Potential for Leasing Products: Asset Financing for Micro- & Small Businesses in Tanzania and Uganda

This paper assesses the potential market for profitable and client responsive micro-leasing products, drawing from Tanzanian and Ugandan MFIs. It examines the desires, needs and capacities of low-income households and businesses in order to determine the potential market for micro-leasing and the form micro-leasing products may take. Using a combination of in-depth interviews with key actors from MFIs, leasing companies, and commercial banks, and focus group discussions with entrepreneurs, the study explores the potential for the development of products specifically targeted towards asset finance in the MSE sector in East Africa. The paper examines both demand and supply issues. Also specially modified Participatory Rapid Appraisal (PRA) tools were used to understand client perceptions of existing and potential leasing products. It also provides:

• An overview of formal sector leasing with an explanation of the legal and tax advantages of leasing for formal sector businesses;
• Lists the myriad of informal and semi-formal mechanisms used by micro- and small entrepreneurs to finance their assets;
• Explores in detail leasing products, including lease amounts, terms, degrees of flexibility, grace periods and interest rates;
• Considers other costs such as insurance, deposits, collateral, and requirements for guarantors;
• Examines the role of donors, institutional and policy issues.

Findings reveal that:

• There is a large unmet demand for leasing among MSEs seeking medium term financing;
• Small enterprise operators prefer a product with a low initial deposit, a grace period of 1-4 months and flexible repayment schedules that are responsive to variations in cash flow.