Leasing: Banks rush to cash in on booming business

Financial institutions are now funding leasing after finding out the business is lucrative.

Financial institutions are now funding leasing after finding out the business is lucrative.

“Leasing is profitable. The machinery, equipment and tools we lease is the collateral,” Hanninton Namara, Rwanda Commercial Bank (BCR) Corporate Banking Manager said.

Leasing was pioneered by Fina Bank, Rwanda Commercial Bank (BCR) and Rwanda Development Bank.

Recently Ecobank, Cogebank and Bancor, Vision Finance and Rwanda Microfinance also fund leasing in the country.

The International Finance Corporation (IFC), a private sector arm of the World Bank Group says the industry is growing.

Adding that the private sector and financial lending institutions have gained confidence in the programme after laws governing leasing were streamlined and more are yet to be updated.

When it was introduced in 2006, only $7 million (about Frw4 billion) was injected in leasing. Last year, banks pumped $17 million (Frw9 billion) in the product.

“The figure has grown to $25 million (about Frw13 billion),” Brian Kirungi, the coordinator of the IFC effort in the country estimates.

He revealed this during an interview at Novotel Hotel in Kacyiru where the World Bank was training Commercial Court judges on leasing.

It is through such capacity building that IFC has moblised financial institutions and Rwandans to fully exploit leasing.   A move many experts say will fostering sustainable growth through financing the private sector investment. 

“This is inline with our (IFC) aim to enhance the role of leasing as an alternative financing mechanism for businesses in Rwanda,” Karungi added.

However, the Rwanda Commercial Court president, Gerard Benjamin described formats of leasing agreements in the country as complicated and could confuse the parties involved.

The judge points out that the agreement does not state well the likely risks when some body leases assets.
He therefore suggests that the agreement be simplified spelling out the risks to protect both the lessee and lessor.

“Since leasing is about pecuniary earnings, it should clearly spell out to the beneficiaries the risks and consequences involved in case one defaults,” he urged.    

It is not the first time IFC is training stakeholders in leasing. Banks have been guided through the process of developing leasing products. IFC has also created awareness among business people about the advantages of leasing equipment to expand production and profitability.

This has been possible through The IFC Rwanda CEDP Leasing Development Programme which promotes leasing as an alternative form of financing for businesses in Rwanda.

It also targets leasing companies, government agencies, lessees, potential lessees and investors.

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