The East African Finance Summit was held in Ethiopia recently, which explored the situation of the financial sector at the continent and country level. Among the points raised at the fourth conference organized by the I Capital African Institute: what the government has come up within the finance sector; impact of the insurance industry on its growth; procedural experience to be taken from neighboring countries in insurance and banking services; practical application of interest-free banking system; low revenue collection in spite of long-term insurance service in Ethiopia, and related ideas were discussed.
Based on the ideas discussed at the conference, Business Development Corporate Communications Manager and Ethiopian insurance stakeholder, Fikru Tsegaye, told Addis Zemen Daily that the differences between banking and insurance services in Ethiopia are vast. According to him, banking and insurance are complementary in their services. When a person needs a mortgage service, s/he is treated by the two service providers.
In some countries, there is a system called ‘Banking Insurance,’ which centralizes all services. In Ethiopia, banks have over 5,100, and micro-insurance company has 1,700 branches. Insurance companies have no more than 600 branches. If their services are brought together with a policy, they will become complementary and access to insurance also increases.
Though the insurance industry existed for more than 110 years in Ethiopia, its service has not been grown as such, he said. The industry, in its long history, has not been able to create an international insurance company based in Ethiopia. Even the effort to establish in Djibouti did not last long. Therefore, the sector is not expected to generate foreign exchange.
While it is difficult to cite the experiences of others in this regard, there is a chance to make a source of foreign exchange via providing competitive service obeying the laws of the country in which the service is provided.
As Fikru explained the reasons why the industry has not grown, the problem starts with policy. The sector was not considered during the planning of the Growth and Transformation Plan. As a result, the insurance sector could not escape from the traditional process and stayed inaccessible. A structured system should be expanded up to a lower level.
Since 85% of the Ethiopian population is agrarian, it is required to provide service based on the needs of the consumer as a whole. A joint forum for actors of the sector is needed to bridge the gaps in the financial sector. Consultation on the sector is not accustomed to Ethiopia. It has just begun; it needs to be strengthened. Policymakers should be able to convert inputs from the discussion into action as discussion by itself is not a goal.
Fikru believes that financial reform is promising for the growth of the insurance sector. Emphasizing its importance, he added that when infrastructure pillars are at risk; it is the insurance company that rescues them. Updating the company must be supported by policy direction, he noted. Another participant who shares Fikru’s ideas, Sewagegn Channie, Managing Director of Development Enterprises property and financial sector, for his part, believes that the financial reform will address the gaps in the sector. For example, in some countries, banks have a system of selling life insurance so that insurance can take responsibility if a mortgage borrower dies, but it is not customary in Ethiopia.
Another challenge is that insurance technology is at zero level in Ethiopia. Many jobs are expected in the insurance sector like how to sell mobile insurance to a consumer, as well as increasing accessibility for the farmers by working with organizations to benefit them from the service in connection with the farm. As to him, finance is the main engine for the homegrown economy and the reform should be applied to it. According to the banking process, collateral is still required to get a loan from the bank. In modern banking practices, this approach hurts the growth of banks. The customer also pays more attention to the collateral than a viable business plan.
Banks and insurance companies are the major contributors to the cash flow of an organization, entrepreneurs and other beneficiaries that bring portable property. The financial reform should make it more accessible and adjust the existing credit systems. Among the reforms the government has taken in three years, is transferring 83 percent of loans to the private sector in the past three months.
State Minister of Finance, Dr. EyobTekalign for his part said that the financial sector has made progress over the past twenty years. But the service did not match the demand for economic growth rather than expanding the branches. The financial sector is undergoing a routine procedure. The government also lacked in establishing a better financial system.
According to State Minister, a lot is left in the accessibility of banks’ service which is only 35%. The service is far lower for a country with over a hundred million people. The government has taken reform measures to resolve the shortcomings and improve the economy. The government is working to become among the middle-income countries. To this end, the financial sector must be safe and reliable. The joint consultation of financial sector actors would be an important input to the reforms the government is taking, he said.
The Ethiopian Herald December24, 2019
BY BACHA ZEWDIE
