Economic analysts often point to the lack of start up capital to explain why the private sector is still underdeveloped in most African countries.
Even though leasing has been a popular business practice in more developed western countries, it is still uncommon in Africa. In many countries, people lack access to loans because they do not have collateral required by the banks.
In Rwanda, the International Finance Corporation (IFC), a private sector arm of the World Bank Group recently set up an advisory service. It is meant to boost private sector development by simplifying the access to finance and business services for potential entrepreneurs .It is encouraging a relatively new business concept in Rwanda -- leasing. In essence, a lease gives one the right to use property- for business purposes-for a fixed or indefinite period of time.
Brian Kirungi the coordinator of the IFC effort in Rwanda explains, “ the lessee obtains exclusive possession of the property with backing from the bank, in return for paying the bank a fixed or determinable payment.”
Kirungi a legal expert and team leader based in Kigali says that his office is currently reviewing the existing tax laws that affect leasing transactions and making recommendations for a change that will encourage financial institutions start leasing programs.
“We want to help them come up with business plans, train personnel and provide the necessary support, drawing from IFC’s global expertise in this field,” he says.
Kirungi says that the leasing development program is mainly helpful to young entrepreneurs with creative business ideas. Since they are likely not to have the required security to secure bank loans, giving them equipment “puts them on the road to financial freedom,” he says. The banks retain ownership of the leased property till it is paid off.
Payment to banks is usually more flexible under lease arrangements than traditional loan programs. Businessmen may have easier terms of payment during economic downturns, for example. Kirungi says that young business people have already come up with ways to make this program work for them.
“Young people are very creative” he says. “Rwanda is undergoing an economic transformation from an agro-based economy, and because of this, technology is opening up new frontiers for young people to join the private sector.”
Kirungi says that with more people joining the private sector, Rwanda’s productivity will also improve and lead to a vibrant private sector. “This program is a strong weapon for fighting poverty and help people work towards self sustenance.”