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A New Lease on Life for Small Liberian Businesses
By Kobi Daniels
Since Liberia’s return to a stable political environment in 2005, ingenuity in enterprise development has helped spur the creation of more than 7,000 formal micro, small and medium-sized businesses, commonly referred to as MSMEs. The contributions these small businesses have made to the economy are irrefutable; the benefits to the lives of individuals, unquantifiable.
Imagine, however, if these businesses were able to double, or even triple their profits by having access to new equipment or machinery which could help speed production of their products or yields, allowing them to produce and sell more.
Envision further what could happen if even one quarter of Liberia’s informal businesses were able to join the formal sector by gaining additional access to finance to further grow their businesses.
In Liberia, an increase in the number of revenue generating MSMEs would go a long way to increasing economic activity, deepening financial markets and enhancing secondary markets. The result would be a higher standard of living for many Liberians.
Thanks to a tool called finance leasing, we need not imagine any longer. There is now a way.
Worldwide, finance leasing has proven to be one of the most effective ways to acquire assets today with the possibility of being able to purchase them in the future. And it is about to take off in Liberia.
Through its post-conflict initiative, IFC supports economic recovery in Liberia by helping to improve the investment climate, strengthen the domestic financial sector, support private participation in infrastructure, and finance select private sector companies. Leasing plays an integral role in realizing these goals.
IFC has supported lease market development and institution building for 40 years through a unique combination of investment and advisory products in partnership with our technical and development partners. Since our first and successful engagement in Korea, we have invested over $1.6 billion in 60 countries and advised 94 developing countries on leasing regulations.
We have done this because leasing is one of the most vibrant and dynamic industries in the world. It facilitates the financing of equipment and real property. It fosters economic growth, creates employment, and enhances tax revenue. It affects every sphere of our lives as it encompasses automobiles, furniture, airplanes, restaurant equipment, computers, telecom equipment, and agricultural and medical equipment.
The basic premise of leasing is that profits are earned through the use of assets, rather than their ownership.
Leasing is an agreement that allows one individual (Lessee), the use of another person’s, (Lessor) asset. Small business owners are therefore the lessees while banks and leasing companies are the lessors.
Affordable and tailored to the individual needs of MSMEs, leasing enables entrepreneurs to scale up their work by allowing them to lease income-producing assets required to grow their businesses. The lessee makes specified regular payments to the lessor in return for the use of the asset. Usage and ownership are therefore kept separate.
There is strong evidence that leasing could be a major catalyst for growth as it can help to supplement the traditional bank loan funding, thus creating healthy competition in the financial services market. It is particularly important in supporting the growth of MSMEs that often struggle to obtain bank loans due to lack of adequate collateral. It also plays a major role in technology transfer and modernization of production methods, especially in the transportation, mining, information technology, agriculture and agro-processing industries.
In addition to an increase in revenue, other benefits to the economy may be seen as well. When properly structured, leasing transactions can generate tax benefits which help provide public infrastructure and services necessary to spur additional development in Liberia.
With the support IFC’s Advisory Services unit, the groundwork has already been laid to make finance leasing available to MSMEs.
In September 2010, the Government of Liberia passed a new Commercial Code which provides a more favorable legislative and regulatory framework for leasing. Additional skills training for professionals in banks to strengthen their knowledge of leasing and ability to structure leasing transactions has also been conducted by IFC in collaboration with the Central Bank of Liberia.
With an increase in on-going leasing awareness and local bank interest in offering finance leasing as a mainstay product, the demand for equipment financing is growing in proportion with the equipment needs of the economy. As Liberia works to spur additional output in its agricultural, infrastructure and extractive industries, leasing will prove a valuable tool.
Our involvement in leasing speaks to the critical role leasing plays in promoting a sustainable private sector in emerging markets.
We are therefore happy to be part of the upcoming Liberia Leasing Investment Forum being held from June 13-14 in Monrovia in partnership with the National Investment Commission and our donor partners in Liberia through IFC’s Conflict Affected States Initiative: Ireland, The Netherlands, Norway and Sweden.
The objective is to bring together leasing experts and technical partners from agrileasing, micro leasing, equipment leasing, software and renewable energy equipment leasing companies from within and outside Africa to promote leasing potential and leasing investment opportunities in Liberia.
It is an opportunity for all stakeholders from government, financial and non financial institutions, MSMEs, vendors and equipment dealers to meet, learn and share their experiences and ideas for developing the leasing sector.
We hope the event will not only increase awareness about the benefits of growing a leasing sector in Liberia, but also spur investment in the sector.
- Kobi Daniels is IFC’s Acting Resident Representative in Liberia
- For more information, please contact Kimberlee Brown, KBrown@ifc.org
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