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The World Bank

The World Bank. Financing Agricultural Investments: Leasing as Credit Alternative Expert Meeting on Managing Risk in Financing Agriculture Johannesburg, 1-3 April, 2009. Renate Kloeppinger-Todd The World Bank. What is Leasing?.

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The World Bank

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  1. The World Bank Financing Agricultural Investments: Leasing as Credit AlternativeExpert Meeting onManaging Risk in Financing AgricultureJohannesburg,1-3 April, 2009 Renate Kloeppinger-Todd The World Bank

  2. What is Leasing? • Contract between two parties: the party that owns an asset ( lessor) lets the other party (lessee) use the asset for a predetermined time in exchange of periodic payments • Separates ‘use’ of asset from ‘ownership’ of asset. • Finance Lease (The Credit Alternative) • Amortizes asset price - includes purchase option for a token amount at end of lease period • Lessee responsible for maintenance and all risks usually associated with ownership without actually owning the asset • Non-cancellable Expert Meeting on Managing Risk in Financing Agriculture, 1-3 April 2009, Johannesburg

  3. Advantages: The Client Perspective • Asset serves as collateral, less additional collateral required • Lesser credit history may suffice • May require less down payment • May have better prices • Potential tax-benefits Expert Meeting on Managing Risk in Financing Agriculture, 1-3 April 2009, Johannesburg

  4. Advantages: The Leasing Company Perspective • Lower transaction costs • Stronger security: ownership rights versus weaker collateral rights • Less incentives to default, less costs of repossession • Usually more flexible pricing • Lease rates not usually regulated (loan rates often are) • Less costs of regulatory compliance • Leasing companies often exempt from prudential regulations. Expert Meeting on Managing Risk in Financing Agriculture, 1-3 April 2009, Johannesburg

  5. Advantages in Rural / Agricultural Finance • Collateral • Absence of assets that can be collateralized. • Transaction Cost • Poorly functioning asset-registries • Regulation • Rural lending often subject to interest ceilings Expert Meeting on Managing Risk in Financing Agriculture, 1-3 April 2009, Johannesburg

  6. Economy Wide Benefits • Increase in capital investment, and thereby productivity • Particularly for the ‘Missing Middle’ • Capital market development • Leasing companies borrowing from insurance companies, pension funds • Increased competition in the financial market • Competition for banks on products and prices. Expert Meeting on Managing Risk in Financing Agriculture, 1-3 April 2009, Johannesburg

  7. Firm Case 1: John Deere, Mexico • Fully-owned subsidiary of John Deere • US$ 74million lease portfolio in 2004 • 85% in farm equipment • Rural leases: examples • US$107,000 Harvester • US$ 21,000 Seeding Machine • US4 11,000 Cultivating Implements Expert Meeting on Managing Risk in Financing Agriculture, 1-3 April 2009, Johannesburg

  8. Firm Case 2: DFCU Leasing,Uganda • Profitable, publicly listed company, bank subsidiary. • US$ 25.7 million lease portfolio in 2004 • 20% portfolio in rural areas; 10% portfolio and 16% leases in Agriculture • Rural Leases- Examples • US$ 70,000 Cotton-ginning equipment • US$34,000 bakery equipment • US$ 6,000 milling equipment Expert Meeting on Managing Risk in Financing Agriculture, 1-3 April 2009, Johannesburg

  9. Firm Case 3: Uzselkhozmash Leasing, Uzbekistan • State-owned company • US$76.6 million lease portfolio, end-2005 • 100% rural leases • Primary client group: farm enterprises • Average lease size: US$13,700 Expert Meeting on Managing Risk in Financing Agriculture, 1-3 April 2009, Johannesburg

  10. Firm Case 4: Network Leasing, Pakistan • Profitable, publicly listed private company. • US$ 11.6 million lease portfolio in 2004 • 21% portfolio & 43% leases in rural areas • Rural Leases- Examples • US$ 420 Buffaloes • US$ 2793 clinic lab-equipment • US$ 402 school furniture Expert Meeting on Managing Risk in Financing Agriculture, 1-3 April 2009, Johannesburg

  11. Five Lessons specific to rural leasing • Leasing is a means to acquire productive assets • Rural enterprises of different sizes benefit, but providers may not be able to serve all markets • Non-farm enterprises account for a significant portion of rural leases • Rural leasing can be profitable but may require initial donor/government support • A rural-only leasing company may not be viable Expert Meeting on Managing Risk in Financing Agriculture, 1-3 April 2009, Johannesburg

  12. World Bank Group: History of supporting leasing development • A Core Component of IFC’s Financial Markets Strategy • Increase access to financing to Micro, Small & Medium Businesses • Broaden the range of financial services available in Emerging Markets • An Historic Focus Area for the IFC • Over the past 30 years, IFC has financed 200 leasing projects in 50 countries for $1.4 billion • IFC has set-up or improved leasing legislation and regulations in 60 countries • IFC has operated 30 Leasing technical assistance projects across the globe with $17 million of its own funding leveraged with Donor funding. • Also part of IDA-IFC MSME Project in SSA Expert Meeting on Managing Risk in Financing Agriculture, 1-3 April 2009, Johannesburg

  13. IFC’s Leasing Market Support: Investment and advisory strategy • Help local banks create leasing operations • Bringing technical partners and acting as honest broker in JV • Combining debt or risk sharing with advisory services • Invest in start-up and existing leasing companies • Equity and quasi equity, debt, structured finance • Foster SME Financing through advisory services and performance-based grants • Facilitate development of enabling environment • Support for drafting leasing laws, amendments to commercial regulations Expert Meeting on Managing Risk in Financing Agriculture, 1-3 April 2009, Johannesburg

  14. IFC Leasing Market Support: Regional Activities in Africa • Advisory Services • IFC Africa Leasing Facility (Ghana, Tanzania, Rwanda, Madagascar, Senegal, Cameroon, DRC, Mali, Ethiopia) • In Rwanda: CEDP Leasing Development Program – WB/IFC partnership to increase agribusiness finance (coffee bikes project) • Investments: • Ethiopia Access Leasing Company – the first leasing company in Ethiopia • Other projects in pipeline for 2009 (DRC, Madagascar, West Africa) Expert Meeting on Managing Risk in Financing Agriculture, 1-3 April 2009, Johannesburg

  15. Contacts and Resources • IFC Africa Advisory Facility: Private Enterprise Parternership for Africa http://www.ifc.org/ifcext/africa.nsf/Content/PEPAfrica • IFC Headquarters: Ary NaimPrincipal Financial Specialist, Global Financial Markets Departmentanaim@ifc.org – 1.202.458.1471 • Rural leasing papers • Discussion Paper 1 • Discussion Paper 2 Expert Meeting on Managing Risk in Financing Agriculture, 1-3 April 2009, Johannesburg

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