ANALYSIS OF THE CONTRIBUTION OF INSURANCE COMPANIES TO THE GROWTH OF SME’s
CHAPTER ONE
INTRODUCTION
1.0 Background of the Study
Small and medium-sized businesses (SMEs) are one of the most notable economic phenomena due to their rapid development in activity. A small- to medium-sized enterprise (SME) is a privately held company with a low employee to revenue ratio. Depending on the level of development and the strength of the economy, different countries have different definitions of SMEs. Between five and 10 employees is the lower limit for small scale businesses, and fifty to one hundred employees is the top limit. The maximum number of employees for medium-sized businesses is set between 100 and 250. (Hallberg, 2000). Over 1,069,848 SMEs are currently operating in Uganda, making up more than 90% of the private sector. Companies support national socioeconomic growth by creating jobs, delivering essential goods and services, and generating export and tax income. They contribute 75% of the GDP to the economy and employ roughly 2,500,000 people who are citizens. 80% of these SMEs are found in metropolitan areas, where they are mostly located. They run businesses like restaurants, accounting firms, salons, quick-service restaurants, and hotels (Hatega, 2007). On the other hand, insurance is a contract wherein one party agrees to protect the other against financial loss by paying a certain amount of money in the event of property destruction or damage, fire, accidents, or a person’s death in exchange for a quantity of money known as a premium. A significant financial institution’s insurance policy offers a person, business, or other entity payment or financial protection against conceivable future losses or damages, according to Economy, Investment and Finance Reports (2010). An insurance contract is a commitment made by the insurer to pay the policyholder or a third party if the risky event takes place in exchange for a premium or assessment. SMEs often encounter a variety of difficulties related to their size. Bankruptcy, theft, fire, death, car accidents, and workplace injuries are common causes.
As an illustration, the insurance provider in Uganda is called National Insurance Corporation Limited (NIC). With 19 locations across the nation, the organization is a top provider of insurance and risk management services (Robinson, 2009). In 1964, a parliamentary act created NIC. NIC insurance’s primary purpose is to offer security and protection against business risks. NIC has also done various projects aimed at empowering the development and growth of SMEs in Uganda. These projects consist of; putting on open workshops and seminars to help small-scale traders improve their methods, such the 2001 conference on insurance marketing Publishing literature on insurance services that addresses topics like the necessity of business insurance, business growth, and financial discipline in business, all of which are important to SMEs businessmen, as well as supporting SMEs in development and teaching young entrepreneurs how to thrive in the marketplace. Mule, Osinde, and Mutesasira (2001).Aside from NIC’s contributions to the growth of SMEs, it is regrettable that the majority of them are poorly run due to a lack of insurance policy knowledge and management skills, a lack of networking opportunities, a limited understanding of business opportunities, poorly prepared records and accounts, and a lack of technical and management skills (Ocici, 2007). (UNCTAD 2002). High premium costs have a significant impact on SMEs’ ability to expand as well. In light of this, the researcher believes it is worthwhile to investigate by examining the relationship between the contributions of insurance firms to the expansion of SMEs.
1.1 Statement of the problem
Despite the fact that insurance companies have helped SMEs grow in terms of economic development, failure and slow growth still occur, and the public is skeptical of its management (Ocici, 2007). According to research, 90% of organizations that lose data do so within two years, and 80% of enterprises harmed by large incidents close their doors within 18 months. This is a result of small firms’ inability to obtain sufficient insurance coverage and effective business continuity plans (cover sure, 2007). Yet, research has revealed that insurance providers are reluctant to cover SMEs, hence the purpose of this study was to determine whether there is a correlation between these two characteristics.
1.2 Objective of the study
The investigation into the role insurance companies played in the expansion of SMEs in Uganda was the study’s primary goal. The research also intended to:
1. To investigate the key variables that influence the expansion of SMEs.
2. To determine how much insurance companies have helped SMEs expand.
3. To look into what prevents SME operators from purchasing insurance coverage.
4. To assess the strength of the link between insurance firms and the expansion of SMEs.
1.3 Research question
1. What are the main elements influencing the expansion of SMEs?
2. How do insurance companies contribute to the expansion of SMEs?
3. What deters SME owners from getting insurance coverage?
4. How closely related are insurance firms to the expansion of SMEs?
1.4 Purpose of the study
The study determined the performance of SMEs in Uganda and their contribution to insurance companies.
1.5 Scope of the study
geographic range The National Insurance Corporation Ltd (NIC), an insurance firm in Uganda, was the subject of the study. With 19 locations across the nation, the organization is a top provider of insurance and risk management services (Robinson, 2009). In 1964, a parliamentary act created NIC.
subject matter The study concentrated on the initiatives taken by the National Insurance Company to promote the expansion of SMEs. The role that insurance companies play in the expansion and development of SMEs, as well as the interaction between insurance firms and SMEs, were also investigated. The study’s intended audience was NIC’s employers and employees.
1.6 Significance of the study
Before making the Bachelor of Commerce degree award, Makerere University will require this research as part of the coursework. The researcher values the study’s successful conclusion for its prestige. Ideas and strategies can only be generated and tested through study. This study will produce data that may be used as the foundation for future studies into the role that insurance plays in other business sectors. The study will raise public understanding of National Insurance Corporation operations, making interactions with the business more convenient for the public. This research will provide data to policy makers that will assist in formulating for proper policies for policy makers operation. This will enable targeted planning and procedures for promotion.
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