Experts urge MSMES to tap financing opportunity in equipment leasing

MICRO, Small and mediumsized enterprise operators in Africa’s biggest economy have been urged to tap financing opportunities in equipment leasing to scale their businesses.

This was the key message from experts at the equipment leasing Association of Nigeria (elan) 20th National lease conference organised in partnership with the Pro-poor Growth, and Promotion of employment (SEDIN) – a programme of the German development Agency (GIZ).

Ngozi ehigiamusoe, chairman of the board of directors elan, said there are still wide financing gaps in all sectors of the economy, noting the situation increases the relevance of leasing to capital formation for MSMES who are constantly challenged by inadequate access to finance.

“Indeed, equipment leasing has gained significant global recognition as a creative financing alternative, generating a new business volume of over $ 1 trillion annually,” she said.

“The appeal of leasing lies in the fact that it delivers a multiplicity of benefits to those who choose to lease. It helps all types and sizes of businesses to conveniently acquire the much-needed equipment for their business ventures,” she noted.

According to her, the impactful visibility of leasing is increasing in the country as well as its contribution to capital formation and wealth creation, adding that the country’s outstanding lease volume stood at N2.56 trillion in 2021.

She said despite the positive contribution of leasing to national economic development, the industry is still limited by the absence of an appropriate funding mechanism, FX volatility and the prevailing macroeconomic challenges in the country.

“Asides from the prevailing challenges of the macroeconomic environment, there are specific hiccups that continue to hinder the faster development and growth of the leasing industry. The absence of an appropriate funding mechanism continues to constrain the depth of leasing in the marketplace,” she said.

“The limited sources and high cost of funds have constrained the capacity of most lessors to expand their product offering and even venture into more specialised and capital-intensive sectors like health care, mining, and infrastructure,” she explained.

“The issue is constrained further by the depreciation of the naira and consequential increase in the cost of assets,” she added.

Ugonna ogbuagu, partner, Aelex in his paper presentation on the equipment leasing Act 2015: Implementation and its impact said business growth of SME operators in the country has been stunted owing to their inability to obtain loans from money deposit banks.

This, according to him, makes leasing a viable alternative option for Smes as it would give them access to equipment and other vital resources needed to start or run their business activities.

Speaking on the equipment leasing Act 2015, he said it was enacted as a federal government framework to enhance the contribution of leasing to the economy.

“This Act seeks to regulate the business of equipment leasing in Nigeria so that the relationship between the lessor and the lessee and other Third Parties is identified and protected.”

“The act also seeks to establish a regulatory authority to provide for the registration of all equipment leases and the certification of equipment lessors.”

Also, Akinropo omoware, head of policy component at GIZ-SEDIN said equipment leasing is considered a strategic tool to finance MSMES, noting that despite it being a well-known instrument for financing the acquisition of all types of equipment in countries around the world, in emerging markets, it is generally more accessible to larger companies than MSMES.

“The limited awareness and understanding about leasing on the part of start-ups and MSMES have slowed the development of the industry, as it should focus mainly on assets that are suitable for MSMES and on the general approach to managing all aspects of leasing to this segment,” he said.

“This PPD is to discuss measures aimed at creating an enhanced ecosystem for equipment leasing in Nigeria with a focus on the available opportunities to grow the sector with the effective implementation of the equipment lease Act.”