The role of banks in leasing industry
By Tosin Fodeke
THE banking industry remains the main source of funding for leasing activities in Nigeria. Apart from developing varieties of lease finance products, banks provide financial support for the independent leasing companies.
However, recent glitches by way of the international economic crisis and the bank reforms by the Central Bank of Nigeria (CBN) have not gone without its strain on the sector.
At the recent Equipment Leasing Association of Nigeria (ELAN), National Lease Conference, various professionals bared their mind on the prevailing problems of the sector.
In his paper titled: "The Role Of Banks in the development Of the Nigerian Leasing Industry with the theme: Leasing an Innovative Financing Option For Socio-Economic Development,'' Managing Director, Skye Bank Plc, Mr. Akinsola Akinfemiwa said this also means that as the banks credit contracts, the independent operators would be starved of funds to expand their business volume.
Thus, the volume, which up to 2008 had recorded annual average increase of about 40 per cent, may not be sustained in 2009 due to the financial crisis. This according to the Akinfemiwa, has affected banks funding capacity and thereby reduced their involvement in leases.
"Funding cost is also expected to increase given the competing sources for the little available credit. Given the current economic climate, operators should brace up and ensure the following: Sound understanding of the business environment and opportunities there in good credit control and administration processes a good secondary window for the use and or disposal of the leased assets.
The financial system is dominated by the banking sector, which accounts for about 90 per cent of the assets and 65 per cent of market capitalisation of the NSE. Banks are the key-driver of the economy.
He explained that the objective of an entrepreneur is to provide all that is necessary for the smooth operation of his/her business. "However due to limited resources and harsh economic environment that we are presently experiencing, both small and medium scale enterprises can as a short and long term measure leverage on the opportunities in leasing to reduce cost, ensure sustainable cash flow and enhance."
Also stating that the leasing sub-sector will be a virile tool for economic development of the country he added that the empowerment of SMEs for greater business should be a focus of leasing activities in Nigeria in the years ahead given the possible impact on the GDP of the country.
"Emphasis should shift from the current "lifestyle financing" to "productive financing. However, in the short run, funding would be a major challenge to overcome," he stressed.
Corroborating him, Chairman, Equipment Leasing Association of Nigeria, Mr. Collins David-Ikpe, in this paper remarked that government's assistance is an important ingredient that will enable the leasing industry to perform its catalytic role more effectively. Notwithstanding, the numerous successes recorded so far, the industry needs the assistance of government now more than ever before.
In recent times, he said, the operating environment has become tougher, noting that leasing, like any other economic endeavour depends substantially on consistent and favourable policies. It is, therefore, important for government to abolish policies that are inimical to the development of leasing in Nigeria and formulate those that will stimulate more participation and penetration.
Speaking further, he said that though leasing is relatively at its cradle stage in Nigeria, the industry has continued to contribute to the socio- economic development of the country through the provision of the much-needed capital assets for productive ventures.
Today, the impact of leasing is becoming more pronounced in all sectors of our national life. Notwithstanding, the difficult operating environment, the industry has maintained steady growth with an outstanding lease volume of close to N400 billion from ELAN members alone in 2008.
To this end, the Executive Director, West, First Bank of Nigeria Plc Mr. Kehinde Lawanson added that to achieve a lasting symbiotic partnership between vendors and lease practitioners it is pertinent to clearly understand the roles and define the roles and define the expectations of each party from the perspective of the lessor.
"The need to carefully select prospective lessee with high level of integrity and credibility, government should increase the domestic economy's productive capacity to ensure that equipment to be leased are productivity engaged," he pointed out.
He stressed the need for lease education, training and awareness; continuous liaison with relevant government authorities (tax consideration etc.), building sustainable business solutions consistently across regions, need to establish dedicated sustainable business teams to build capability and market share and eliminating equipment obsolescence."
In another presentation, MD/CEO, Flexi Lease Limited, Mr. J. O. Olarinde, in his speech titled: Meeting the equipment needs of the Nigerian Health Sector - The Leasing Option, stated that currently, Nigeria's health system is in a poor state and this is traceable to several factors, especially the gross under funding of the health sector and shortage of medical personnel at all health care levels.
Others include all Teaching/Specialist hospitals have similar problems ranging from lack of competent maintenance/teaching personnel, to various obsolete and broken down equipment. Poor storage conditions in some hospitals have contributed to the breakdown of equipment after few days of commissioning, he stressed.
Planned Preventive Maintenance Service (PPMS) not in practice in the Health institutions and hospitals, inadequate financial allocation specifically for health equipment, unserviceable, obsolete and poorly maintained medical devices, lack of capacity to acquire essential modern sophisticated health equipment, loss of scarce resources in the importation of in appropriate medical devices. Lack of adequate budgetary provision for medical equipment maintenance, repair, and replacement of obsolete equipment.
These challenges, according to him, can be addressed by the introduction of multiple incentives to health workers to make working in unattractive areas more appealing and increased funding of the health sector. Adding that, benefits of Medical equipment leasing would save money in the long run if the lessee expects a particular device to become technologically obsolete in the next few years.
"Leasing makes sense if the lessee has no cash for a down payment on extremely expensive equipment that the medical practice requires," he said, adding that medical outfits can finance 100 per cent of their equipment costs without a skimp on the latest technology because they think they cannot afford it.
"Medical equipment leasing allows a lessee to acquire needed equipment today, without a large outlay from the current operating capital budget. Leasing new equipment can help grow medical, health care or lab business by getting the business on track and expanding capabilities," he stated.
