Mitigating SMEs Losses

Losses suffered by most small scale businesses could not be mitigated due to absence of insurance policy. But small scale business operators blame this on treachery on the part of insurance companies

By Onu Okorie

May 28, 2009 started like any other day for an industrialist, Chief Ndi Nweke until he arrived his business premises in Ebute-metta, Lagos. Nweke watched in bewilderment how the three storey building that housed his bakery collapsed and turned his factory to rubbles. Since then life has not been the same for him. Efforts to raise fresh capital from his bank to resuscitate his business have consistently proved abortive. It was not until then that he realised the importance of insurance. Insurance cover could have been the only option for him to revive his business if he had made provision for insurance cover for his business.
Nweke's case is just one out of many Nigerian's small and medium entrepreneurs who have neglected insurance cover for their businesses. Newsworld survey indicates that over 80 percent of SMEs are not insured. As at the last count, 20 percent of businesses in the organised private sector have suffered losses due to problems traceable to risk that could be mitigated if it were insured. In the real sector of the economy, many cottage firms such as paint industries, food and beverage, manufacturing and textiles companies have closed businesses because of insurable losses they incurred.
An industrialist, Chief Ndike Uche, told this magazine that many entrepreneurs who could not convince their banks to raise fresh capital to inject into their business particularly in the case of infernos would have no option than to close shop. Chief Ndike disclosed that about five percent of entrepreneurs' business premises in Onitsha, Anambra State have gone out of business due to inferno since the beginning of this year. “Those whose business were affected but not insured and had no other means of raising capital would definitely close shop” he said.
A Lagos based industrial analyst, Ideh Ojo told this magazine that one of the major causes of loss of business particularly in Lagos is insurance apathy among SME owners. According to him, “Lagos is a very volatile zone where anything can happen. Most entrepreneurs face risk of insecurity, inferno and of recent, the problem of possible collapse of building that is housing businesses in Lagos. Many businessmen who encounter these misfortunes always have themselves to blame because their businesses are not insured.”
A financial analyst, Lanre Oniyitan said that there are three most important factors insurance companies and business owners should bear in mind when thinking of SME insurance. These are: physical asset, employee benefits and public liability. While berating the apathy of owners of SMEs towards insurance, managing director of Arizona Insurance Brokers, Bonaventure Obiora pointed out different areas SMEs could be covered. These include health risks, illness, injury or death. They can also be insured through property risks, damage and loss as well as agricultural risks comprising low yield, livestock theft and fire. Obiora further noted that disability due to accident and natural disasters such as ecology, wind and warlike risks are also covered by insurance.
But some entrepreneurs who spoke to this magazine attributed the neglect of insurance by entrepreneurs to the act of treachery by insurance companies. According to the managing director, Chiks Chemicals Industries Limited, Chief Chidinma Sonne, many of these insurance companies are good at throwing wheels at the banner when it came to paying claims to their customers. He said he has a good number of cases in which the insurance company failed to keep their own part of the bargain when it comes to claims. “Many of us prefer to bear our risk because we cannot trust operators in the insurance industry based on past experiences unless if things change,” he said.
Oniyitan however, said operators of SMEs are concerned with the daily operations of the business than preparing for rainy days. “In other words, the sheer optimism most SMEs bring to the table is a double edged sword; they may have the vision and energy to come up with great ideas, but they also have little time to spin their own safety net,” he asserted.
Given the place of the SMEs in the economic growth, it is worrisome that government in the past has developed various policies to scale up activities of SMEs, but have not factored insurance into it. Some policy framework, small scale industrialist credit scheme, CBN special credit programme for SMEs, the defunct National Economic Reconstruction Fund and World Bank facility as well as Peoples Bank, Community Bank, Small and Medium Enterprises Equity Investment Scheme, recently, micro-finance banks have been developed to give impetus to small scale businesses without the consideration for insurance.