Safeguarding MSMEs Through Micro Insurance, Pension Plans

Incessant demise of Micro, Small and Medium Enterprises in Nigeria is source of concern to Nigerians. Ebere Nwoji reports that stakeholders see financial inclusion through micro insurance, pension plan as the way forward.

Recent report by the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), which said that in the past five years (2017-2021), the Nigerian businesses community has lost no less than two million Micro, Small and Medium Scale  (SMEs) businesses by way of closing shops is worrisome to every right thinking Nigerian.

According to SMEDAN, between 2017 and 2021, the number of MSMEs in Nigeria reduced from about 41 million to 39 million. This situation was attributed to impact of COVID-19 and other challenges on small businesses nationwide.

SMEDAN is a federal government agency established in 2003, to facilitate the promotion and development of structured and efficient Micro, Small, and Medium Enterprises (MSMEs) Sector. Given this status, the agency therefore is in best position to give authentic report on developments within the MSMEs sector.

Although SMEDAN, traced reason for the MSMEs demise to factors such as the COVID-19, funds accessing problem as well as globalisation problems, an average Nigerian knows that given the negative operating environment businesses especially MSMES found themselves in Nigeria, there has always been high mortality rate among MSMES in Nigeria before the COVID and way back in the days of existence of many textile factories in Nigeria.

Some of these challenges that have led to their high mortality rate include   lack of skilled manpower, multiplicity of taxes, high cost of doing business especially epileptic power supply and lack of locally sourced raw materials among other things.

Over the years because of enormous losses associated with this incessant demise of small businesses in the country, especially job losses, operators in their various trade groups such as National Association of Small and Medium Scale Enterprises, (NASME), Manufacturers Association of Nigeria (MAN) , Nigeria Association of Chambers of Commerce, Industry, Mines and Agriculture(NACCIMA)and even the Nigeria Employers Consultative Association(NECA) which together make up the Organised Private Sector Group (OPS) have severally called on government to save the souls of Nigerian MSMES because of the important role they play  in Nigeria’s economy.

Though government on its part tried to save the situation but these efforts have not yielded the desired result of preventing further demise of the MSMES.

Insurance and pension plan

Industry watchers said one thing operators of these MSME businesses have not considered or have neglected is the fact that insurance as part of financial services sector  is there standing as a tripod on which other businesses in the country and even in advanced countries rest on to stand the test of time in terms of cushioning the effect of risk of failure due to unforeseen circumstances. Indeed, statistics by both National Insurance Commission, the Lagos Chamber of Commerce and Industry and others show that insignificant number of these MSMEs consider taking insurance cover for their businesses and the result is that even the least shock from the business environment often brings down many businesses, whereas very few of them wise enough to take insurance cover have often endured shocks.

A typical example was the case of one of the traders in the Great Nigeria Insurance House at the Centre of Balogun market Lagos who was the only person among all the traders in the building to receive insurance claim of N4 million some years back after fire gutted the building.

Also N11 billion claims was paid to affected businesses after the   #End- SARS protest.

Owners of these businesses were able to return to operations to start afresh because of insurance plan they put in place and claims they received from their insurers.

Realising that a major reason for the incessant collapse of MSMES was lack of wherewithal to start business afresh after the unforeseen happened, the National Association of Insurance and Pension Editors (NAIPE) centered the theme of its 2022 Annual Insurance Conference held in Lagos on, “On- Boarding Small and Medium Scale Enterprises Into Micro Insurance and Pension Space in Nigeria.”

NAIPE in organising the conference and in choosing the above theme targeted at leveraging the opportunity provided by both insurance and pension sector regulators and operators in Micro insurance and Micro pension scheme as a way of achieving financial inclusiveness in the sub sectors to bring in MSME into the insurance and Pension arena.

NAIPE noted that aside previous factor pointed out, other MSME businesses killers are unforeseen peril that often wipe away the owners’ income, death of the business owner which often spells the death of the business and old age poverty due to lack of pension plan and was spurred into action to bring together the operators of insurance, pension and MSMEs to chart a way forward on the need to design cushioning strategy for the MSMEs and ensure that they die no more.

Operators’ view

Delivering the theme paper, the Director General Lagos Chamber of Commerce and Industry (LCCI), Dr Mrs. Chinyere Almona, noted that the starting pointing of sweeping MSME operators into Insurance and pension nets is to incentivise them  to join Micro-Insurance, Micro-Pension Plans.

She said insurance and pension operators should provide necessary and attractive incentives that would encourage and attract those in the informal sector to embrace the micro insurance and micro pension plans.

“Although the Insurance and pension sectors have been doing a lot in driving the financial inclusion initiative of the federal government, there is need to incentivise and encourage those in the informal sector, the Nigerian Nano, Micro, Small and Medium and Enterprises NMSMEs operators to embrace micro insurance and join the micro pension plan,” Almona said.

While calling on insurance underwriters and pension administrators to take advantage of numerous opportunities that abound in the NMSME sector, Almona said, “NMSMEs presents huge opportunity for the micro insurance and pension industry due to the size of the workforce.”

She highlighted other opportunities to include Large MSMEs employment/labour force, large willing adult population, expanding distribution channels, favourable regulatory environment, mature financial services sector and revolution in information technology and digital innovations.

Statistically, the LCCI DG said the total number of employment by MSMEs stood at 61.9 million representing 87.9 percent of the total labour force in the country, adding that the number of employment generated by the informal sector was 16 million while the formal sector generated 7.5 million in 2020.

On the need to step up awareness and enlightenment of the NMSMEs on the benefits of micro insurance and micro pension and application of technology, Almona said, “Investment in enlightenment campaigns and enabling technology are required.”

The benefits, according to her, include a safety net at retirement, alignment with the current social empowerment programmes, minimising old-age poverty, improving standard of living for the elderly.

She said with regulatory support, Nigeria was well placed to achieve meaningful micro-pension coverage rapidly as well as enhance insurance penetration.

Speaking on the micro insurance, Almona said the ratio of insurance assets to gross domestic product (GDP) has remained stagnant at 1 percent noting that Microinsurance in Nigeria was at a very early but growing phase.

Micro Pension plan

On the Nigerian Micro Pension Plan, she said the percentage ratio of pension assets to GDP remained low, adding that the total pension contribution remitted by the public sector was slightly higher than that of the private sector which, according to her, further justified the low penetration of pension in the private sector of the economy.

Earlier in her Keynote address, the Director-General, National Pension Commission (PenCom), Mrs. Aisha Dahir-Umar who was represented at the occasion by the Head, South West Office of PenCom, Dr Tunde Alayande had said that the on-boarding SMEs into the Micro Pension scheme was one of the strategies in which the pension industry had been contributing to the financial inclusion initiative of the federal government.

He said the micro pension plan was designed for those in the informal sector including the SMEs adding that PenCom in collaboration with the Pension Operators Association of Nigeria (PenOp), had come up with lots of initiatives for the SMEs for the benefit of the industry.

In his goodwill message on behalf of members of the Nigerian Insurers Association (NIA), the Chairman, Sugun Omosehin commended NAIPE for the conference, noting that the conference was not only significant to the insurance industry but also to the entire financial services industry.

He said NAIPE through the conference theme was not only projecting the image of the industry but making people get to understand what insurance operators do, what they represent and how they could impact on the economy.

Earlier in her welcome address, the Chairman of NAIPE, Mrs. Nkechi Naeche Esezobor, said the theme of the conference, “On boarding MSMEs into Micro Insurance and Pension Space in Nigeria,” was considered because of the importance of SMEs as driver and engine of growth of the Nigerian economy and the need to support the sector so as to continue to contribute to the growth of the economy.

She urged micro insurance and micro pension operators to see SMEs as their growth assets by ensuring that they are properly captured.

Other participants who spoke at the conference emphasised on the need to ensure that Nano which are small and minute businesses, Micro, Small and Medium Enterprises (NMSMEs) access micro insurance and pension plan.

They noted the critical roles NMSMEs play in the economy and insisted that there should be more than a passing interest on the sector. 

“This is because data show that the number of MSMEs is over 40 million in Nigeria. Data also show that MSMEs contribute about 48 percent to the National GDP and amounts to about 96 percent of businesses in Nigeria and 84 percent employment rate” the operators said.

Furthermore participants at the conference acknowledged that MSMEs are not just limited to the artisans, vulcanizers, tailors etc but include the technology guys, entertainers, bloggers and others. “We have well educated people doing different kinds of business and playing in the MSMEs space, Thus, the space is so huge” they observed.

It was also noted that beyond access to capital, MSME operators face a number of risks like little or no planning to deal with some business risks, unstable income flow, the key man’s risk, challenges of natural disasters, the risks of illness, accidents, fire, or the death of the business owner. Also, the old age risk or risk of retirement, which according to them is very crucial. 

They concluded that these problems would be addressed by micro insurance and micro pensions plans if the MSME operators key into the plan. the MSME operators.

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