Leasing: A potential solution for SME growth

With an estimated penetration of USD 25m (Rwf13.9 billion) in the country as of June 2008, according to the International Finance Corporation (IFC), there is clear evidence that consumers and small enterprises are rushing for lease financing. A lease is a contract for the use of an asset for a set term of a year or more in exchange for fixed regular payments, between two parties, the leaser and the lessee. The Leaser retains the title of ownership of the asset while the lessee uses the asset at a periodic cost. François Kanimba, central bank governor says that leasing (introduced in Rwanda in 2005) is inline with the ongoing implementation of the financial sector development program that the country has embarked on. He says that it addresses key priorities like expanding access to credit and financial services. With SMEs seriously challenged by limited access to finance, Kanimba believes that leasing will enhance saving mobilisation, especially long term savings and mobilising long-term capital for investment. “The National Bank of Rwanda is supporting leasing because of its demonstrable advantage of moving the financial industry to rely more on cash flow based lending than on credit history and formal historical financial records that are not available in emerging economies like Rwanda,” the governor recently told the Afrolease Convention in Kigali. Since small firms usually don’t have collateral to pledge to banks and coupled with poor book keeping records, they (SMEs) are considered as risky clients. Leasing is said to contribute to financial deepening as it broadens the product range and competition in financial services, which should lead to lower cost of financing especially to the rural sector. Ends