By Taurai Craig Museka
As Zimbabwe endeavours to stimulate economic growth, increasing trade is one of the major priorities of both the government and the private sector. Trading with international markets presents remarkable opportunities to earn foreign currency and grow the economy.
Zimnat General Insurance is assisting the nation in confronting the economic challenges it faces by providing Trade Credit Insurance to facilitate trade.
It is only through meaningful trade that the nation can increase its income and reduce poverty among its citizens. However, trade, particularly with international markets, presents risks. It is the priority of any economy, therefore, to recognise and manage any risk associated with trade.
Zimnat through its Trade Credit Insurance Division is assisting companies across all markets to reduce the risk associated with trade in both local and international markets.
Trade Credit Insurance is an insurance policy that is offered to businesses that wish to protect their accounts receivables from loss due to credit risks and in some instances political risks.
When a business offers deferred payment terms to its local or foreign buyers, there is a risk that the buyer might fail to pay at maturity, something that is common in any struggling economy.
A Trade Credit Insurance policy comes in to compensate businesses in the event that their foreign or local buyer fails to pay them due to insolvency, bankruptcy, protracted default and in some cases actions or inactions on the part of the buyer’s government.
Trade credit insurance is a proven tool used to mitigate risk associated with trade. The product is designed to give exporters confidence to increase export sales and establish a presence in export markets.
As an example, a Zimbabwean plastic bag manufacturer may use trade credit insurance in two ways.
Firstly, if it needs to access raw materials from a foreign supplier (foreign exporter) on credit, Zimnat can come in and offer trade credit insurance to that supplier. If the local buyer defaults on payment, Zimnat will compensate the foreign supplier.
Secondly, the plastic bag manufacturer can offer credit terms to its local or foreign buyers when it sells the finished product. To protect itself from the risk that its buyers might default on payment, it can take out a Zimnat Trade Credit Insurance policy, which entitles it to compensation in the event that the buyer has defaulted.
Trade credit insurance therefore assists buyers by providing them with time to generate income from sales before paying for the products and it assists sellers by giving them the peace of mind of knowing that they will receive compensation if their customer defaults.
In the Zimbabwean scenario, local businesses can use trade credit insurance to access different products and raw materials from foreign suppliers without the need to pay for them upfront or produce letters of credit.
Trade credit insurance can also assist local manufacturers by enabling them to sell their products on credit to foreign markets that they would otherwise perceive as risky knowing that payment is guaranteed and consequently growing their exports.
Trade credit insurance is therefore more than just an insurance policy. It is a financial instrument, particularly for exporters, for managing risks. Trade Credit Insurance kicks in when buyers are unwilling or unable to provide any form of security for their credit sales by way of bank guarantees or letters of credit.
As Zimbabwe’s banking sector battles with decreased liquidity and a low appetite for lending, Zimnat’s Trade Credit Insurance can become a substitute for banks’ letters of credit.
Where foreign suppliers exporting into Zimbabwe wish to facilitate business by offering credit terms to their customers in Zimbabwe, they can use trade credit insurance as security in case a Zimbabwean buyer fails to pay the debt.
Zimnat Trade Credit Insurance, which is situated in Belvedere, Harare, has established relationships with local and foreign reinsurers with which it shares the risk of trade losses, which makes it well equipped to absorb the losses that can occur in any currency.
Where businesses want to enter into new markets, issues to do with buyer reliability always arise. Apart from compensating businesses when they are faced with credit losses, Zimnat’s Trade Credit Division assists in gathering information about local and foreign buyers and markets all over the world.
Zimnat is an associate of the Sanlam Group, one of Africa’s largest financial services groups, which gives it access to information on millions of companies worldwide.
Zimnat Trade Credit Insurance assists businesses in gathering information on foreign buyers and exports markets that they wish to enter.
It provides businesses with professional credit risk expertise, credit management and collection assistance. Thus companies do away with the need to hire third party debt collectors at a cost.
Another benefit businesses can obtain from the Zimnat Trade Credit Insurance is that it unlocks credit value with financial institutions. The Zimnat Trade Credit Insurance policy can give businesses access to receivables financing and improved credit terms from lending institutions.
Trade Credit Insurance is made for uncertain times to ensure the continuity of any business. The establishment by Zimnat of a dedicated Trade Credit Insurance division that focuses solely on assisting Zimbabwean businesses to obtain much-needed protection when they venture into the export market is designed to enable the private sector to play a crucial role in assisting the government to turn around the economy.
Fore more information please call us now on (242) 741461 or our toll free number 08080063/4/6 or visit our website www.zimnat.co.zw