…Property-owning craze also to blame
By Ernest KISSIEDU
The leasing market appears to be in trouble with reported loss of interest as a lot of companies that provided leasing services to either individuals or organizations seemed to have moved out of the business.
Business Day Ghana investigations have uncovered that many of these companies are now engaged only in leasing of heavy equipment or have actually stopped providing leasing services.
A number of companies contacted by Business Day Ghana have indicated that they are no more into leasing. SDC Finance and Italtec Ghana Limited, both private companies, are examples.
However, they declined to give reasons why their respective companies no longer provide leasing services.
But Nii Noi Narh, Head of Operations of Leasafric Ghana Limited, confirms that that most of the indigenous leasing companies that set out in Ghana are struggling or have struggled and some of them are even not in business as a result of defaulting.
“There are lots of debts in their books which they are not able to recover,” he said.
This is reiterated by Mr. Nathaniel Asare, General Manager of McOttley Properties and Logistics, who diagnosed that leasing companies easily fold-up but currently in Ghana, most of them have moved from leasing to complete bailout.
Why lease?
For many people and corporate organizations, leasing is one sure way of either acquiring properties or securing logistics for undertaking all forms of projects and contracts.
People resort to leasing in very difficult or emergency situations where they are financially constrained and urgently in need of a bailout to carry out those tasks.
Many have been able to acquire cars, houses, equipment whilst others, through leasing services, have seen massive boost in their businesses.
Terms and conditions
With finance lease, one may have to contribute a 30 per cent of the prize of the item the leasing company is offering him or her.
It is a down payment. He or she pays the 30, and then the leasing company finances the remaining 70 per cent. The insurance on that asset will be in the leasing company’s name.
The company takes post-dated cheques as part of the conditions.
When it comes to operating leasing, there is an advance payment of rentals. It is not a down payment because you don’t own the equipment but you will pay to the leasing company two months advance rentals; so that in the event of a default, the company fall on the two months and recall its equipment.
The problem of capital
According to Asare of McOttley Properties and Logistics though some of the companies that have found themselves in difficulty also do pure rentals, the main challenge has to do with capital investments.
“In leasing, the one who is leasing will just be paying some minimal amount to cover operations and maintenance. All the liabilities are on the company.
“So, at the end of the period, the person would have gotten the benefits, you will have to pay additional investments to rejuvenate. You may not get the value you want. It means if you are not careful, over a strike in, you will be losing,” he noted.
“Now what they do especially for car is a partial leasing and bailouts. Once the person has taken a loan, he will be charged with some maintenance and some leasing fee in addition to the repayment, so that if he is able to service all-through, the car goes to him. If he is not ready to service it, then the company picks it up. By then it would have recouped some money; then sell the car. The company won’t lose.”
Besides, Ghanaians always want ownership more than leasing and they prefer to buy instead of lease, he indicated.
“If you lease, after repayment the asset does not become your own. Ghanaians always want to own rather than to lease. Usually, leasing is more of technical financially. You have to know the purpose for what you are doing and that will determine whether you need to lease.”
“There are some cases in which buying is not a good option. For instance, if you are doing a specialized project, maybe you need one machine for maximum a year, if the machine is expensive, then it is better you lease. This way, you are able to manage your cash flows and you will have monthly payment which is lower than normal lease and loans. It is more advantages to lease,” Mr. Asare stressed.
High interest rates
Meanwhile, Noi Narh of Leasafric Ghana Limited believes that the major challenge in the business of leasing in the country is that of high interest rates.
“We use the interest rate to derive the monthly rentals for our leases and if the interest rates are high, then it means cost of financing is also high; so it becomes higher for people who want to lease.”
“In the long run, they think that why lease when it is even easier to buy. Let me go and buy it straight. When he calculates the interest he is going to pay over the tenure of payment, he thinks that it is not worth going into that agreement (leasing),” he mentioned.
Noi Narh added that there is the lack of understanding of what leasing really does. “Leasing has so many advantages. Instead of tying up capital that you could have used to grow your business or other things, if you lease, it frees your capital so you can concentrate on your core business and then your money is free to do your business for you.”
According to the Leasafric head of operations, apart from finance leasing, many companies operate equipment lease and Leasafric is no exception.
“We have developed various models of leasing. People used to think that it is just consumer leases but now we are into operating leases where if it is equipment, we lease it to you and operate it for you.”
Defaults
According to Noi Narh, the rate of defaults in the business of leasing in Ghana is high. “Another major challenge I should say is default. There are high rates of defaults in leasing. People think that when you take money, once it is not your money, then you will not be committed to the repayment.
“And that’s a challenge in the industry. When the rates of defaults are high, then I’m tempted to recover my money from the next person who wants to lease. Those are a few challenges,” he cited.
Leaseafric Ghana’s adaptive measure, for instance, has been to shift from straight line finance leasing to introduce operating lease models. It has partnership with major telcos and other multi-nationals and in-country companies.
Enter the banks
For the Leasafric head of operations, the market is a bit challenging because some banks are also leasing.
“It’s a challenging market. Some banks are also into leasing as well. They have the license to lease and the banks will have more money than a leasing company. So they are a major competitor.”
In spite of these, Noi Narh described the leasing industry as a very viable one.
“It is a viable industry that, if we understand it very well and people who want leasing services keep honouring their side of the bargain, we can extend the leases to many more people. The more people fulfill, the less difficult it becomes for people to benefit from leases.”
