By Temple Nneji
The Central Bank of Nigeria [CBN] has urged Small and Medium Enterprises [SMEs] to embrace leasing as alternative source of finance.

Deputy Governor, Financial Sector Stability, CB, Mr. Kingsley Moghalu,   made this call at a one-day seminar.

The Seminar titled  “Micro Leasing – A prudent Basis for Microcredit”, was  organized by the United Nations Development Programme, the World Bank, Micro Small and Medium Enterprises [MSMEs], Nigeria Project, the Equipment Leasing Association of Nigeria [ELAN] and the CBN.

Moghalu said “Leasing is increasingly becoming an effective credit tool owing to the fact that it ensures that the funds provided are used solely for the intended purpose as the lessor is responsible for purchase of the equipment which is specifically lent out to client.

“Unlike other forms finance, leasing finance cannot be reduced or withdrawn in the event of changing economic conditions. It provides the opportunity to use equipment without having to tie down the money.

As small business grow/expands, the need for technological advancement and use of machinery increases.
Speaking on the advantages of leasing, he stated, “One major advantage of leasing is that no collateral is required and entrepreneurs can start using the equipment without owning it. Also the burden of huge cost and maintenance is minimized and this eases cash flow for the entrepreneurs.

“Also in leasing, it is much more difficult to alter lease payments due to changes in interest rates, since, unlike in loans, the interest component of repayment is not separately recognized. Where both lease and loan finance is available, it is usually much cheaper for small businesses to lease finance. This is because leasing has less strict requirements.

Leasing particularly to SMEs requires that financial institutions express confidence in the fact that there is sufficient business in the Nigerian market to profitably engage their equipment.

“They should equally back up the confidence by a willingness to take needed risks. Undertaking leasing business requires an understanding of the technicalities involved, and as such, efforts should be made to build skills of staff of leasing institutions, particularly on how to manage leasing risks.

“While the Central Bank of Nigeria has continued to promote adequate institutional arrangements to increase lending to the SMEs, the efforts of various stakeholders in promoting appropriate products such as through this workshop is very pertinent”.