Ishmael Mantey, like many entrepreneurs in Sub-Saharan Africa, had trouble starting his business. “Formerly I was a private driver,” he said. “Life was not easy for me because I am married with two kids and providing for them is very, very difficult.”
Today, Ishmael is his own boss and runs a taxi service. He and thousands in a similar position have a new resource to help them achieve their goals. Small-scale leasing in Africa is turning a growing number of small businesses from plans into reality.
The leasing system is fairly commonplace in America, especially in the world of automobiles. Leasing is the practice of buying goods like taxis or sewing machines for a set amount of time. Similar to renting, a lease gives temporary ownership to the buyer. Unlike renting, the minimum term for leasing is fairly long term. A lease contract of two years is not uncommon.
The goal of leasing is to allow the borrower, the lessee, to generate as much revenue from the leased object as possible before returning it to the bank or leasing company, the lessor. Purchasing something like a car or a sewing machine requires the entrepreneur to pay full price. Often, small-scale businesses cannot afford the equipment they need at that price. With leasing, lessees must only pay for part of the value of the investment. In effect, they only pay for the value they “use up.”
There are a few companies in developing African countries that have made a big splash with their leasing programs. Notable among them is the Africa Leasing Facility. Started in 2008, the Africa Leasing Facility program has helped more than 14,000 small-scale business owners with training and support.
When an entrepreneur comes to a leasing company they usually have a plan. The company works with them to find the exact piece of equipment they need and then they work out a deal. The finance company buys the equipment and then lends it to the entrepreneur. Both the lessee and lessor sign a contract stating the length of the lease, and how much the lessee is to pay to the lessor. Then, a mutually acceptable payment plan is decided.
The international development community has every reason to be excited about leasing. As Riadh Naouar, program manager or IFC’s Africa Leasing Facility puts it, “Leasing effectively addresses the problem of lack of access to finance…It is an innovative financial solution for the procurement of equipment and machinery that allows small and medium-sized companies to grow and prosper.”
With global focus on entrepreneurship growing, small-scale leasing looks set up to be a big hit.
– Marina Middleton