By Stanley Opara

Monday, 6 Dec 2010

The Central Bank of Nigeria has advised Small and Medium scale Enterprises to tap into opportunities that leasing facilities offer for asset acquisition and financing.

The apex bank said exploring such option would ease cash flow for entrepreneurs and also minimise the burden of huge costs for purchase and maintenance of assets.

The bank said this at a one-day National workshop, titled, “Micro leasing – A Prudent Basis for Microcredit” organised by the Equipment Leasing Association of Nigeria in collaboration with the CBN, World Bank, United Nations Development Programme and Micro, Small and Medium Entreprises in Lagos, on Thursday.

The Deputy Governor, Financial Systems Stability, CBN, Dr. Kingsley Moghalu, who was represented by the Assistant Director, Development Finance, CBN, Mr. Joseph Attah, said leasing was increasingly becoming an effective credit tool.

According to him, this is because it ensures that funds provided are used solely for the intended purpose as the lessor is responsible for purchase of the equipment which is specifically lent out to clients.

He said unlike other forms of finance, leasing finance could not be reduced or withdrawn in the event of changing economic conditions. He added that it provided the opportunity to use equipment without having to tie down money.

According to him, ”As small business grow or expands, the need for technological advancement and use of machinery increases. One major advantage of leasing is that no collateral is required and entrepreneurs can start using the equipment without owning it.”

Moghalu explained that in leasing, it was much difficult to alter lease payments due to changes in interest rates, since, unlike loans, the interest component of repayment is not separately recognised.

He said, ”Where both lease and loan finance are available, it is usually much cheaper for small businesses to secure lease finance. This is because leasing has less strict requirements.”

The CBN deputy governor noted that leasing, particularly to SMEs, required that financial institutions should have confidence in the fact that there was sufficient business in the Nigerian market to profitably engage their equipment.

He urged them to back up the confidence by a willingness to take needed risks.

Moghalu added that undertaking leasing business required an understanding of the technicalities involved, of which efforts should be made to build skills of staff of leasing institutions, particularly on how to manage leasing risks.

”While the CBN has continued to promote adequate institutional arrangements to increase lending to SMEs, the efforts of various stakeholders in promoting appropriate products is very pertinent. This will engender a lot of interest, deepen microfinance activities and provide great opportunity for all stakeholders to realise and harness the economic potential of micro leasing.

Earlier the Chairman, ELAN, Mr. Kehinde Lawanson, described micro leasing as a key wealth creation apparatus and another viable option to increase the purchasing power of the poor in Nigeria.

According to him, the country‘s leasing industry will contribute more meaningfully to development of MSMEs if the government and other stakeholders genuinely gave the industry the desired support in the areas of legal framework, taxation, funding, among other allied issues.

”A lot more can be done if major challenges such as credit risk hindering smooth process of granting credit for productive assets by lessors are overcome. It is only through such institutional support that MSMEs could rightly play their role as the engine room of the economy,” the ELAN boss explained.

Source: Punch