Insurance brokers ink security guarantee deal to boost liquidity

Insurance brokers have signed a deal that will save them from tying Sh3 million annually as a bank guarantee in line with regulatory requirements, taking pressure off their working capital.

The credit-only financial institution, Fincorp Credit has negotiated for an arrangement that will see members of the Association of Insurance Brokers of Kenya (AIBK) pay 10 percent in cash and then take a trade credit insurance on the balance.

Insurance Regulatory Authority (IRA) requires all brokers to provide a minimum of Sh3 million as security in the form of a bank guarantee and submit the signed form to the regulator for custody.

Now the Fincorp deal, which involves 17 banks and microfinanciers, will free up at least Sh2.7 million for every broker to be used as working capital, saving them from liquidity challenges.

“The value proposition is that it is going to help brokers unlock their capital instead of tying it up as a guarantee. This will unlock up cash to be deployed to other business opportunities,” said Mr Gibson Wachaga, CEO at Fincorp Credit.

“Fincorp is the one that will be receiving brokers’ requests, evaluate them, and submit them to banks. So it comes in as a guarantor.”

Lenders have been insisting on 100 percent cash security as the collateral before writing the bank bond issued by insurance brokers to IRA.

The partnership will also see Fincorp, arrange trade finance solutions such as bid bonds and performance bonds for AIBK members and also lend them money as working capital.

Insurance brokers are also required to issue performance guarantees in respect to tenders won for the provision of insurance services.