Money Markets
National Treasury’s Nzomo Mutuku with Spire Bank board chairperson
Teresa Mutegi during the launch of the lender in July. PHOTO/FILE
By CHARLES MWANIKI, cmwaniki@ke.nationmedia.com
In Summary
Spire Bank has slashed its insurance premium
financing (IPF) rate by 6.5 percentage points to eight per cent,
indicating that the new low-interest rate regime is now expanding to
auxiliary loan products offered by banks.
Banks are offering the IPF at as high as 14.5 per cent,
which puts it slightly above the maximum capped rate of 14 per cent the
lenders can charge for normal customer loans.
IPF carries lower risk for banks compared to normal
customer loans since the lenders can redeem the outstanding balance of
the insurance premium from the insurer in case the customer defaults on
payments.
This has seen premium financing attract lower rates compared to normal loans offered by banks.
“Although the IPF rates vary based on banks and
their customers, in most cases they will be lower than those of other
loans. The risk is not high since they can cut their losses once a
customer shows that he or she is unable to service the debt,” said
insurance expert Isaac Ng’aru of Ng’aru and Associates.
Banks in Kenya have expanded their IPF programmes
in tandem with their forays into the bancassurance segment, using the
financing option as a means of pushing the uptake of their insurance
offering by customers who would otherwise be unable to afford lump sum
premium payments.
“It is a useful leverage tool when trying to push the uptake of the bancassurance products,” said Mr Ng’aru.
The lenders normally demand an initial deposit
equivalent to just one loan instalment before disbursement of the entire
premium amount to the insurance firm, meaning customers need not
liquidate other assets in order to pay for insurance.
Banks have been ushered into a new regime of lower
interest rates following the signing in August of a new law capping the
cost of loans at no more than four percentage points above the Central
Bank Rate.
This rate ceiling means that the lenders have to
become innovative in their competition for customers, unlike previously
when there was wider room for advantageous loan pricing, especially for
lenders who could access cheaper funds.
Spire Bank, which is owned by Mwalimu Sacco and
Sameer Investment Group, is partnering with Fidelity Insurance and
Invesco Assurance to provide the IPF to its customers.
“The scheme open to premiums as low as Sh25,000
with no maximum limit,” said Spire Bank managing director Tim Gitonga,
adding that the bank is targeting individual, SME and corporate
customers.
Kenya’s insurance penetration remains low at about 2.9 per cent, compared to the continental average rate of about 3.5 per cent.
In contrast, Kenya’s financial inclusion rate
stands at 75 per cent, indicating that people are readily taking up
other financial services while shunning insurance.
This, however, means that the potential for growth of
the insurance sector in Kenya is high, especially in motor vehicle and
property insurance as Kenyan’s continue to access higher levels of
disposable income that is being directed to buying cars and property.
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