Financial markets seen deepening as risk insurance grows

August 27, 2008

, NAIROBI, August 1 —The African Trade Insurance Agency (ATI) has developed a series of new insurance products for the Kenyan market, which would enable exporters to use their assets to get bank loans for business expansion.

Peter Jones, ATI Chief Executive Officer, says the agency has launched three new risk insurance products to guarantee short-term credit to exporters and buyers of commodities.

ATI, which provided risk cover to new investments worth US$600 million into Africa over the past year, is ready to guarantee risk payment to buyers of Kenya’s key export commodities like coffee, tea and horticultural crops under one of its three new products.

Jones told Capital Business that ATI is offering to guarantee risk payment on behalf of buyers of export commodities, mostly located in Europe and the United States.

"Exporting companies in Kenya can go to banks to restructure lending on their assets. This product will free more financing from banks to support companies. In the process, we are supporting the producers against the bankruptcy of the buyers," he explained.

Jones is upbeat on the prospects of more business emerging from Kenya. The ATI boss says Kenya’s robust private sector is creating an impressive environment for short-term credit insurance especially for exporters, but warns of greater political risk in Kenya.

The World Bank, in a recent report outlining Kenya’s development potential, warned that political risk stood out as key barrier to Kenya’s suitability as an investment destination.

Jones said though the agency was comfortable with Kenya’s chances as an investment destination, political risk, emerging from corruption and lack of transparency could render more foreign investments less profitable in the short-term.

ATI is foreseeing its risk insurance driving growth within the local financial sector. According to Jones, as banks expand and the agency continues to guarantee loans, the country’s financial sector would continue to grow in profitability.

"We are enabling banks to provide financing to support companies. We are facilitating external lending into Africa which would not have taken place," Jones said.

The multilateral risk credit agency is foreseeing high growth potential within the Kenyan market, specifically supported by the vibrant banking sector in the country.

Kenya is one of the founding member states of the pan African insurance institution, which currently has nine full member states, including Burundi, Rwanda, the Democratic Republic of Congo, Madagascar, Malawi, Tanzania, Uganda and Zambia.

The insurance agency was created to provide political risk insurance for cross border projects and transactions. Its main task is to cover risks arising from nationalisation of investments and abrupt policy changes that might lead to adverse losses for corporates.

Jones said ATI’s current concern is to ensure that states lessen political risk as much as possible while removing barriers to regional trade to enable more companies to penetrate new markets within the Common Markets for Eastern and Southern Africa (COMESA).

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