clients, exporters who sell across the globe, manufacturers with a large book of customers to protect, suppliers and traders.
“A typical scenario can involve a customer who uses its receivables as collateral to obtain advance payment or bank financing.
“Blanket protection against payment default risks provides clients with the freedom to continue expanding their business without worry,” he said.
