Micro and small enterprises are important building blocks of economies that create jobs, support regional development and maintain the local production ecosystem. Around the world, SMEs provide up to 95% of jobs in economies and are especially critical for innovation, growth and economic diversification. Although SMEs play a key role in the economic system, they have serious problems in risk management, access to credit and managerial competence. Trade credit insurance is an effective solution developed to manage these risks. Although insurance has the potential to reduce these risks, it is currently mostly used by large-scale companies and does not reach micro and small enterprises sufficiently. SMEs often do not benefit enough from this product due to cost, procedural burden, lack of knowledge and lack of awareness.
In order to overcome this problem, governments in many countries provide reinsurance support to insurance companies, reducing premiums and facilitating access. Turkey has also implemented a similar system with the relevant legislative regulations and has taken a structural step to increase SMEs’ access to credit insurance.
A. Reasons to Stay Away from Credit Insurance
In developing and underdeveloped countries, high premiums, lack of reinsurance and the costs of risk transfer make it difficult for small businesses to access the product. Therefore, by providing reinsurance, the government lowers premiums, incentivizes companies, and reduces the administrative burden.
Lack of Awareness
Many small businesses do not know what trade credit insurance does or how it can be applied in their field of activity. Where financial literacy is low, insurance products are still considered complex, remote, and “private for big business” solutions.
Complex Structure and Difficulty of Access
Technical details such as the structure of insurance policies, coverage terms, deductibles, and collection processes can be difficult to understand for small businesses. In addition, credit insurance is not easily accessible for small businesses due to processes such as documents required for application to the policy and risk assessment processes.
Cost
Small businesses’ limited profit margins and low collection volumes can lead to policy premiums being considered an “unnecessary cost”. However, when the risk is realized, the damage that will occur may be much higher than the cost of the policy. However, this difference is not easily detected in advance.
Insurability Barrier
Insurance companies require buyers to have a certain credit profile. Since most micro-enterprises work with smaller buyers with weak financial backgrounds, it is either not possible to provide collateral to these companies or is very limited.
B. Solution Suggestions
In order for micro-enterprises to benefit from trade credit insurance, the factors that these businesses see as obstacles should be facilitated, businesses should be encouraged and trade credit insurance should be made more accessible.
Simplification of Policies: By simplifying coverage, limits and exclusions, standard micro-enterprise policies can be created.
Digital Application and Approval Processes: Digital infrastructures can be developed for low-amount policies for micro and small enterprises, reducing document burden and bureaucracy.
Pricing Support: Government-supported premium subsidies for micro and small enterprises or incentives for the use of credit insurance can be provided.
Financing Integration: By expanding banking models that enable insured receivables to be accepted as collateral, insurance can also offer the business the advantage of access to credit.
Trade credit insurance provides an effective protection mechanism against collection uncertainty, which is one of the most basic risks faced by small businesses in commercial life. However, as long as this mechanism remains far from the principle of inclusivity, it risks exposing economic inequalities.
The exclusion of micro and small enterprises from the system can adversely affect not only these enterprises, but also economic stability and the entire trade chain. Making credit insurance simpler, more accessible and fairer will be one of the most effective ways to strengthen this chain.
Yiğit Okuldaş, Executive Associate
