Micro lenders advised to cast nets wide for new opportunities

Microfinance institutions (MFIs) have been urged to cast their nets as wide as possible if they are to benefit from new opportunities springing from asset-based lending options.

Since some banks, scaled-down lending to small and medium enterprises (SMEs) owing to their risk averseness – a host of other providers including digital lenders have emerged to cater to their debt finance needs.

And as a result opportunities in micro-leasing, for instance, are now emerging as a potential for MFIs keen on boosting revenues especially during this pandemic period, according to financial expert and experienced banker, Peter Macharia.

“There are several opportunities right now in asset leasing especially in machinery, office equipment and inventories which are areas that most banks are yet to fully capitalize on, but at the same time offer opportunities to MFIs,” says Macharia who is also the Chief executive of Jijenge Credit Limited.

Micro-leasing is a contractual agreement between two parties, which allows one party (the lessee) to use an asset owned by the other (the lessor) in exchange for specified periodic payments – with the concept fast gaining popularity among SMEs keen to secure quick loans from flexible micro lenders.

These alternatives, Macharia says are making a welcome contribution to growth company funding for SMEs seeking expansion options.

“It is among the fastest-growing sources of debt finance and probably still the best route for companies seeking a very affordable, flexible option right now, which also allows them to secure significant funds for growth and expansion,” Macharia says.

Growth businesses, according to Jijenge Credit CEO, have never before had so many choices in terms of financing or investment options to scale up.

A variety of attractive, alternative finance options have emerged over the last years such as state-backed SME debt funds like UWEZO fund, Youth Fund among others as well as those that have taken advantage of the advances in technology such as crowdfunding and peer-to-peer lending platforms.

Macharia says this is where alternative debt options have filled the vacuum – conventional mainstream banks and tech-based alternatives such as digital lenders like Zenka and Tala among others, now all offer to SMEs solutions for their growth needs, without having to surrender equity or accept tough terms from financial institutions.

“When you lease, cash is not tied up in equipment. Instead, money is available for opportunities such as marketing, working capital, investment, or seasonal cash flow needs. You save 30 per cent corporate tax as a result of leasing and this gives you ample peace of mind to concentrate on the core business of your organization,” he says.

Ordinarily, by contractual law, the lessor will be responsible if the leased equipment is lost, stolen or damaged but the leaseholder shall ensure that the equipment has the most comprehensive insurance and any monies not paid via insurance will be payable by the individual renting out the equipment.

The trend according to Macharia is likely to continue as most Kenyans continue to borrow to keep their businesses going – most of which have been hit by the coronavirus pandemic.

“With opportunities in leasing on areas such as property, vehicles, websites, stationery among others, I can only foresee a growing trend going forward,” says Macharia, whose firm’s core business is motor vehicle and asset financing.