After previously writing off his home country as one unlikely to recover from economic devastation, Zimbabwean-born and UK-educated Kelvin Chamunorwa has found himself back in Harare, building a financial services company serving the country’s vast low-income market. And he is using a 900-strong herd of cattle located on the outskirts of the city to do it.
Chamunorwa comes from a business-minded stock – parents in middle management positions in banking, and grandparents who successfully ran their own business. In his late twenties, as a qualified actuary and with a growing family in the UK, he saw little reason to permanently return to Zimbabwe. News from the country was saturated with reports of unprecedented inflation, crumbling infrastructure, institutional decay, political duplicity and a terminal economy.
But a family visit to Zimbabwe in 2015, just after Chamunorwa had turned 30 and shortly after the economy had been dollarised, challenged his bearish view.
“I had resigned myself to the fact that I probably was not ever going to work in Zimbabwe because the financial sector had been gutted and actuarial skills were not in demand. But what I found was that the perception of the economy was far more severe than the reality. It just was not as bad as was being reported,” he says.
Chamunorwa’s research at the time showed double-digit yearly premium growth in the pension and insurance markets, admittedly off a low base.
But the opportunity came with a catch: confidence in financial institutions had been eroded after money had been lost in traditional financial products due to hyperinflation. Potential customers now sought a store of value for their critical savings that they could trust.
“I realised they would not put money in a traditional institution and there was a need to rebuild this trust with a different approach. The concept of buying ‘units’ in pension policies was too nebulous a concept. We needed to create a policy backed by a certain amount of units that would never deplete, and would hold its value, even if inflation ran away,” he says.
Still somewhat unsure of exactly how this would be done, but buoyed by the country’s prospects, in 2018 he bought an existing financial services business in Zimbabwe that had a licence and an operational system in place, and introduced two fairly traditional products offering funeral and accident cover for the lower-income economically-productive market, thus establishing Nhaka Life.
But just two years later, Zimbabwean inflation spiked again, eroding the business’ balance sheet and renewing Chamunorwa’s resolve to discover an alternative store of value that could act as an inflation hedge.
“It was frightening for me, because it was the first time that inflation impacted me personally. As a business, we decided to pursue an alternative asset that would protect us in future. Conceptually, the focus was on the preservation of value,” he says.
During this process, Nhaka ultimately identified cattle as an optimal store of value. As a biological asset that would largely hold its value regardless of inflation rate swings, Chamunorwa says cows are a unit of value that Zimbabweans understand, and yield value over the long-term, owing to their potential reproduction rate of around one calf a year. “In the same way Nhaka, as an institution, was immunised from inflation risk, we realised that we could offer the same to clients and retail the concept. This led to us refining the cattle-denominated investment product and launching it earlier this year.”
Calling in the cows
Described as a growth investment product, clients invest in Nhaka Life’s cattle-backed investment plan for a minimum of US$5 a month with a return driven by the number of calves born each year.
Premiums are denominated in either kilogrammes of cattle (for smaller investments) or per head of cattle (for larger amounts). The policy is backed by a live herd of some 900-cattle that are owned and managed by Nhaka on four farms located about 80 km outside Harare.
“We are able to immediately convert our clients’ investments into kilogrammes or head of cattle because we already own the commercial cattle-breeding operation. As the cattle reproduce, their investment grows. If their animal dies, they are paid out from livestock insurance, which guarantees that the head of cattle or kilogrammes they have invested in never decreases,” he explains.
Should a client’s assigned heifer produce an offspring, the value of that calf is then added to their portfolio. If the cow produces a male calf, it is sold as a bull after two or three years, and proceeds are used to procure the equivalent value in female calves.
Cows that are unable to reproduce are sold and replaced with productive animals, while those that have reached the end of their reproductive years are sold and replaced with a younger breeding heifer of equivalent value.
Returns are also realised through the sale of high-quality specimens for genetics and breeding, the profits of which are returned to the investor.
After two years, clients are able to partially withdraw their investment at the equivalent monetary value and, after five years, are able to fully withdraw or physically collect the equivalent of their investment in liveweight cattle, should they prefer. Nhaka applies predetermined charges which allows it to share in the profit growth of the herd.
“From an operations perspective, we make the decision about the sale of the cattle, but the client benefits fully from the proceeds,” confirms Chamunorwa.
Responding to the inevitable risks associated with a live asset, he says herd health is managed through frequent tick-control dipping, vaccinations, veterinarian oversight, quarantine measures and livestock insurance. Describing the model as “a platform, rather than a product”. Chamunorwa says he plans to investigate possible further diversification into other natural commodities, such as crops, goats and fruit trees.
“We want biological assets that are easily understandable for our market preferably commodities our market already farm on their own.”
Finding the market
The most challenging aspect of his business, Chamunorwa explains, is in reaching its targeted end user and growing distribution.
Nhaka Life has found the most effective way of reaching clients is through established collectives, such as pension funds, community church groups, farm communities and users of microfinance institutions, which he refers to collectively as aggregators. Aggregators are paid a small monthly fee to assist with collections.
“Rather than trying to access individual clients, which is expensive and not conducive to scale, we access them through the existing groupings.
“Part of the reason that larger insurance customers do not play in this market is because the premiums are so low, and from this you need to pay claims, conduct administration and marketing, pay salaries, and realise a profit margin. While you may not be able to make a lot on a dollar, if it’s a dollar from a million people, the sum of those thin margins makes it a sustainable business,” he notes.
Among Nhaka’s primary aggregators are established pension funds, through which around 20 000 clients access Nhaka’s products. An additional 50 000 clients are served either directly, or through smaller collectives.
Zimbabwe’s perception arbitrage
Reflecting on the process of establishing a business in modern-day Zimbabwe, Chamunorwa says an understanding of the slow pace of bureaucracy and identifying ‘champions’ in the regulatory bodies are critical.
“The beauty of Zimbabwe is that there are still people in the institutions that still want the best for this country — it is just about identifying them. Once they understand what you are trying to do, they then are your advocates among their colleagues. institutional integrity still exists,” he says.
Looking ahead, Chamunorwa hopes in future to capitalise off the early-mover advantage of Nhaka Life, providing an established platform from which large insurance, life and pension players can leverage their expansion into the country.
“The perception arbitrage of Zimbabwe has to correct. Once people are on the ground, I believe that they’ll realise the opportunity that still exists, and we hope by that time we would have built enough of a market share that a Liberty or Discovery will want to enter through Nhaka Life.”
According to the World Bank, the Zimbabwean economy rebounded in 2021 on the back of industrial and agricultural recovery and relative stabilisation of prices and exchange rates, growing by 5,8%. Disinflation policies were meanwhile effective in bringing down inflation, which slowed from a jarring 838% in July 2020 to 60,7% in December 2021. — How we made it in Africa