MSME’s in general perceive insurance as expensive and a preserve for big established businesses. In the construction sector however, insurance is required in the tendering and execution of projects. In that regard, most growth oriented small and medium enterprises do take on insurance and are familiar with it. However, the bulk of the micro and lower end small enterprises do not take on any form of structured insurance.
Insurance is a financial service that can assist people manage risks. The lack of insurance uptake in most MSME business causes them to divert money meant for business growth to sort our issues such as death of family members, sickness, theft etc. It is also not surprising to see a business fail or close down arising from a disability suffered by the owner of the business or his/her death. This trend perpetuates poverty in these people’s households. Even good but unplanned for events such as weddings, food, university fees etc. can see funds being diverted from business to consumption.
In view of this, the ZGJP through the ITC component have found it necessary to assist their targeted MSMEs with knowledge about risks and risk management through the financial literacy trainings. The ZGJP has earmarked insurance in general and micro insurance in particular to be one of the most important financial services offered to its targeted MSMEs. This is because of the nature of the construction industry were risks are relatively high compared to other sectors.
Micro insurance products range from life insurance, property and health insurance. These products are meant not only to insure against risk but can also enhance the credit worthiness of an enterprise in the eyes of financial service providers. It has been argued that there is a strong correlation between micro insurance products such as life or health, and high productivity and retention levels in enterprises. The same is true for social protection such as pension schemes that ZGJP is also promoting through the International Labour Organization. The other advantage of Micro Insurance is that it is meant to cater for low income groups who are supposed to pay relatively low premiums than the conversional insurance products.
ITC will work with financial service providers such as insurance firms and Micro Finance Institutions for them to develop micro insurance products through the targeted MSME associations. This will be in conjunction with and complimentary to the already existing work being spearheaded by Micro Insurance Technical Advisory Group (TAG), Micro Insurance Innovation Facility, Financial Sector Deeping Zambia (FDSZ) and FinMark Trust Zambia. ITC will relay on the technical expertise of these networks to ensure that affordable, appropriate and innovative micro insurance products are rolled out.