Banks and other financial institutions are pushing for reforms in the regulation of the leasing industry to facilitate its growth.
According to the financial institutions the reforms will be an incentive for more players to offer more leasing products.
Leasing is a process by which a firm can obtain the use of a certain fixed assets for which it must pay a series of contractual, periodic, tax deductible payments.
Specifically, bankers say the law fails to clearly address issues such as repossession in cases of default and there are no clear rights and obligations of the parties.
Currently only four commercial banks offer the leasing product including Commercial Bank of Rwanda (BCR), FINA Bank, ECOBANK, Access Bank and Cogebank. Others include the Development Bank of Rwanda (BRD) and Vision Finance Company – a micro finance bank.
“The problem with leasing is that when you have a Non Performing Loan (NPL) in leasing, you have to make provisions immediately because Central Bank does not recognize the value of it,” Sanjeev Anand, the Managing Director, BCR told Business Times recently.
Anand who also chairs the Leasing Association in Rwanda observed that while leasing has the potential for growth, the gaps within the regulatory framework continue to limit its growth.
“Leasing is a good product; it helps Small Medium Enterprises (SMEs), in particular small SMEs who do not know where they can get finance because they are too small to access bank finance,” he added.
On average, a micro lease ranges between Rwf75, 000 to Rwf2, 500,000 and in case of an asset, it gives people with little or no property an opportunity to own an asset that can be used as collateral.
The maximum value for micro leasing (Rwf2.5 million) is the minimum value for leasing. Despite being a pioneer commercial bank in promoting leasing approximately Rwf3billion has been injected in leasing since 2008. BCR says the performance of the product has been average.
However the chairman also added that the association is yet to approach the Central Bank through the bankers association to push for reforms by the end of this year.
Anand said the bank intends to reintroduce the product though it will reduce financing to have more equity.
“We will reduce financing from 80 reduce to 60 percent of the value of an asset and increase financing to 40 -50 percent depending on product – the problem is that it is very difficult to get a good price for the assets that are sold ,”he said.
Steve Caley, the Managing Director FINA said while the product was very popular at first, demand went down due to slow down of the economy. Caley also observed that tax environment for leasing needs to be improved to support the development of the sector.
“There are still tax issues of the listed assets unless these are clarified there will always be some form of impact on the popularity of the product. But it is a good product especially for those at the lower end of the market,” Caley said, who also doubles as the current chairman of the banker’s association.
However FINA bank has said it will roll out the product again this year after ironing out difficulties faced at the initial launch in 2006.