he Chairman, Board of Directors of the Equipment Leasing Association of Nigeria and CEO, Micro Investment Support Services Limited, Mrs Elizabeth Ehigiamusoe, speaks with FELIX OLOYEDE on the state of leasing in Nigeria
How did the Nigerian leasing sector fare last year?
The Nigerian leasing industry remains resilient, adapting and adjusting in the face of economic turbulence and making significant contributions to capital formation in the economy. The lingering impact of Covid-19 notwithstanding, the leasing industry continues to stay afloat, maintaining its growth trajectory.
From a marginal growth of 4.5 per cent recorded at the height of the pandemic in 2020, the industry returned to double-digit growth of 28.65 per cent in 2021 and sustained this momentum into 2022 with N2.629tn as of Q1 ’22 and will remain at double-digit growth as figures are being concluded for the year.
Since the inception of modern leasing in Nigeria in the 1960s, it has been supporting economic development. Today, the impact of leasing is pronounced in all sectors of the economy, enhancing capital formation, generating employment and creating wealth. The contribution of leasing in the past 10 years is over N14.3tn and is becoming more relevant in our prevailing situation where access to finance is difficult, especially for Small and Medium Scale Enterprises (SMEs).
The industry currently ranks 41st position in the top 50 leasing countries, according to the 2023 World Leasing Year Book ranking and among the three African countries that made the top 50 leasing countries, alongside South Africa and Morocco.
Leasing penetration is still low in the country. What is ELAN doing to drive it?
Lease penetration is still low at less than one per cent when compared to the potential of the Nigerian economy and in other developed economies like Europe, where the penetration is as high as 28 per cent. ELAN has been sustaining its lease awareness campaign to spread the essence of leasing and enhance visibility for the industry among the investing public. We have been maintaining a considerable media presence and engagement with relevant stakeholders in this regard, including the government and development partners.
More importantly, it would depend on the collective support of stakeholders, especially the government. The role of government to promote investment in any economic endeavour is key and has been providing considerable support for leasing in this regard. For instance, in 2015, the Equipment leasing Act was enacted as part of the support mechanism for the industry, though it has yet to be fully implemented. Specifically, the formal inauguration of the Equipment Leasing Registration Authority (ELRA) by the Honourable Minister of Finance, Budget and National Planning is still pending. The inauguration and commencement of the operation of ELRA are expected to provide the integral booster for the faster development of the leasing industry as it gives credence to the purport and intent of the Act. The full implementation of the Act will bring sanity and certainty into the practice of leasing, increase visibility and stimulate investment. Already, foreign participants are waiting in the wings to cash in on opportunities in the Nigerian leasing market.
Also, the absence of an appropriate funding mechanism continues to constrain the depth of leasing in the marketplace. The limited sources and high cost of funds have constrained the capacity of most lessors to expand their product offering and even venture into more specialised and capital-intensive sectors like health care, mining and infrastructure. The issue is constrained further by the depreciation of the naira and the consequential increase in the cost of assets.
Obviously, a broad and deeper funding structure is essential to strengthening the capacity of lessors to expand their leasing activities and take advantage of emerging opportunities. “Money is the raw material for leasing” and the ability to attract adequate and cheaper funds will determine the extent of participation in the leasing industry. ELAN has been advocating for lessors to gain access to various intervention funds and establishment of a National Leasing Fund in addition to engaging private financiers (local and international) to support the industry.
You are known for retail leasing. Why are Nigerians not embracing it retail leasing?
The most rapid transformations in the economy are taking place in the consumer/retail market. Everybody is generally involved. The consumer wants to participate, and so also are SMEs, banks, fintech, HMOs, insurance, MFBs, etc. For the leasing industry, this has been a ready market where lessors are taking advantage to deepen their participation, providing, for instance, household items to qualifying individuals to improve their comfort and quality of life.
However, the impact of leasing cuts across various sectors of the economy from oil and gas, transportation, and telecommunications to construction agriculture. It provides various equipment to meet the diverse need of customers whether large corporate organisations, MSMEs or individuals.
Banks used to be at the forefront of retail leasing. What happened that they seemed not to be very active in that space anymore?
They are still very active in the retail leasing space. The little challenge we have in retail leasing is funding. For instance, in my company, we focus on retail leasing which I call micro leasing. We have a lot of applications on our table, but the constraint is the money to fund their requests.
Retail leasing is actually trending and we have tried as a body, ELAN, to create that awareness.
The limited sources and high cost of funds have constrained the capacity of most lessors to finance more leases and engage in big-ticket transactions, thereby limiting their scope to small and medium markets.
Where do you think you can get the fund to address this challenge?
We borrow money from banks but at a high interest rate. Because the rate is high is a bit difficult for our customers to pay for rentals. ELAN is also trying to partner with multilateral organisations. A few days ago, we met with the IFC to see how they can come in to help address the funding issue.
We have only C&I Leasing on the NGX. Why is it so?
This depends mainly on the corporate objectives of each organisation. In any case, other members such as the banks are on the Exchange. They are large leasing companies that preferred to be strictly private and this is not uncommon in the corporate world.
How would you describe leasing in the retail real estate space?
In the Nigerian leasing sphere, leasing is limited to movable assets only. Although in other climes, it is extended to both movable and immovable assets such as real estate. However, in recent times, leasing of workspace is gradually taking hold in the country. We equally envisage such a situation in healthcare delivery, where fully equipped medical centres will be provided and health practitioners can just walk in to perform surgeries and other medical procedures without stressing themselves to own such facilities. They would only pay as they use.
How can the leasing sector key into the CBN cashless policy?
Of course, leasing companies are expected to align with government policies, including the cashless policy of the CBN. It is more convenient for the customers to make payments for rentals through cashless means and it equally saves both customers and the leasing company from the security risk of carrying cash. There are a lot of cash outlays in leasing and dealing with cash will be too cumbersome. So, in practice, leasing companies normally ask for post-dated cheques from the customers and in some cases direct transfers to the company’s account. Of course, they do not buy equipment for the lease with cash but rather through other means mainly.
Nigeria is not a credit economy. How can this be reversed?
Deepening credit in the economy will require putting in place necessary policies to stimulate credit in the economy. The CBN has been doing that in terms of its loan-to-deposit ratio (LDR), which is currently 65 per cent minimum and definitely that is what leasing is all about. With leasing, people can have access to their desired assets for productive purposes without waiting to have all the money needed to acquire such assets. It is, therefore, imperative for the government to come up with policies to encourage not just the leasing industry but other financing windows to provide necessary credit to support the growth and development of our national economy.
In which sector of the economy is leasing doing well?
Equipment leasing globally is established as a creative financing alternative that facilitates access to capital equipment. The whole essence of leasing is to enhance the planning, improvement and development of any economy, by building and supporting productive ventures. Since its inception in Nigeria, leasing has been supporting economic development. Today, the impact of leasing is pronounced in all sectors of the economy, enhancing capital formation, generating employment and creating wealth.
Essentially, there is no sector in that leasing cannot thrive. However, over the years, the leasing space is dominated by the oil and gas sector for obvious reasons, being the mainstay of the Nigerian economy and the appetite for leasing by players in the sector. Others are transportation/logistics, manufacturing and the retail/consumer sectors, while healthcare and construction are getting more attraction in recent times.
What do you want to be remembered for as ELAN Chairman?
While taking up the mantle recently, our major focus was to reposition the association and industry at large, to make it more responsive to stakeholders, by enhancing our value proposition to stakeholders. Therefore, I want to be remembered as someone who has contributed to take the leasing industry a step further than we met it in the pursuit of our objectives.