In MicroCapital: “Lessons from Micro-leasing” at European Microfinance Week
In anticipation of European Microfinance Week, 29 Nov - 1 Dec, MicroCapital takes a look at one of the upcoming sessions with Manuel Hörl, Credit Suisse:
MicroCapital: How does micro-leasing compare with microlending?
Manuel Hörl: Microcredits do not fit the needs of every situation. Often, the borrower cannot meet the collateral or other requirements for receiving a loan. Micro-leasing can allow a farmer, for example, to pre-finance the purchase of a productive asset, such as a cow. The farmer receives basic training in handling the asset, and risk is mitigated by insuring the asset and – in some cases – also the farmer. Creditworthiness is evaluated based on future potential cash flows.
Micro-leasing products are very complex, requiring partnerships with an insurer, a local bank, a supplier and sometimes even a veterinarian! The combination of insurance, coaching and increased productivity reduces the risk for the lending entity. At the end of the leasing period, the ownership of the asset changes from the lending entity to the farmer. There is no need for credit history, collateral or savings.
MC: In what (geographic or sectoral) areas has micro-leasing been successful?
MH: Swisscontact and Credit Suisse started their partnership with a pilot project in Kenya. From there, the model was replicated in Rwanda and Tanzania – then Peru, El Salvador and Nicaragua. In Peru, for example, farmers were able to scale their income from quinoa by purchasing post-harvest machines via micro-leasing.
When Swisscontact introduces micro-leasing in a new country, its staff conducts a market analysis to identify: (1) which productive assets are in demand; (2) potential partners; and (3) any aspects of the local market that warrant customizing the terms of the leases. Regardless of the type of asset – livestock, irrigation pumps, transport bikes, flour mills – it must allow the lessee to improve productivity in a sustainable way and thereby generate revenue to make payments on the asset.