In Africa’s fast-growing markets, one of the biggest threats to businesses and financial institutions is non-payment risk. Whether it is a customer failing to pay for goods or a borrower defaulting on a loan, unpaid debts can disrupt cash flow, delay projects, and undermine growth.
Two specialist solutions often discussed are Trade Credit Insurance and Borrowers’ Default Insurance Policy. Both protect against non-payment, but they serve different needs. Understanding the difference is key for corporates, SMEs, and lenders looking to secure their businesses in Africa.
What is Trade Credit Insurance?
Trade Credit Insurance (also called accounts receivable insurance) protects businesses that sell goods or services on credit. It is most relevant for suppliers, exporters, and manufacturers who want to secure their receivables against the risk of buyer insolvency or delayed payments.
Key Features of Trade Credit Insurance in Africa:
- Protects against non-payment by buyers due to insolvency, bankruptcy, or protracted default.
- Applies to domestic and export trade transactions.
- Enables businesses to extend credit terms safely to customers.
- Supports financing, since banks are more likely to provide loans against insured receivables.
Example:
A Kenyan manufacturing company exports goods to a West African buyer. If the buyer declares bankruptcy and cannot pay, Trade Credit Insurance ensures the manufacturer is compensated, protecting its cash flow.
What is Borrowers’ Default Insurance Policy?
Borrowers’ Default Risk Insurance protects lenders and financial institutions against the risk that borrowers fail to repay loans or credit facilities. It is most relevant for banks, investors, and development finance institutions funding large projects.
Key Features of Borrowers’ Default Insurance Policy :
- Covers defaults on loans, credit facilities, and structured finance transactions.
- Protects lenders in cases of borrower insolvency, financial distress, or political/economic instability.
- Facilitates large-scale project financing, especially in infrastructure, energy, and cross-border deals.
Example:
A regional bank finances a $50 million energy project in Southern Africa. If the borrower defaults on repayment due to financial distress, Borrowers Default Risk Insurance covers the lender’s losses, reducing its risk exposure.
Trade Credit Insurance vs Borrowers Default Insurance Policy: Which One Do You Need?
The right coverage depends on your business model and exposure to risk:
- Suppliers, manufacturers, and exporters → Need Trade Credit Insurance to protect receivables and manage customer risk.
- Banks, investors, and lenders → Need Borrowers Default Insurance Policy to protect against loan repayment failures.
- Corporates with both receivables and financing exposure → May require a combination of both solutions to mitigate risks.
Why These Risk Solutions Matter in Africa
Africa’s business landscape is rich with opportunity but also exposed to credit risk, political risk, and economic volatility. From energy and infrastructure to agriculture, manufacturing, and trade, businesses face increasing payment uncertainties.
Implementing the right insurance cover can:
- Secure cash flow and receivables.
- Build confidence with banks and financiers.
- Enable corporates to undertake large projects and cross-border trade.
- Strengthen business resilience in unpredictable markets.
The Bottom Line: Protecting African Businesses with Specialist Risk Insurance
Both Trade Credit Insurance and Borrowers Default Insurance Policy are essential tools for protecting against non-payment risks. The key is to select the coverage that fits your role — whether you are a supplier, exporter, or lender.
At Underwriting Africa Specialty Limited (UASL), we specialize in helping corporates, SMEs, and financial institutions across Africa identify the right risk solutions. As a technical consultancy, we partner with leading international reinsurers to deliver tailored solutions in credit insurance, political risk coverage, and bond and guarantee services.