MSMEs can bank on insurance to build resilience

Micro, Small and Medium Enterprises (MSMEs) account for the vast majority of global businesses, provide the highest number of jobs and contribute to GDP.

In Kenya, they comprise 98 percent of all businesses, create 30 percent of jobs annually and contribute three percent to GDP.

Despite their vital role, many face many risks and uncertainties, which threaten their ability to stay afloat. Lack of adequate risk management strategies is one of the biggest threats hampering their growth.

Different stages in their business cycle expose them to certain risks, which makes insurance a vital tool for boosting their financial strength and stability.

MSMEs are more vulnerable compared with larger enterprises. They face financial, regulatory, infrastructural and productivity risks among others.

They are also vulnerable to the personal risks of their owners and family and those of their employees.

Underinsurance, which is the lack of complete financial protection, also hinders MSMEs’ ability to fully unlock their potential.

Bancassurance is developed through strategic collaborations between reputable insurance partners and financial institutions and leverages their expertise, knowledge and specialised resources.

Depending on the types of risks that MSMEs face, bancassurance can greatly boost their growth and resilience.

By integrating banking and insurance products under one umbrella, financial institutions are able to offer MSMEs comprehensive and seamless financial services.

This convergence provides MSMEs with solutions that cater to their diverse needs, be it savings, investment, protection, or retirement planning.

Small firms require support to effectively manage risks and contend with various uncertainties, such as market fluctuations, natural disasters, and unforeseen disruptions.

Insurance products provide businesses with a safety net, which then enables them to focus on their core business of building strong market influence and register growth.

Moreover, bancassurance can play a pivotal role in enhancing the financial stability of MSMEs. By diversifying their revenue streams through insurance products, MSMEs reduce their reliance on traditional banking income, which may fluctuate depending on economic conditions.

This balanced approach to revenue generation ensures that they are able to weather economic downturns more effectively and ultimately contributes to their long-term sustainability.

Access to finance remains a significant obstacle for MSMEs seeking to expand their operations and traditional lending requirements can be stringent, making it difficult for them to secure the funding they need.

Bancassurance can act as a facilitator by providing alternative financing options. For instance, insurance premium financing allows MSMEs to spread the cost of their premiums over time, which then eases the strain on their cash flow.

Also, MSMEs can use insurance policies as collateral to secure loans and increase their chances of accessing credit based on favourable terms. 

MSMEs must take up bancassurance, not merely as an option, but as a strategic imperative if they want to thrive in an ever-changing dynamic environment. 

The writer is the head and principal officer, National Bank of Kenya Bancassurance Intermediary Limited.