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.
MC: How does collaboration lead to success in this arena?
MH: Collaboration is key – not only at the strategic level, as between Credit Suisse and Swisscontact, but also on the local level. As mentioned earlier, the local lender, the insurer and the asset supplier engage in a partnership that forms the core of micro-leasing. Farmers also profit from technical assistance provided by the asset supplier or the associated service provider, for example on how to best tend to the cattle or how to maintain the flour mill. Farmers’ associations play an important role by supporting both the launch and replication of the model.
MC: Would you please describe a challenge you had to overcome?
MH: It is not easy to find the right partners – from financing to insurance to asset supply. However, when expanding into new countries, a bigger problem we ran into was that the demand for micro-leasing far exceeded the capacity of suitable local partner financial institutions. Swisscontact and Credit Suisse therefore had to come up with a strategy to address re-financing at an early stage of a project.
Manuel Hörl leads the Microfinance Capacity Building Initiative at Credit Suisse and will moderate a panel titled “Asset Financing at the BOP: Lessons from Micro-leasing” at European Microfinance Week.
This interview is part of a sponsored series on European Microfinance Week, which is held annually by the European Microfinance Platform (e-MFP). MicroCapital has been engaged to promote and cover the event on-site.
Sources and Additional Resources
European Microfinance Week 2017
MicroCapital Coverage of European Microfinance Week Since 2012
European Microfinance Platform (e-MFP) Coverage of European Microfinance Week 2016