A new report dubbed ‘Equipment Leasing in Africa’ has urged Small and Medium-Scale Enterprises (SMEs) to leverage the opportunity offered by leasing, as it is becoming increasingly difficult for them to access finance through the banking sector.
The report, which was jointly launched by Africa Lease and the International Finance Corporation (IFC), states that more than 200 million businesses in Africa lack access to credit; heightening the need for a paradigm-shift to leasing as being the new way for businesses to grow.
Leasing, according to the research, is a contract between two parties where one party provides an asset for usage to another party for a specified period of time, in return for specified payments.
The report adds that the potential of the leasing industry in Africa is worth some US$80billion, though only about half is utilised.
In Ghana, the national leasing market potential as at 2016 was estimated at US$812 million, but only US$228million was utilised for the period.
South Africa tops the continent with US$26.7billion, followed by Nigeria, Morocco, and Egypt with US$4.1billion, US$2.8billion and US$1.4billion respectively.
The rest in the top-ten are Tunisia with US$1.2billion, Algeria US$500million, Sudan US$480million, Angola US$450million, Mauritius US$300million and Kenya US$280million.
The report paints a bright future for the leasing industry on the continent, given that many countries have established favourable legislative and regulatory environments for the industry to thrive.
Speaking at the report’s launch in Accra, Matthias Feldman-Deputy Head of Mission, Embassy of Switzerland in Ghana, said it is important for SMEs to take advantage of this opportunity as it offers a new way for them to grow.
“Access to finance is a critical enabler and catalyst to private sector development in the country. However, it is true that in the developing and emerging markets of the world, more than 200 million businesses lack proper access to finance. This is also true here in Ghana.
“Because many SMEs do not operate in the formal sector, they do not qualify for the traditional bank financing because they lack the credit history or they just have not got enough collateral.
Unlike traditional banking, leasing does not necessarily require a collateral. So, with leasing, SMEs can access equipment, tools that are needed to finance their operations by financing them through their own cashflow.
“Therefore, leasing presents opportunities to many SMEs across the continent which would otherwise be deprived and excluded from accessing credit or financing,” he said.
He added that if leasing is taken seriously by businesses, it can help Ghana and other African countries achieve their goal of developing without aid.
“If you look at it more broadly, access to finance is key to achieving Ghana’s and other African countries’ goal to move beyond aid. In line with this, improving access to finance is critical to harness the economic potential of the private sector and enable countries to rely more on domestic resources, investments and ingenuity of the entrepreneurs to finance and advance their own development. In all of this, leasing can thus play a very important role,” Matthias Feldman said.