Jamii Bora Bank Turns to Insurance to Solve Collateral Problems for SMEsJanuary 17, 2020
Jamii Bora Bank prides itself on being innovative when seeking solutions to provide financing to Small and Medium-Sized Enterprises (SMEs). The Bank is now allowing SMEs to obtain bank guarantees and stock financing loans using insurance as collateral instead of the traditional collaterals asked for by banks like land and buildings. The Bank realized that many customers who are contractors or involved in the supply chain, retail and wholesale trade find it extremely challenging to obtain funding to procure stock, mobilize and fulfill local purchase orders and contracts due to the lack of traditional collateral.
“We reduced the level of traditional collateral required to below 20% of the exposure value and now have arrangements with insurance underwriters who then issue an insurance cover for the balance of the exposure” explains, Peter Onsongo, Head of Credit at Jamii Bora Bank. The facility has been extremely helpful to young enterprises who are seeking to service supply chains in the public sector or to large corporates. Once the SME has secured a contract to supply goods or services, they can visit any pf the Bank’s 17 branches and make an application for a performance or payment guarantee and the Bank will only require a maximum of 20% of the amount being secured as traditional collateral which could include motor vehicles and other moveable assets. Effectively this has enabled many of their customers to successfully offer their services to ministries and government parastatals in line with the 30% rule currently in place.
“It is a win-win for everyone involved,” said Timothy Kabiru, Acting CEO of the Bank, “the procuring entity is assured that they will obtain supply of the service or contract, the SME will also secure the contract and earn revenue while the Bank is covered in the unlikely event of default” he added. Procuring entities often do not have time to chase after SMEs to make sure they deliver, so the Bank takes up that responsibility and supports the SME to deliver. It is their intention to partner with procuring entities in both public and private sector to ensure that the whole value chain is financed and through collaboration reduce the level of default by monitoring use of funds throughout the contract period. The Bank contends that the large number of SMEs in Kenya just need a Bank who can work closely with them and solutions can be found to achieve growth.
The Bank is now focusing on the SME’s transactions and business and not the possibility of default and then working with the SME to ensure they deliver. “If the SME deliver then they grow, and we grow by extension” said Onsongo. The Bank intends to make their focus on SMEs the key differentiator in a crowded market where SMEs have massive challenges in obtaining financing for their businesses. Jamii Bora Bank remains committed to the SME market and sees the segment as the future of the Kenyan economy that will provide sustainable employment to the youth.