Download 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
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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
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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.
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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
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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
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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
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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
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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
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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
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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
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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
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