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Leasing: Making small entrepreneurs realise their dreams
2006-05-16 07:12:16
By Guardian Reporter
Sewing machines, some over 100 years old, line up alongside piles of bright fabric. Posters of women wearing glamorous clothes are pasted to the wall and a weaving looms clanks in the back room.
It is a familiar sight in tailoring shops across Tanzania and in many other African countries, but what makes Qualicloth in the back streets of Kinondoni, in Dar es Salaam? special is that it is a business which is booming as a result of a little used financial product.
The owner of Qualicloth is Renalda Lema. Six years ago she put down a 35 percent deposit on a 4 million shilling reconditioned embroidery machine and then borrowed the balance.
But, instead of borrowing the money outright she was able to hire the machine from a company until she had fully paid for it, a process known as leasing.
’Leasing was the only way I could get the embroidery machine. It was impossible for a small tailoring business like mine to go to the bank to get a loan.’ The machine has, by Renalda Lema’s own admission, taken her to a ’new level’.
Her workforce has increased from two to 23 people and she is handling orders for batik clothes and woven cloths worth more than three million shillings a month from around the world.
And following Qualicloth’s success, other young women have come to Renalda Lema in the hope of being trained in both business planning and tailoring.
Leasing is not a new financial product, but there are only a handful of companies that offer the service in Tanzania. Selfina in Mikocheni B, Dar es Salaam is one of them.
It specialises in making loans to women only and since it opened for business in 2002 it has leased equipment to 3000 women entrepreneurs.
The lowest lease value is 75,000 shillings and the highest they have negotiated is 15 million for equipment ranging from simple sewing machines to trucks, from photo-copiers to maize milling machines.
Women wanting to be considered for the leasing scheme need to attend workshops, have a 20% deposit as well as two guarantors but most importantly they must have a sound business plan.
Victoria Kisyombe, Selfina’s managing director said: ’Leasing is popular with small entrepreneurs as it provides them with a way into business.
They understand the risks and are prepared to run those risks, that they will lose their deposit and the equipment they have leased if they fail to make their agreed monthly payments.’
Selfina is on track to lease equipments worth one billion shillings in 2006, but the demand is double that figure according to Victoria Kisyombe:
’We have many women who want to lease equipment for their businesses, but it is very difficult to raise more money from the banks due to the uncertain regulatory environment surrounding the leasing business.’
The law and regulatory framework for leasing has not grown alongside the fledgling industry. As a result there are a number of grey areas, for example the law regarding defaults and tax implications.
Not surprisingly the major banks are unwilling to step up their involvement in the market until a business friendly regulatory framework has been established by which the industry is governed.
The impediments in the regulatory and tax areas are now in the process of being tackled thanks to a technical assistance project supported by Swiss Cooperation.
Its Dar es Salaam office is spending USD 925,000 up to 2007 as part of an effort to make more leasing products available to small as well as larger businesses.
Swiss Cooperation’s Emmanuel Maliti said: ’Micro-leasing products play an important role in creating wealth and alleviating poverty, but before more small and medium-sized enterprises can take advantage, we need to make sure all the legal and tax uncertainties surrounding the industry are sorted out.’
It is expected that these uncertainties will be resolved by the end of the project in June 2007 and that the leasing industry will, as a result, double in value from its 2004 level of USD 32.5 million.
It may, however, require more than just a clear regulatory and legal framework to boost the leasing industry.
Bank lending interest rates of up to 23% mean that the money that leasing companies borrow to buy equipment for their customers is prohibitively expensive, an obvious brake on the market.
It is a predicament which is not lost on the chairman of the Small Industries Development Organisation (SIDO), Mike Laiser. SIDO runs its own over-subscribed hire-purchase or leasing programme. ’The terms for borrowing are too high. Interest rates must come down to make leasing more affordable.’
But even with low interest rates, leasing is not necessarily the right product for all companies according to Mike Laiser: ’It is not enough just to have more companies leasing equipments.
Business people, especially ones starting new businesses, need more support and advice on how to use that equipment to add value to their business.’
Back at Qualicloth in Kinondoni orders are being completed for a wedding dress and cushion covers.
The business is still expanding. Renalda Lema is extending her cramped workshop, she is also considering investing in modern threading equipment to replace the machine she fashioned out of a bicycle wheel and chain. And of course, she is considering leasing that new equipment.
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