MICROCAPITAL STORY: International Finance Corporation Rwanda CEDP Leasing Program Calls for More Leasing to SMEs by Financial Institutions at Workshop Organized by Rwandan Association of Micro Finance Institutions in Collaboration with Rwanda Development Board

The International Finance Corporation (IFC), a member of the World Bank Group that provides investments and advisory services to build the private sector in developing countries, has called upon financial institutions to embrace micro leasing for Small and Medium Enterprises (SMEs) during a micro leasing awareness workshop at the Laico Hotel in Rwanda. The workshop was organized by the Association of Micro Finance Institutions (AMIR) in collaboration with the IFC’s Rwanda CEDP Leasing Development Program and the Rwanda Development Board (RDB).

According to Brian Kirungi, IFC’s Team Leader and Legal Specialist, micro leasing would reduce current barriers affecting those that have little or no access to finance. “This makes it possible for micro and small businesses to establish or expand their businesses,” he explained. Kirungi said that microfinance institutions (MFIs) are better placed to offer micro leases due to their presence in rural areas.

Micro leasing can be more affordable for the poor and a more effective way of giving finance, explained the IFC Leasing Program Operations Specialist, Atete Bugege Karimba. Through the leasing program a person with little or no property can obtain use of an asset, paying a series of contractual, periodic, tax-deductible payments in return. A micro lease can range between Rwf75,000 (USD 132) and Rwf 2,500,000 (USD 4,394), whereas the minimum value for conventional leasing starts at Rwf 2,500,000 (USD 4,394).

Launched in early 2007, IFC’s Rwanda Competitiveness and Enterprise Development Project Leasing Development Program aims to create new financing opportunities for businesses in the country by promoting leasing as an alternative financing mechanism. The IFC does not provide leasing services to consumers directly, but works to support potential and existing leasing providers to start and grow their leasing operations. The program has four major components: legislative review, capacity building, business development, and public education and support to the Rwanda Leasing Association.

As reported by East African Business Week, the Rwanda Leasing Association was launched by the Rwanda Development Bank (BRD), the Rwanda Commercial Bank (BCR), and Fina Bank, with the help of the IFC’s CEDP Leasing Development Program. In 2005 the IFC conducted a market assessment study which encouraged Rwandan banks to start offering leasing products although the laws on leasing at the time were still questionable. Shortly thereafter the government enacted a law to govern the leasing industry and in 2006, once banks came to an agreement with the Rwandan tax authorities, leasing was launched. According to the article, more than three commercial banks do leasing business now and at least one micro finance institution has started. The volume of all leases in Rwanda in mid 2008 was USD 25 million.

The IFC has a long history in financing leasing programs throughout the world, helping establish the first leasing companies in 25 countries around the world, and advising on leasing legislation in 35 countries. Last year, as reported on MicroCapital, the IFC and Bai-Tushum Microlending Institution partnered to facilitate leasing services in the Kyrgyz Republic. The IFC’s total investment in leasing over the last 30 years has been over USD 1 billion in 181 leasing investments in 56 countries. Currently the IFC is implementing technical assistance programs in leasing with a combined value of USD 5 million. According to its 2008 Annual Report, in 2007 the IFC’s clients represented a portfolio of 8 million loans to micro, small, and medium enterprises totaling USD 94 billion. Of these, about 7 million loans were for microfinance.