Leasing as Credit Alternative
Download
Report
Transcript Leasing as Credit Alternative
Financing Agricultural
Investments: Leasing
as Credit Alternative
Expert Meeting on
Managing Risk in Financing
Agriculture
Johannesburg,
1-3 April, 2009
Renate Kloeppinger-Todd
The World Bank
The World Bank
What is
Leasing?
Contract between two parties: the party that
owns an asset ( lessor) lets the other party
(lessee) use the asset for a predetermined
time in exchange of periodic payments
Separates ‘use’ of asset from ‘ownership’ of
asset.
Finance Lease (The Credit Alternative)
Expert Meeting on Managing
Risk in Financing Agriculture,
1-3 April 2009, Johannesburg
Amortizes asset price - includes purchase
option for a token amount at end of lease
period
Lessee responsible for maintenance and all
risks usually associated with ownership
without actually owning the asset
Non-cancellable
2
Advantages:
The Client
Perspective
Asset serves as collateral, less
additional collateral required
Lesser credit history may
suffice
May require less down payment
May have better prices
Potential tax-benefits
Expert Meeting on Managing
Risk in Financing Agriculture,
1-3 April 2009, Johannesburg
3
Advantages:
The Leasing
Company
Perspective
Lower transaction costs
Stronger security: ownership rights
versus weaker collateral rights
Less incentives to default, less costs of
repossession
Usually more flexible pricing
Lease rates not usually regulated (loan
rates often are)
Less costs of regulatory compliance
Expert Meeting on Managing
Risk in Financing Agriculture,
1-3 April 2009, Johannesburg
Leasing companies often exempt from
prudential regulations.
4
Advantages
in Rural /
Agricultural
Finance
Collateral
Absence of assets that can be
collateralized.
Transaction Cost
Poorly functioning asset-registries
Regulation
Expert Meeting on Managing
Risk in Financing Agriculture,
1-3 April 2009, Johannesburg
Rural lending often subject to
interest ceilings
5
Economy
Wide
Benefits
Increase in capital investment, and
thereby productivity
Particularly for the ‘Missing Middle’
Capital market development
Leasing companies borrowing from
insurance companies, pension funds
Increased competition in the financial
market
Expert Meeting on Managing
Risk in Financing Agriculture,
1-3 April 2009, Johannesburg
Competition for banks on products and
prices.
6
Firm
Case 1:
John
Deere,
Mexico
Expert Meeting on Managing
Risk in Financing Agriculture,
1-3 April 2009, Johannesburg
Fully-owned subsidiary of John
Deere
US$ 74million lease portfolio in 2004
85% in farm equipment
Rural leases: examples
US$107,000 Harvester
US$ 21,000 Seeding Machine
US4 11,000 Cultivating Implements
7
Firm
Case 2:
DFCU
Leasing,
Uganda
Profitable, publicly listed company,
bank subsidiary.
US$ 25.7 million lease portfolio in
2004
20% portfolio in rural areas; 10%
portfolio and 16% leases in
Agriculture
Rural Leases- Examples
Expert Meeting on Managing
Risk in Financing Agriculture,
1-3 April 2009, Johannesburg
US$ 70,000 Cotton-ginning equipment
US$34,000 bakery equipment
US$ 6,000 milling equipment
8
Firm Case
3:
Uzselkhoz
mash
Leasing,
Uzbekistan
State-owned company
US$76.6 million lease portfolio,
end-2005
100% rural leases
Primary client group: farm
enterprises
Average lease size: US$13,700
Expert Meeting on Managing
Risk in Financing Agriculture,
1-3 April 2009, Johannesburg
9
Firm
Case 4:
Network
Leasing,
Pakistan
Profitable, publicly listed private
company.
US$ 11.6 million lease portfolio in
2004
21% portfolio & 43% leases in rural
areas
Rural Leases- Examples
Expert Meeting on Managing
Risk in Financing Agriculture,
1-3 April 2009, Johannesburg
US$ 420 Buffaloes
US$ 2793 clinic lab-equipment
US$ 402 school furniture
10
Five Lessons
specific to
rural leasing
Leasing is a means to acquire
productive assets
Rural enterprises of different sizes
benefit, but providers may not be
able to serve all markets
Non-farm enterprises account for a
significant portion of rural leases
Rural leasing can be profitable but
may require initial donor/government
support
A rural-only leasing company may
Expert Meeting on Managing
Risk in Financing Agriculture,
1-3 April 2009, Johannesburg
not be viable
11
World Bank
Group:
History of
supporting
leasing
development
Expert Meeting on Managing
Risk in Financing Agriculture,
1-3 April 2009, Johannesburg
A Core Component of IFC’s Financial
Markets Strategy
Increase access to financing to Micro, Small
& Medium Businesses
Broaden the range of financial services
available in Emerging Markets
An Historic Focus Area for the IFC
Over the past 30 years, IFC has financed 200
leasing projects in 50 countries for $1.4 billion
IFC has set-up or improved leasing legislation
and regulations in 60 countries
IFC has operated 30 Leasing technical
assistance projects across the globe with $17
million of its own funding leveraged with
Donor funding.
Also part of IDA-IFC MSME Project in SSA
12
IFC’s Leasing
Market
Support:
Investment
and advisory
strategy
Help local banks create leasing operations
Bringing technical partners and acting as
honest broker in JV
Combining debt or risk sharing with advisory
services
Invest in start-up and existing leasing
companies
Equity and quasi equity, debt, structured
finance
Foster SME Financing through advisory
services and performance-based grants
Facilitate development of enabling
environment
Expert Meeting on Managing
Risk in Financing Agriculture,
1-3 April 2009, Johannesburg
Support for drafting leasing laws,
amendments to commercial regulations
13
IFC Leasing
Market
Support:
Regional
Activities in
Africa
Advisory Services
IFC Africa Leasing Facility (Ghana, Tanzania,
Rwanda, Madagascar, Senegal, Cameroon,
DRC, Mali, Ethiopia)
In Rwanda: CEDP Leasing Development
Program – WB/IFC partnership to increase
agribusiness finance (coffee bikes project)
Investments:
Ethiopia Access Leasing Company – the first
leasing company in Ethiopia
Other projects in pipeline for 2009 (DRC,
Madagascar, West Africa)
Expert Meeting on Managing
Risk in Financing Agriculture,
1-3 April 2009, Johannesburg
14
Contacts
and
Resources
•
IFC Africa Advisory Facility: Private
Enterprise Parternership for Africa
http://www.ifc.org/ifcext/africa.nsf/Content/PEPAfrica
•
IFC Headquarters:
Ary Naim
Principal Financial Specialist, Global
Financial Markets Department
[email protected] – 1.202.458.1471
•
Expert Meeting on Managing
Risk in Financing Agriculture,
1-3 April 2009, Johannesburg
Rural leasing papers
•
Discussion Paper 1
•
Discussion Paper 2
15