24 March 2020
Finance for Impact is mandated to conduc an evaluation of a USD300+ million IFC program facilitating access to finance for micro, small and medium enterprises (SMEs) in sub-Sahara Africa by developing a sustainable leasing infrastructure. Specifically, Finance for Impact will provide IFC and development partners with an assessment of the current business model and investigated opportunities to increase the coverage to meet market needs. Impacts of the program will also measured.
In many small and middle-income emerging economies, the leasing industry has not been fully explored as an alternative for financing business. There is a high demand for leasing products and services, including financial education and knowledge transfers, in sub-Sahara Africa and other frontier markets. Whereas access to traditional finance is constrained in those countries (e.g. high collateral policies, lack of regulatory framework, information asymmetries), leasing allows businesses to make use of equipment’s which they have not purchased outrightly. As such, business can use the financial benefits arising from using the leased equipment as the means to pay the lease instalment payment. Additionally, equipment leasing helps business to manage their financial resources prudently since they can use the cash for other pressing needs such as employee remuneration, developing marketing strategies, procuring raw materials etc., with a higher return on investment, as against investing an immediate property acquisition which could stifle their business operations.
Through its Africa Leasing Facility, I (2008-2013) and II (2013-2017), IFC has facilitated access to finance for micro, small and medium enterprises (MSMEs) in Africa by developing a sustainable leasing infrastructure to promote this sector. We noted that the team rated the program as having been successful overall in working to develop, create and strengthen a market for leasing in program countries having supported 15 institutions to launch leasing operations and facilitated over $200 million in finance for leasing on the continent. While final two-year post completion results will only be available in early 2020, as of March 31, 2019, some 7,950 MSMEs had already received lease financing valued at $322 million in the four countries in which leasing operations were launched: Cote d’Ivoire, Guinea, Ethiopia and Sierra Leone alone.