Tapiwa Maswera Correspondent
The non-banking financial services industry is an important part of the financial services industry which is the lifeblood of the economy. A well-functioning non-banking financial services industry is a pre-requisite and the driver for a well-functioning economy.
The Justice Smith Commission identified major problems in our non-banking financial services sector and urgent steps are required to rehabilitate it. Vision 2030 foresees a prosperous Zimbabwe built on sound fundamentals.
One of the most important pillars in the realisation of Vision 2030 is a prosperous non-banking financial services sector. We need to lock Zimbabwe into a prosperous future through a vibrant and prosperous non-banking financial services plan.
Levelling the playing field
A key fundamental of a well-functioning financial services industry is the relationship between the premiums and benefits. Financial services customers expect to be paid more in benefits than what they paid in premiums. What value does the industry create for the customer? The non-banking financial services industry in Zimbabwe has developed in a way that undermines the customer and favours the service providers. Customers do not have the confidence that the industry will create value for them.
Hyperinflation and the economic crisis of 2008 left Zimbabwe with a damaged financial services sector. The classical relationship between premiums and benefits paid was inverted. How do we get more of the value created in the industry to the customer?
No one is buying non-banking financial services products anymore because the most critical fundamentals of the industry have been corrupted. Service providers have created a predatory non-financial services industry in which value creation for the customer is subservient to their own profit motives.
We need to restore the industry to its former glory days where the interests of all stakeholders are simultaneously recognised. Putting profits ahead of value creation for customers is the major reason why customers have been abandoning the industry in droves.
Non-banking services development plan and charter
A new non-banking financial services plan built on the twin pillars of reviving the national savings culture and treating the customer fairly is required.
A new charter committing all stakeholders to the new vision for the financial services industry is also required.
Pillars of the non-banking financial services plan
Vision — The plan must scope out a vision that all stakeholders can buy into. The vision must inspire and give hope to both service providers and customers and create a shared future which all stakeholders can buy into.
Leadership — Everything turns on leadership. The plan must identify the right leadership to drive the strategies for the revival of the industry.
Legacy Issues — The plan must acknowledge the contested nature of the past of the industry and propose a way forward which is acceptable to all parties. We cannot pretend that 2009 did not happen, or that it was handled properly. We also cannot wish way current events which are ravaging the benefits of policyholders and pension fund participants.
The Environment — Zimbabwe has an enviable insurance and pension’s tradition. We would do well to build on that.
But we must first acknowledge that our macro-economic framework is currently not conducive to a thriving non-banking financial services industry. Government policy that regularly writes off Government debt at the expense of policyholders and pension fund participants is not conducive to a thriving non-banking financial services industry.
The Policy Framework — there is a need for separation of policy making from regulation and drafting of practical forward looking strategies to build an industry that will carter for all Zimbabweans. Policy making needs to envision the nature of the industry that is required and set about building it. It will not happen on its own.
The Legal framework — Our legal framework has been very poor. Among those who lost money in 2009 are some of the country’s finest legal minds. They have not been able to enforce their benefit rights because our legislation in this regard is weak and ambiguous. The legislative framework does not also set out proper operating procedures for service providers.
Regulatory Requirements — One of the key requirements of the plan is that it must set up a conducive regulatory environment which ensures that the industry thrives. This requires the development of appropriate skills for regulators and setting up appropriate structures that can intervene effectively in the industry when required.
Restoring financial soundness — The restoring of financial soundness should see companies operating in this market using proper business models and selling products that add value to customer’s lives. The current operating environment which is quite toxic and deleterious cannot be expected to incubate a viable industry.
Treating Customers Fairly, Customer Education, Protection and Financial Literacy Skills Development — the industry will only thrive if its customers have confidence, faith and believe in it. And customers will only have faith and belief in it, if they see value and feel that they are treated fairly.
Financial Governance — the industry relies very heavily on proper financial governance structures. There is also a need for oversight on the operations of the industry and the quality of service offered.
Skills Development — This is a skills intensive industry and there is a need to develop the requisite skills and ensure that they do not leave the country.
Zimbabwe has an enviable insurance and pension’s tradition. Countries which used to look up to Zimbabwe’s insurance and pensions industry with envy have since overtaken us.
We cannot run away from the need to rehabilitate this industry. It’s something that has to be done. It’s either we do it now or we risk continuing damage, a stunted economy and a distrustful population.
Tapiwa Maswera is an executive director and founder of Global Worldview, a company dedicated to the development of world class leadership. He can be contacted at Tapiwa@acumenactuaries.com