The ghost of bad loans past at Ecobank Transnational Incorporated (ETI) is still haunting Nedbank, which has reported headline earnings growth substantially lower because of its holding in the West African bank.
In 2015, ETI made provision for impairment losses after a strategic overhaul of its processes and portfolios, resulting in bad-debt charges of $357m and a $199m loss in the fourth quarter. Nedbank’s share of these charges was about 40m.
ETI has since turned the corner, reporting pretax profit of 281m in the nine months to September 2016, translating into income of R551m for Nedbank.
Offset against the previous R676m loss and R249m in funding costs, ETI brought in total headline losses of R374m for the bank.
“ETI was affected by shortterm challenges in Nigeria,” said Nedbank CEO Mike Brown. The West African bank was a longterm investment, he said.
Adrian Cloete, portfolio manager at PSG Wealth, agreed.
“The impact of ETI’s [2015 fourth-quarter] losses is behind them now, and ETI does give Nedbank a low-risk way of participating in the long-term growth prospects of the West and Central African region.”
Nedbank’s total loans and advances rose 3,7% to R707,1bn at the end of December, compared with growth of 11.2% the previous year.
“Loan growth is slow because economic growth is weak,” Brown said.
“Average loans during the year grew by about 7%, and this was mainly due to weak growth in the South African economy and South African consumers being under pressure.”
The industry, as a whole, reported growth of about 5% in credit extensions to private households by the end of November 2016.
Despite pressure on consumers, Nedbank reduced credit losses to 0,68% of gross loans and advances, compared with 0,77% previously and marking a change from rival Barclays Africa, which reported last week that its credit losses had risen to 1,08% from 0,92%.
Brown attributed the better performance to two factors.
“Nedbank has an exposure of about 52,8% to corporate clients and 42% retail, while at Absa it’s the other way round.”
Absa, Barclays Africa’s South African arm, has a 52% exposure to retail customers, with its corporate and investment bank contributing just 31,8%.
Nedbank’s corporate and business banking unit has won large clients, including two large municipalities and a parastatal entity. “We got a bigger share of their banking,” Brown said.
The second factor, which Brown credits for the reduction in the bank’s credit losses, is its efforts, during the 2014 to 2015 financial years, to improve its credit book. “We lent less to retail customers. Credit losses today are a result of a higherquality customer base.”
Brown does not expect the trend in credit losses to continue. He expects it to rise slightly, yet remaining below 0,8% due to SA’s current credit cycle.
aYo partners with MTN to launch insurance for all Ivorians
Panel Guests: From the left: Laurent Koffi Senior Manager Segments Mobile Financial Service of MTN Cote d’lvoire; Jean-Charles N’Gotta CEO of aYo Cote d’lvoire; Marius Botha Group CEO of aYo Holdings; Philippe Attobra CEO of Sanlam Assurance Vie (Image: Karli Stock)
aYo Holdings, African microinsurance fintech together with telecommunications giant MTN and Sanlam Life has launched two innovative insurance products in Côte d’Ivoire that will contribute towards MTN subscribers enjoying peace of mind.
CEO of aYo Intermediaries Cote d’Ivoire Limited, Jean-Charles N’Gotta, said: “It is estimated that less than 2% of the Ivorian population currently has insurance. This is because most people think insurance is only for white collar workers with high incomes. We want to show that with aYo services, people with all levels of income can get peace of mind at an affordable cost to help take care of their financial health even after hospital bills due to an accident or illness, or their funeral expenses if the unforeseen happens and they pass away.”
Two basic products will be available at launch once consumers sign up to aYo:
aYo Recharge+ rewards MTN MoMo (Mobile Money) users by offering free accidental hospitalisation cover and life cover each time customers purchase airtime via MoMo. Customers can also take advantage of the AutoBoost, paid-for, functionality to get even more cover with every MTN airtime recharge.
With the free component of aYo Recharge+, each time a customer uses their MoMo wallet to recharge airtime, they get 8 times that amount as accident cover and 12 times that amount as life cover. When they take advantage of AutoBoost to buy additional cover (from 25 CFA to 300 CFA), this amount is multiplied by 200 for additional accident hospitalisation cover and by 300 for additional life cover.
aYo Kash+ offers cover for illness and accidental hospitalisations as well as life cover each time a consumer sends money, pays utility bills or school fees via MTN MoMo. Each time a customer makes a person-to-person money transfer or pays a bill using MTN MoMo, they get illness cover equal to the amount they spend in that transaction, accident and life covers for three times the amount transacted by paying a 5% premium. When they pay school fees using MTN MoMo, they get life cover for twice the amount transacted by paying a 2% premium.
Getting cover and claiming is as easy as using the aYo progressive web app from your mobile phone by visiting www.ayo.co.ci. Signing up, interacting, and claiming all happens without the need for any physical paperwork. When claiming, the required documents can be attached and sent via WhatsApp too.
aYo launched in January 2017 in Uganda and has reached more than 14 million customers across Uganda, Ghana and Zambia. The company has paid in excess of over $1 million in claims.
“Insurance, and the peace of mind it provides, has become more important than ever in today’s fast-paced world, where risks are a part of our daily lives. You never know when you will have to pay to get back on your feet after an accident or an illness. Often, the cost is so large that it goes beyond your immediate financial capacity, and that is where aYo and our innovative products will be most helpful,” said Jean-Charles N’Gotta.
Microinsurance can mirror mobile money boom in Africa – if the conditions are right
Marius Botha, Group CEO of African Insurtech aYo Holdings
When it comes to mobile money, there’s no doubt that Africa leads the world. From humble beginnings as a peer-to-peer money transfer system back in 2007, it has boomed to nearly $500bn in transactions in 2020, with more than 560 million users across the continent.
According to the GSMA’s State of the Industry Report on Mobile Money 2021, global daily mobile money transactions exceeded $2 billion for the first time last year, and are expected to pass $3 billion a day by the end of 2022. And there’s still more growth where that came from. According to the Wall Street Journal, only 45% of the continent’s population has an active mobile phone.
What’s interesting is that customers are not only using their accounts more frequently, they are also using them for new and more advanced use cases. Many of the socio-economic and development challenges arising from the pandemic are being tackled with mobile money solutions. This suggests that more people are moving away from the margins of financial systems and are leading increasingly digital lives, the report said.
This is particularly good news for the microinsurance sector, which is growing steadily across Africa on the back of mobile network expansion, and is covering millions of people against financial shocks caused by unexpected life events.
Will microinsurance’s growth mirror that of the mobile money space in Africa? It’s hard to say at this stage. Right now, there are 130 mobile-enabled insurance services in 28 countries, with over half offering coverage for life and funeral or health and hospitalisation services. According to the GMSA report, 43 million policies were issued in 2020, two-thirds (29 million) of which were life and health insurance policies.
For microinsurance to show MoMo-like growth a few things have to happen:
First, a shift in existing perceptions of insurance as something that’s expensive, reserved for the middle class, or not to be trusted. This shift is slowly gathering momentum, largely through word of mouth. The more people experience the tangible benefits of microinsurance, the more they talk about it in their community, which drives greater trust – and ultimately, greater uptake.
Secondly, we need greater diversification of product and benefit options. While some insurance providers have already expanded their offerings from life and health insurance to income protection, education and even house insurance, life and health coverage remain the prevailing offerings.
Thirdly, it’s vital to have enabling insurance and telco regulations across the continent. For example, tax on the use of airtime as a premium collection method in some markets will have to be exempted in some countries. In others, restrictions on mobile money premium collections will have to be amended. The challenge is to build in consumer protection mechanisms to prevent over-charging of customer airtime or mobile money wallets from multiple products, and to ensure sufficient balances remain for other spending needs. We certainly don’t want to see outcomes similar to over-indebted consumers burdened with additional debit order or payroll collections for insurance, as has happened in some markets in the past.
Finally, we need to ensure profitable business models for all product providers in the value chain. While mobile channels reduce the marginal costs of accessing information and participating in financial service activities, the industry still relies on driving sufficiently high volumes of transactions at low costs, and low-cost distribution models. Many consumers still demand some level of face-to-face intermediation, which adds a layer of costs to the equation.
The stage is set for microinsurance to boom in Africa – and hopefully follow the mobile money growth trajectory. And that will be good for everyone, most of all consumers who are currently underserved and under-covered. Let the growth begin.
By Marius Botha, Group CEO of African Insurtech aYo Holdings
Microinsurance ready to disrupt African insurance industry
Marius Botha, Group CEO of aYo Holdings (Source: aYo Holdings)
When it comes to insurance, there are few more exciting markets to be right now than Africa. Before COVID-19 struck, McKinsey predicted the African insurance market would grow at around 7% per year between 2020 and 2025. That’s nearly twice as fast as North America and three times faster than Europe.
The pandemic slowed that growth to some extent. But we’re still seeing significant innovation in the African insurance sector, where fintech insurers like aYo are using technology to reach previously underserviced markets across the continent, making microinsurance products available through mobile phone networks.
With the exception of South Africa, traditional retail insurance remains largely undeveloped on the continent. But Africa is a prime market for microinsurance, which is small, rapidly underwritten financial protection against a specific risk over a relatively short period of time – like hospital cover for accidents, for example.
Its growing popularity is giving millions of Africans access to life and hospital insurance for the first time. And while microinsurance started out largely being targeted at under-insured people, it’s only a matter of time before it moves up the value chain to disrupt the traditional insurance sector.
One of the biggest challenges facing the traditional insurance industry is to develop products that are suitable and accessible to people with lower incomes and younger generations with different needs. That’s why we’re increasingly going to see fintechs creating completely new kinds of insurance that will meet the dynamic needs of so-called millennial and GenZ audiences, disrupting the traditional model and increasing the user base of people insured in the process.
Right now, we’re seeing several trends combining to create a perfect storm of growth for the African insurance sector.
A surge in mobile coverage
The key to the growth of the microinsurance market on the continent has been the rapid expansion of mobile network providers, which provide the ideal delivery mechanism for the spread of the product. Insurance in the palm of your hand? It doesn’t get faster, more convenient, or easy to use than that.
A joint venture between telecommunications giant MTN and financial services group Momentum Metropolitan Holdings (MMH), aYo’s MTN connection has proven invaluable not only to drive access to markets, but to provide credibility and trust in the relatively new brand.
A growing digital economy
At the same time, we’ve seen Africa’s digital economy grow exponentially over the last year, largely driven by Covid-19. The pandemic has dramatically changed consumer behaviour, and consequently, how insurers interact with clients.
More than ever, consumers don’t want to sign paper forms, or stand in queues. They want to access their financial products quickly and easily from their mobile devices – and here, microinsurers have proven agile enough to deliver the right products through this channel. At the same time, technology is making it possible for higher levels of product customisation than ever, with the ability to meet a growing range of niche needs.
A vast under-insured population
Perhaps the most transformative aspect of microinsurance is that it protects those who need it the most. People with lower incomes need insurance even more than the middle class, because they are more vulnerable and have a smaller cushion of resources to draw upon in times of need. Having insurance shields users from the type of economic shocks that would otherwise have kept them locked into an endless cycle of poverty.
Mix together a boom in mobile coverage, a thriving digital economy and an underserved population, and the ingredients are in place for an insurance revolution. By providing insurance to millions of Africans for the first time, innovative fintechs and microinsurers are truly driving financial inclusion across Africa and making a tangibly positive difference to people’s lives.
Author: Marius Botha, Group CEO of aYo Holdings
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