Lender allows borrowers to use insurance as collateral

Jamii Bora Bank CEO Timothy Kabiru during the Credit Round table Forum at the bank's headquarters in Nairobi recently. [Jeckonia Otieno, Standard]
In expanding its operations, lender Jamii Bora Bank has changed tack to woo Small and Medium Enterprises (SMEs).

The bank is now allowing SMEs to obtain bank guarantees and stock financing loans using insurance as collateral instead of the traditional security like land and buildings.

The move comes after the bank realised that a large number of their customers who are contractors or involved in supply chain, retail and wholesale trade find it extremely challenging to obtain funding to procure stock, mobilise 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 per cent 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 the bank.

The facility seeks to assist young enterprises seeking to service supply chains in the public sector or to large corporates.

Once an SME has secured a contract to supply goods or services, they can visit any of the bank’s 17 branches and make an application for a performance or payment guarantee.

The bank will only require a maximum of 20 per cent of the amount being secured as traditional collateral which could include motor vehicles and other moveable assets.

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This will enable customers to successfully offer their services to ministries and government parastatals in line with the 30 per cent rule currently in place.

In default

The bank’s acting CEO Timothy Kabiru terms it a win-win arrangement.

“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,” says Kabiru.

Procuring entities often lock out SMEs due to fear of their inability to deliver and the bank takes up that responsibility and supports them to deliver.

Kabiru says Jamii Bora Bank intends to partner with entities in both public and private sector to ensure that the whole value chain is completed and through collaboration reduce the level of default by monitoring use of funds throughout the contract period.

“If the SME delivers then they grow and we grow by extension,” adds Onsongo.

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Jamii Bora BankSMEsLoansInsurance