Opportunities for saccos in NHIF scheme guarantees

NHIF headquarters: The fund’s outpatient scheme requires a bank guarantee before making payments. PHOTO | FILE 

By EDWARD OMETE

In Summary

• For saccos and microfinance organisations keen to grow their funds pool, this is an opportunity to do so.

Recently my firm won a contract and I was required to place a performance guarantee. At the end of the transaction, I earned less interest than the cost of the guarantee.

Never mind that I had given the bank money for three months “to use”. The whole exercise opened my eyes to the opportunities that exist, especially for microfinance institutions, small banks and savings organisations to “temporarily” grow their cash base.

As a capitation system, the National Hospital Insurance Fund (NHIF) outpatient scheme requires a bank guarantee before payments are made to the service provider.

The contract usually runs annually, meaning that the bank is assured of these funds in their accounts for a year. With the scheme now being enhanced and scope widened to accommodate non-civil servants, the amount needed in terms of guarantees will grow.

Estimates show that the reimbursements to be made annually in a few years may amount to as much as Sh10 billion. I was unable to compare the market share for each bank offering guarantees for NHIF providers. However, what my survey across several banks revealed is that most charge and get significant amounts from these bank guarantees.

It is also interesting that many banks have now started serving as collection points for the NHIF contributions for the unemployed. This too is set to rise as people in informal employment start contributing.

For saccos and microfinance organisations keen to grow their funds pool, this area is an opportunity to do so. Especially those serving doctors and health entrepreneurs in the outpatient service segment, should angle for a piece of this guarantees market.

While many of the NHIF contracted service providers are members of saccos where they have deposits, none get guarantees from the saccos.

What the health sector saccos need to do is engage the NHIF to start accepting guarantees from their members’ contributions. This way more members with business accounts in other banks can shift the accounts to saccos as they are relatively cheaper. They also serve members’ interests.

In my case bank A charges me five per cent for a bank guarantee that I have already secured with a cash deposit. It also gives me 1.2 per cent as interest for the duration.

Interestingly it lends out this money at more than 15 per cent for the duration it will be in their safe keeping.

Any financial institution willing to offer us better returns for the guarantees and cheaper bank guarantee rates can have guaranteed access to our funds for as long as they maintain these rates. I am sure this sentiment is also shared by many contracted providers.

Operational costs

The NHIF itself stands to benefit by partnering with smaller financial organisations. As its reimbursements are the least of all the insurers, lowering “operational” costs for their service providers increases their margins ensuring profitability.

In this case a small microfinance institution that can attain just five per cent of this guarantees’ market in the next five years is assured of easy access to more than Sh400 million annually for its use short term use.