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First Mutual spreads into region

Government last week outlawed the use of foreign currency in local transactions and introduced the Zimbabwe dollar currency through Statutory Instrument (SI) 142 .Our business reporter Fidelity Mhlanga (ND) caught up with First Mutual Holding chief executive Douglas Hoto (DH)to solicit his views about this move. Below are the excerpts

ND: SI 142 banned the transaction in United States dollar. You were you selling some of your products in foreign currency, so how are you going to handle the issue of claims from those same clients?

DH: Three companies were selling products in US dollars, that is, First Mutual Health, Nicoz Diamond and First Mutual Insurance. So, we are already doing it and we have received US$8 million in premiums since January. I think the insurance contract provides that if the agreement is in US$, you can pay the claim in US$. What might be difficult is continuing to issue new contracts in US$. We are still talking to them (clients), but for the existing contracts, yes, you can pay clients in US$. That’s why I am saying there is an existing contract which is legally binding. Also, we received this money and kept it in nostro accounts. So, the money is there in US$ terms to pay the claims.

ND: So, you will be paying claims in US$?

DH: In fact, we are paying the claims in US$.

ND: Now that government has introduced local currency, what do you make of the business environment, going forward?

DH: For us, as I said before, the call of leadership is able to manage the environment. In each environment, there are opportunities. In as far as we are concerned, I like the idea of a local currency because that’s the normal thing everywhere in the world. It will come with its own opportunities. Initially, our view was that it has some challenges in that the people of Zimbabwe don’t have the right level of confidence. But I think if you walk the journey with them, you will be able to create greater value together.

ND: Is that you giving thumps up to the introduction of the Zimbabwe dollar?

DH: In my view, I think the idea of a local currency is good. And, I tell you why. In Zimbabwe, everything is expensive because of the use of US$. I was in Malawi last week on Nicoz Diamond business. The exchange rate of the Malawi kwacha to the US$ is 800, but people still buy goods using their own kwacha. A kombi ride costs 400 kwacha, which is equivalent to US$0,50. But here, people keep comparing everything with the US$. That is the problem.

ND: Do you think the fundamentals were right, given that inflation has been going up, and was close to 100% as of May?

DH: Fundamentally, government, from a budget point of view, has done the right thing for fiscal consolidation and, austerity, but the people of Zimbabwe will need time to believe it. From a business point of view, the moment you have a country where the money you do business with is only held by 20% of the population, it becomes a problem.

The thing is, you cant really say what will happen. We will wait and see. The level of trust between the people and government is low. If they manage to keep the promise and stability comes, it’s a much better time to do business with the money that 90% of the population has than the money that only 20% has.

ND: Tell us about the performance of your business in Botswana.

DH: First Mutual Reinsurance is in Botswana is a subsidiary that is 100% owned by First Mutual Holdings. It has been growing at about 30% to 40% per year in premium terms. Last year it contributed a profit of about US$1,1 million. The company was incorporated in 2011 and started operating properly in 2013.

ND: Do you envisage expanding your operations to other countries?

DH: Yes, we already have interest in Mozambique through Nicoz Diamond, which has an associate company there called Diamond Seguros. We also have a shareholding in United General Insurance in Malawi, where we own 38%. Malawi is good and Mozambique has been struggling, but we are putting in more money to capitalise it.

ND: Are you planning to focus more on the regional operations to generate forex?

DH: No, I think we will balance by doing both local and regional business. Our bigger business still remains in Zimbabwe, but you see foreign business is helping us mitigate the sovereign risk associated with being in a single country. Foreign countries have different economic cycles. If you have all of them, you have an average good outcome than just having one of them.

ND: You have been planning to launch a funeral business for long now. How far have you gone?

DH: We started the project at the beginning of 2018, but it has struggled because of the ever changing environment. We now think the Harare business should start operating in August. We have put some money there, bought a building and have allocated RTGS$6 million for the business. We don’t know how much they have spent.

ND: What are your long term plans for that business?

DH: It’s simple to complete our service offering, that is, IF one of our insurers has a death, they don’t have to look around. It should be a one-stop-shop and also be able to serve other people in the market. Essentially, looking in the funeral space, we believe funeral insurance has been made too expensive. We want to come in the market with a decent and affordable funeral policy. After opening the branch in Harare in the last quarter of the year, we expect to open another one in Bulawayo before the end of the year.

ND: What is happening with your microfinance business?

It’s operating and it got a license last year. It has a management and board. So far, it’s working only for internal staff loans as they are testing the system. Employees have been hired. It’s working using a branch in the Harare central business district. We have invested RTGS$3 million in that business. We are set to launch it to the public in the final quarter of the year.

ND: How do you plan to penetrate the seemingly saturated market?

DH: In fact, for us it’s not just for micro-finance, its not only about the lending for money. We use it as a front foot for our financial inclusion strategy. It will bring more young people to buy more of our products. We are not projecting the growth of loans themselves as the most important thing. Our important thrust is to have a bigger outreach to otherwise uncovered people. We want it to be everywhere in Zimbabwe.

This year, they were supposed to open seven branches, but they ended up with three. But from next year onwards, they will open more branches.

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