Scaling Commercially Viable Models for Lease Financing
Financial service providers vary in their ability to meet the range of requirements of agricultural borrowers. Agriculture poses numerous challenges to lenders, including weather and market risks, high costs of servicing rural areas and ‘lumpy’ sales rather than those spread throughout the year. The more established lending products primarily address short-term capital needs through direct lending to farmers and support access to markets through trade financing for farmer organisations. Gaps in supply typically occur around long-term finance for asset purchases and other farm investments essential for increased productivity. Emergent models to address these gaps include lease finance, which is common in developed markets or in the non-agricultural sector. Lease Finance: enabling the commercial scale up of smallholder farmers’ access to equipment and technology Lease finance is an instrument that allows individuals to access and utilise equipment for medium-to-long-term financing periods, in return for previously-set interim payments.
Although the lease financing model brings benefits to lessee, lessor, and commercial financers lending the capital to the lessor, it also carries inherent risks, particularly if a solid, proven business model that shows sufficient demand for the leased technology and proven productivity returns for the lessee that enable them to make repayments reliably.
A new briefing paper from Grow Africa looks at the criteria for successful leasing models and explores how these might be scaled throughout Africa. Concrete examples are given of different models.
Lease financing was one of the discussion topics at the recent Grow Africa Investment Forum. The session attracted lively participation.
A call to action was made for Grow Africa to further develop a lease-financing model that creates linkages between public sector investment, policy, the private sector and lease-finance providers. This will be developed with the support and input of the Grow Africa Finance Working Group and available to interested countries to pilot. Grow Africa will pursue the development of a strong concept and model with the objective of securing development finance support for its implementation. Read the Grow Africa Investment Forum summary for more details.