Microleasing: Overcoming Equipment Financing Barriers

This note reviews financial and operational leasing, and describes the experiences of ANED in Bolivia and Finarca in Nicaragua to show how leasing programs can respond to client demand for better ways to acquire productive assets. Leasing provides a number of advantages for the client in financial as well as operational terms. These include:

• Limited collateral constraints;
• Limited upfront cash payment;
• Structured payments to match business cash flow;
• Potential tax saving, depending on a country's tax code;
• Freedom to choose supplier and equipment without MFI intervention;
• Efficiency as firm acquires the equipment on for the time it is needed;
• Easy upgradation of equipment as new technology becomes available;
• Easy to understand lending terms and lesser documentation.

MFIs considering long term lending for equipment should look at leasing as an alternative to credit. Together with government authorities, they should create the appropriate environment for a successful leasing program, beginning with a standard definition of financial leasing. They should also implement effective risk mitigation strategies to limit their exposure, and provide incentives for prompt repayment by clients.