Just like in other developing countries in the world, Kenyan economy is being driven by SMEs. A recent National Economic Survey report by the Central Bank of Kenya (CBK) indicate that SMEs constitute 98 percent of all business in Kenya , create 30 percent of the jobs annually as well as contribute 3 percent of the GDP.
Julius Kipngetich, the regional group chief executive officer of Jubilee Holdings says: “small and medium enterprises (SME) form the future of insurance,” and when he so says, at least give him the benefit of doubt.
Although Kipngetich had a short stint at Equity Group Holdings as the chief operating officer, he spearheaded regional growth, new product development and the mobile virtual network operator (MVNO) – Equitel’s development.
But, even more salient is that he was around when Equity bank’s micro-credit initiative swept the banking landscape like a whirlwind.
Today, the surest way to drop out of the race to the pinnacle of the banking sector is by refusing to bank the not-so-rich customers from the informal sector.Yet, by and large, in Mr Kipngetich’s view, the poor and SMEs are still shunned – with explanations that they are too risky to be insured. The insurance sector is where banking was a few years ago – elitist and snobbish.
“Insurance companies, when I look at them, they have stayed too traditional for a very long time,” says Kipngetich.
“You see, banking is way ahead of insurance,” he says, and for emphasis, gestures: “Banks are here, insurance is there. So we need to catch up with our cousins in terms of financial inclusion.”
He explains that banks have been able to draw most of the cash that was initially hidden under the mattresses – the same way Safaricom rose to stardom by launching products tailored for the low-end market.
“Of all the things that CNN business anchor and reporter Richard Quest did during his Kenyan visit, an interview with a grocer at an informal market in Ngara caught his attention. “The question he (Quest) asked him is: ‘How much is your turnover in a day?’ The guy said Sh30,000,”
Mr Kipngetich does a mental calculation after surmising that the guy probably pays around Sh100 or Sh200 to the County Government for licence fee for the stall and has a mark-up of 50 per cent on the remaining cash since he does not pay income tax.He concludes that the trader is left with an enviable profit which is enough to get insurance companies tumbling over each other in the same fashion banks curtsied before Gikomba dealers.
“All of us are fighting for a small fraction of corporates. And corporates are good bargainers,” he says, adding that this explains the race to the bottom in the insurance sector. SME is a segment which insurance players have been unable to win over (although there are also cultural issues to surmount before insurance can pick up among a majority of Kenyans).