By NBF News
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Mr Joel Olarinde, a director of the Equipment Leasing Association of Nigeria (ELAN) is also the managing director of Flexilease Limited. The chartered accountant, who had spent over 20 years at senior management cadre in various financial institutions, recently spoke to Daily Sun on the need to have an Independent Leasing Act passed by the National Assembly for the Nigerian leasing industry. He stressed that it was the fastest way to improve the performance of the real sector that is technically hampered by a myriad of factors, including lack of equipment.

While soliciting for the setting up of leasing intervention fund by government, Olarinde contended that ELAN should also be actively involved in the administration of the N200 billion SME intervention fund, set up by the Central Bank of Nigeria (CBN).

My name is Joel Olarinde. I am an accountant. I worked with Capital Bancorp, where I rose to the position of a general manager, before setting up Flexilease Limited. We have been slugging it out in the market with other operators, since inception. The journey has been exciting and challenging too, considering that leasing business is capital intensive. For instance, the challenge of getting funds to do business has been a major issue and has really not been easy, particularly because of the crash of the capital market, and also because of the regulation and policies that has been put in place in the Nigerian banking industry.

The banks are really not giving loans to people engaged in leasing business to support the small and medium enterprises. With the nature of the Nigerian economy it is not always easy, right now, to book reasonable level of lease where you can get income. Otherwise it has been quite fine and, also, one major way of developing an emerging economy like ours is through setting up a robust leasing industry.

As a developing economy, Nigeria has enormous human and natural resources, but getting funds to ensure that businesses are able to finance their projects has been an issue that must be addressed by the government.

So, it is imperative that government should create an enabling environment to ensure that businesses are able to get finance to execute their projects in any area of specialization. The economy itself has not helped the banks in getting money to support leasing companies to put money into developing industries.

Banks reforms
As a matter of fact, the role expected of banks is to partner the leasing companies, who are closer to the manufacturing companies, in the disbursement of loans meant for the sector. It should be the duty of leasing companies to monitor the activities of the benefiting manufacturers, to ensure they repay whatever funds that may have been advanced them by the banks. It is the lease operators that can structure leases for entrepreneurs to ensure that our developing economy gets the necessary impetus to advance and grow like others.

My argument is that if we must get things right in this economy, every arrangement about financing the real sector should naturally centre on leasing operators because they are very close to entrepreneurs who use equipment for manufacturing. It is an arrangement that can impact positively on both the banks, business promoters and the lease operators among other stakeholders.

Unfortunately, I can tell you that in this respect, the banks have not done much for the economy because the impact on the economy has been minimal. I must tell you that the banks have not benefitted the leasing companies at all and that is why most of our industries are still struggling to find their feet.

I think that the CBN should set up a special intervention fund with the banks, which leasing companies should access to give lease facilities and transactions to SMEs. The fund should be able to provide money for the economy to develop.

As I speak to you today, the banks have not benefitted the leasing community at all because there are basic issues that should have been addressed if the impact had been as expected. It may be possible that one or two lease operators have benefitted from the banks but one is arguing that on a large scale, the impact has not been quite minimal.

Leasing law
I would not be so sure that the absence of leasing law was a reason banks are not giving loans to lease operators, but the reality is that the culture of Nigerian banks about giving loans to the real sector has not been very attractive at all in the sense that even though they are practically aware of the role leasing companies play in the life of real sector but have refused to provide funds to facilitate the process.

They seem not to have much confidence in us, a reason why nearly all the banks have leasing portfolio they are managing alongside their other core functions.

And that is why you see that almost all the banks were establishing leasing departments in their organizations. Interestingly most of them have since left the sector because they did not understand the technicalities of lease transactions. But it was professionally wrong for them to have gone into the business in the first instance considering their lack of knowhow for the sector.

The truth is that if they had conceded that duty to leasing operators banks themselves should have been benefitting from the transactions coming out of the intermediation arrangement by lease operators.

We are relying on the media to impress it on the government to see the need to urgently pass the leasing law because if the law is passed it will create profitable opportunity for lease operators to impact all sectors of the economy because lessors and lessees will understand from the beginning that all transactions are covered by law.

It was due to the fact that most of these banks don't have the requisite skill to manage leasing portfolios that they left off the business to leasing operators, who have the requisite training and experiences in the conduct of leasing transactions, so that they can be benefiting from leasing transactions other than going direct into a sector, where they don't have much exposure. A key reason some of the banks burnt their fingers in leasing business was that most of them could not professionally assess the lessees they are serving and that led to bad credit.

With that mindset, each time a lessor goes asking for facility to execute a lease transaction, banks would remind you that they had gone into that kind of business and came out, warning, you may be hurt if you go in. But what they forget is that the skill we have and the painstaking efforts we put in appraising leasing transactions enable us to avoid the banana pills associated with the industry.

The funny thing is that each time a lease operator goes to the bank to ask for loan even for leveraging banks will remind you that they had been there before and failed to gain the needed advantage.

So I have always told them that you burnt your fingers because you did not understand the intricacies of the business and that does not mean that someone else with the requisite experience cannot make a difference in a venture where others have failed. We are the leasing practitioners have been in the sector for some time and have not burnt our fingers because we understand the terrain very well.

Consumer banking
You will recall that most of the transactions done by banks under consumer banking were not properly structured. They were not done properly because the assessment of the consumer banking services were conducted in a manners that do not guarantee that many of the banks could get their money back. Their assessement consumer banking services was poor and that led to huge losses.

For instance, you can give a lease to somebody because he or she works in a bank without tying the equipment to an additional source of collateral so that whenever there is a problem you could get your money back. For some banks the value of the equipment leased to particular customers was so small on them that they failed to do proper risk assessment on the transactions forcing a lot of customers to go away with their leased equipment without paying back.

Apparently they forget that little drops of water make an ocean, and that was how most of the banks lost their leased laptops, cars, air conditioners, televisions and whole lot of other items to customers.

The frenzy for consumer banking was so strong in the banking industry at a time that they hardly do any form of risk assessment.

How to improve the situation
I think that the best we can do to remedy the situation is for the Central Bank of Nigeria to compel the bank to set up a special fund from which leasing operators can borrow to support manufacturers.

This could be targeted at financing lease transactions to small and medium scale enterprises cross the country by which the banks will be constrained to earmark certain percentage of their earnings to finance leasing industry and this one way we can develop our economy.

Chances of ELAN partnering BoI
The Bank of Industry (BoI) already has a baby known as the Leasing Company of Nigeria (LECON), which is competing in the leasing market with us. It is being run and owned by Bank of Industry.