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
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
Current Legal Issues Arising from Banking and Financing Arrangements
In August 2020, Diagoe Plc’s Nigerian entity announced that it was struggling to refinance a $23 million debt and trim costs following a shortage of dollars in the local-foreign exchange market. While the lack of access to greenback (dollar) remains a growing concern for borrowers in Africa, the downturn in the revenue and profits as a result of COVID-19 has recently become a more prevalent cause for the inability of many borrowers to fulfill their contractual obligations.
The disruption of supply chains, compulsory quarantine, and social distancing regulations are a few examples of the effect of COVID-19 which in turn have materially caused economic instability and affected the ability of borrowers to meet their financial obligations. There is therefore a need for lenders and borrowers to critically consider the implications of the current economy on their financial obligations.
This article highlights some key implications the current financial terrain may have on borrowers’ businesses and their ability to comply with their contractual obligations. The article further sets out recommendations for lenders and borrowers who are faced with the task of funding and repaying loans under respective financing arrangements. While there are numerous impacts of the resultant effect of COVID-19 on covenants in finance documents, this article highlights only a few of such key legal consequences on financial obligations.
Financial Conditions and their Implication on Covenants in Finance Documents
Generally, financial covenants in a loan agreement are undertakings given by the borrower to test the performance of the business servicing the loan and to help the lender ensure that the risk attached to the loan does not unexpectedly deteriorate prior to maturity. These performance covenants may cover the borrower’s business both back or forward to assess whether the business is showing any signs of distress that could potentially affect its financial obligations under the finance documents.
However, as a result of the steps taken to combat the COVID-19 pandemic, many businesses have seen a severe and abrupt drop in income which has affected the ability of businesses to meet some performance covenants.Where these covenants have been breached as a result of the pandemic, the lenders may declare a default under loan documents and demand early payments of loan which acts as a drawstop, such that the borrowers will not have access to their facilities. A drawstop event means a breach by the borrower of a financial covenant which gives the lender the right to refuse to make further loan advances under a facility agreement.
In light of the foregoing difficulties that both lenders and borrowers may face in these uncertain times, the following paragraph sets out practical solutions that may be explored by the parties.
Legal Considerations for Borrowers and Lenders
With the current unpredictability of the financial markets, it is important that borrowers and lenders conduct a critical review of their current loan documents to verify the implications of COVID-19 on their rights and obligations. Most importantly, borrowers have to fully disclose to their lenders the current situation of their businesses, highlighting any potential breach before it happens helps to build trust and to enable the lenders to have a clear picture when deciding if they will be willing to adjust financial obligations in line with the current realities of the economy and take into consideration some practical solutions set out below.
First, parties may agree to re-negotiate and subsequently amend their financial covenants, taking into consideration the impact of COVID-19 on the borrower’s ability to comply with their financial covenants. For instance, certain definitions in the finance documents may no longer reflect the current realities of the borrower’s business, such as EBITDA which is used as a metric for thelast four fiscal quarter periods of earnings before interest, taxes, depreciation, and amortization to measure the company’s financial performance.
Thus, where the EBITDA has been affected as a result of the pandemic an amendment to its substance will be an appropriate step in order to reflect the current financial condition of the borrower. Other re-negotiation may be in relation to compliance with certain conditions provided under the finance documents.For example, a facility agreement may include provisions requiring the borrower to fulfil certain further conditions precedent before it can access additional funding under the relevant facility.
It usually includes confirmation that:
(i) no Event of Default or a potential Event of Default has occurred and is continuing; and
(ii) the repeating representations are true in all material
respects, in each case, as at the date of the utilisation request and the proposed utilisation date.
In such instances, parties may either amend the provisions or the borrower may request that the lender grant waivers in the event that such conditions will not be fulfilled.
Another consideration that the borrower may explore (subject to the fulfillment of any available conditions or if waivers are granted by the lender) is utilizing any undrawn commitment under its existing facilities. Although, it has been highlighted above that material breaches of covenants may give right to the lender torefuse to provide additional funding, it may be in the interest of lenders to provide same. This is because additional funding may positively impact the borrower’s business and in turn improve the lender’s chances of full debt recovery.
Finally, parties may consider undertaking a full restructuring of the financing by re-negotiating substantial terms and entering into restructured facility documentation which may capture relaxation of financial covenants, obtaining a moratorium on interest payment obligations, all necessary requirements, amendments, waivers, and consents required by the borrower. Essentially, the restructured facility documentation is drafted on much better terms that reflect the current financial conditions and commercial needs of the borrower.
The global COVID-19 pandemic has no doubt placed a strain on the ability of some businesses to service their debts under finance documents. While many governments especially in developed countries have granted some aids, this may not be enough especially for companies in certain industries that have been seriously hit by the pandemic. The situation is even worse in undeveloped markets where there is little or no support from government. Thus, it is unavoidable that re-negotiation and restructuring are considerations that will likely be put forward by borrowers to avoid triggering defaults under their finance document during these unprecedented times.
It is advisable that lenders on the other hand, are more flexible with their approach with their borrowers and are willing to work around re-negotiating the financial covenants with the borrowers given the current uncertainties arising in the economy.
Written By: Bukola Adelusi recently completed her LL.M in corporate law at Western University, Ontario. Prior to her LL.M, she practiced with a top-tier law firm in Nigeria, where she specialized in banking and finance, M & A and private equity.
Financial Inclusion: Ecobank Group And Alipay Partner On cross-border remittance
Alipay users to benefit from Ecobank’s cross-border remittance solution
LOME, Togo, February 12, 2020 – The leading pan-African bank, Ecobank has signed a cross-border remittance agreement with Alipay, the world’s leading payment and lifestyle platform, that aims to bring more inclusive financial services by providing a fast, safe, affordable and convenient way for workers to transfer money back home.
The partnership will facilitate instant transfers from Rapid transfer, Ecobank’s remittance solution, to users of Alipay, which serves more than 1.2 billion people globally together with its local e-wallet partners. This provides an additional channel option which will increase options available to users, help lower transaction costs and enhance the quality of service in the market.
Nana ABBAN, Group Consumer Banking Head said: “Our panafrican cross-border remittance solution, Rapidtransfer, has over the years been delivering transparent, convenient, and affordable services to the African diaspora and their African-based dependants. So, it is a natural extension for us to use it to deliver the same advantages to migrant workers across Africa. Through our partnership with Alipay we are further leveraging the scale and capacity of our unified payments ecosystem on the global stage.”
“We are excited to partner with Ecobank and use our technology to bring fast, affordable, and convenient remittance services to more users globally, especially workers who are living far from home,” said Ma ZHIGUO, Alipay’s head of the global remittances business. “We are committed to working with partners such as Ecobank, using innovative technologies to help global consumers gain access to inclusive financial services, creating greater value for society and bringing equal opportunities to the world.”
The solution will be rolled out across our entire footprint, subject to required local approvals.