Equipment leasing seen as sustainable financing model for MSMEs

In addition to traditional loans, experts have affirmed the importance of leasing as a strategic tool for financing operators of micro, small and medium sized enterprises (MSMEs).

During the 22nd National Lease Conference by the Equipment Leasing Association of Nigeria (ELAN) themed, ‘Equipment Leasing: The Creative Finance Alternative in Today’s Reality’, held recently in Lagos, Elizabeth Ehigiamusoe, chairman of ELAN emphasised the importance of leasing.

“Leasing plays a major role in facilitating the various developmental initiatives, ranging from access to capital for individuals and businesses, food security; poverty eradication, inclusive growth, and job creation to supporting initiatives in transportation including that of the CNG vehicles,” she said.

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She added that leasing has been established globally as the creative financing alternative, generating an annual average of over $1.5 trillion in new business volume and contributing about 1.5 percent to global GDP.

Ehigiamusoe noted that leasing has supported economic development since Nigeria’s inception. The impact of leasing is pronounced in all sectors of the economy, enhancing capital formation, generating employment, and creating wealth today.

The Corporate Finance Institute defines an equipment lease agreement as a contractual agreement where the lessor, who is the owner of the equipment, allows the lessee to use the equipment for a specified period in exchange for periodic payments.

Bonaventure Okhaimo, chief operating officer for the Development Bank of Nigeria (DBN) highlighted that the key players in the Nigerian leasing industry are leasing companies, banks and other financial institutions, equipment suppliers, and insurance.

“The bank provides wholesale financing to leasing companies and risk-sharing facilities to support funding to MSMEs for acquiring productive assets but MSMEs face severe funding gaps despite being a major contributor to the country’s GDP and economy,” he said.

He noted that MSMEs account for 96.7 percent of businesses and contribute 49.78 percent to the Nigerian GDP, saying they still face challenges such as limited access to finance, lack of collateral, inflation and FX volatility, regulatory barriers, high taxes, and high cost of operations.

“DBN recognises leasing as another avenue to support MSMEs in Nigeria.”

Alleviating MSMEs’ challenges to achieve maximum potential is through an increase in access to funding, bridging collateral gaps, and reducing operation costs which could lead to an increase in capital for business operations and lease assets for increased productivity,” Okhaimo said.

Ugoji Lenin, managing director of C & I Leasing in his keynote speech noted that creating a niche within a general market as an MSME helps to develop a strong brand identity, and strong supply chain management, creating access to capital for asset acquisition.

“Nigeria’s oil and gas industry is a specified market and a cornerstone of its economy, contributing significantly to government revenue and driving economic growth. This sector presents a vast market with numerous opportunities for businesses, both domestically and internationally,” he noted.

He said that leasing is a powerful tool for businesses operating in specialised markets allowing businesses to conserve capital for other strategic initiatives, enabling them to access the latest equipment without the upfront purchase costs.

“Leasing offers flexible terms, allowing businesses to adapt to changing market conditions and adjust their equipment needs accordingly. It also transfers the risk of obsolescence and residual value to the lessor, reducing financial risk for the lessee,” Lenin added.

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Olasunkanmi Odede, associate director of infrastructure and major project, KPMG, analysed challenges in Africa driven by the cost-of-living crisis experienced by many African nations, including Nigeria.

He said that businesses are on the verge of making crucial decisions to either stay or exit the country. However, for businesses to be resilient and sustainable amid negative economic headwinds, they need to be proactive, agile, innovative, and have access to liquidity and strong leadership.