On October 9, 2024, Zimbabwe woke up to devastating news for micro, small and medium-sized enterprises (MSMEs). A fire razed parts of the Mbare informal market, leaving over 4,000 MSMEs lamenting the loss of their stock and savings.
The catastrophic blaze ravaged both retail and wholesale sections of the iconic market. The stock razed include products and cash.
“All of my merchandise, which was worth about US$5,000, burned down. It was midnight when I got a call informing me that the market was on fire,” recalls Maitiro Guzha, a trader at the informal market.
“The entire area was on fire when we arrived. Everything we had, including the money we were keeping there and the items, was lost. We are grounded to zero.”
Estimates showed that over US$50,000 in unbanked cash was burned in the fire along with the stock in a market where over US$100,000 is traded every day.
Repeated fires
The fire evoked memories of a similar disaster at Glen View Area 8 Home Industry, a complex located northeast of Mbare. The market caught fire last year, destroying businesses of about 3,000 dealers, in what marked the 14th straight year of losses through fire.
Newly made chairs, mattresses, kitchen cabinets, lounge suits, tables, and closets were among the thousands of dollars’ worth of stuff that were destroyed in the fire. Yet, just like in Mbare, traders at this complex lack any form of insurance to safeguard their enterprises, even in the face of successive fires.
President Emmerson Mnangagwa proclaimed the Mbare fire a national disaster as Venencio Kurauone, national secretary of Zimbabwe Chamber of SMEs, called on stakeholders to support the government’s initiatives, including considering insurance.
“This tragic event offers a chance for all important stakeholders in the SME ecosystem to come together and provide solutions to support traders in their efforts to recover and grow their businesses,” Kurauone said.
Insurance missing
The insurance industry in Zimbabwe has been attempting for years to gain traction with the nation’s MSMEs, but the penetration rate is still low. This is despite the huge contribution that small businesses have for the Zimbabwean economy, just as it is for many other economies in Africa.
MSMEs in Zimbabwe contributed US$8.2-billion to the economy, according to the 2022 Finscope SME survey. The sector is diverse and includes self-employed people, businesses, and one-man survivalists.
According to official figures, 1.6 million people (23%) are business owners as defined by SME Act, whereas 1.1 million people (16%) work for themselves in Zimbabwe.
MSMEs, despite being severely underfunded, are important forces behind economic expansion and make significant contributions to innovation and employment. They make up 90% of all enterprises and 50% of all jobs worldwide.
According to the International Labour Organization (ILO), insurance can assist MSMEs better manage risks by providing them with access to a wider range of risk management instruments and boosting their confidence to make riskier but potentially more profitable investment choices.
Associated risks and brokerage
Small businesses, according to Emerald Insurance Brokers, are the foundation of the Zimbabwean economy and insurers therefore need to develop customised insurance plans for them. These could include cybersecurity insurance, employer’s liability insurance, product liability insurance, business property insurance, and business interruption insurance.
To select the appropriate insurance coverage, MSMEs must pinpoint the particular risks that their operations face, according to risk management specialist Tariro Muwadi.
“A broker can assist them in navigating the insurance market and creating a plan that meets their unique needs.”
Zimbabwean SMEs can focus on reaching their long-term objectives, develop resilience, and navigate the business world with more assurance by giving insurance first priority.
Muwadi believes that the creation and dissemination of sustainable insurance products can be aided by public-private partnerships. The insurance sector, governments, development partners, and the World Bank can work together to design frameworks and incentives that encourage SMEs to adopt sustainable practices.
Short-term/micro insurance for MSMEs
Insurance and Pensions Commission (IPEC) data offers hope that insurers have a chance to forge a win-win partnership with small businesses.
IPEC had 527 registered entities or persons in the short-term insurance market as of June 2024, compared to 1,271 in the previous year. Three micro insurers, three multiple agents, one aggregator, four corporate agents, and two individual agents were all registered by the Commission in the second quarter of 2024, bringing the total number of newly registered organisations to 13.
The report shows that short-term insurers now have 419,818 policies overall, up from 374,255 policies at the end of 2024’s first quarter. In the second quarter of 2024, 121,491 existing policies (expired or cancelled) were recorded, compared to 167,054 underwritten policies.
In the review period, the short-term reinsurance industry recorded consolidated insurance revenue of ZWG1.03-billion (US$40.23-million). The primary sources of insurance earnings were the fire and casualty business categories.
Sixty-one percent of the total insurance revenue came from the two business lines. The fire class contributed 44% of the US$77.02-million in foreign currency-denominated insurance revenue recorded by short-term reinsurers. The report listed four micro insurance companies.
According to economist Finos Chatambadza, this provides micro-insurers and short-term insurers/re-insurers with a chance to develop a range of products to serve the formal and informal MSMEs market.
“The contribution in the fire class is already an indicator that despite risks, there is an opportunity for a viable business,” said Chatambudza.
Over 81% of MSMEs use some form of technology in their business according to the Finscope report. Chatambudza said insurers should ride on technology to net traders.
Findings show that insurance cover is for the business owner and not the business assets and is majorly driven by funeral plans and medical aid.
“It is now a matter for leverage on the insurance knowledge they have already. If they are preparing for any health emergency or loss of life, even their business needs the same cover,” siad Chatambudza.
Companies like BIMA and Hollard in Ghana have introduced micro/SME insurance products tailored to the needs of small businesses. These programmes offer crucial company risk coverage, and they might be extended to give more affordable solutions that promote environmentally friendly behaviours through sustainable insurance products.
Hope amid obstacles
The low rate of formalised SMEs could stand in the way of tapping insurance. At 14%, formalisation has not increased over the last decade, with small and individual businesses having the lowest percentage based on the Finscope Survey for 2022. The primary obstacle is that the company is too small or does not have the necessary capital to register.
As the government is calling for the efforts in rebuilding the Mbare Musika market, experts say the insurance business has a chance to support the regularisation and formalisation of MSMEs, which would benefit the entire MSMEs sector.
There are some encouraging initiatives beginning to happen as was seen during a September 2024 SMEs workshop that was co-hosted by IPEC and the Bulawayo Chamber of Commerce. This initiative brought together a range of stakeholders, including micro-insurance providers, local authorities, and small business associations, to develop innovative risk mitigation strategies tailored to SMEs.
ILO representatives also took part, providing insights from related international programmes and offering their knowledge on SMEs’ capacity-building.
Practical skills including risk management, catastrophe preparedness, and sustainable money management were the main emphasis of the workshop. ILO facilitated workshops on risk mapping and adoption techniques, ensuring SMEs are better equipped to handle challenges such as fire outbreaks and theft.
IPEC emphasised the advantages of collaborating with authorised micro insurance providers in order to mitigate the risks of unofficial schemes, including fraud and poor management.
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