This document summarizes a market scoping study on agricultural leasing in sub-Saharan Africa conducted by Nathan Associates. The study examined the market systems supporting agricultural leasing across eight countries in the region. Key findings include limited penetration of agricultural leasing due to constraints on both supply and demand. On the supply side, financial institutions cite information asymmetries and risk concerns, while on the demand side, many farmers lack awareness, skills and resources. The document concludes there is potential to grow agricultural leasing through complementary interventions targeting different parts of the market system, such as raising awareness, improving access through reduced down payments, developing management information systems, and providing technical assistance and refinancing facilities.

1. AGRICULTURAL LEASING:
MARKET SCOPING STUDY FOR
SUB-SAHARAN AFRICA
Amalia Johnsson
Stewart Pirnie
Nathan Associates
MFWA Webinar May 2017

2. FSD Africa
Who are we?
• Established in 2012 by DFID, based in Nairobi
• A regional financial inclusion and financial sector development programme
• Aims to facilitate market system change across various financial sectors
Why agricultural leasing?
• Credit is a priority sector for FSD Africa – Africa needs more and better credit
• Leasing is a relevant form of credit for agriculture, but yet to take off
• FSD Africa commissioned this study to understand why this is the case...
• ...and what development organisations and others can do to promote growth
2

3. Table of contents
1. Setting the stage
2. Key Findings
3. Country Analysis
4. Conclusions and recommendations

4. Setting the stage
• Financial usage: How can leasing support agriculture?
• What are the pros and cons of leasing?

5. Setting the stage
Asset financing and lease finance are often perceived as
interchangeable, but the process is different:

6. Setting the stage
CORE FUNCTION
(DEMAND/SUPPLY)
SUPPORTING
FUNCTIONS
RULES
Distribution
Network
Fiscal/VAT
Issues
Obligations of
lessor/lessee
Legal
Environment
Regulatory
Environment
Marketing
of Product
Equipment
Suppliers
Equipment
Servicing
Spare
Parts
Financial Service
Providers
Farmers/SMEs
3. Key informant interviews from
stakeholders based on the market
systems approach, in country and
remotely
1. Country selection framework
2. Desk research on
agricultural leasing studies and
key country indicators
4. Analysis for key opportunities
and recommendations
ICT
Environment
Methodology: A market systems
approach

7. Table of contents
1. Setting the stage
2. Key Findings
3. Country Analysis
4. Conclusions and recommendations

8. Key Findings: Supply Side
Not all equipment is suitable for leasing, especially in nascent markets
• In many markets there is a mismatch between the type of equipment lessees require
and what lessors are prepared to finance.
Decision continuum for lessors

9. Key Findings: Supply Side
Information asymmetries are compounded in the agricultural leasing sector:
• Lack of information on potential customers is a barrier: i.e. ability to pay and ability to
maintain and service equipment.
• Financial Service Providers also cite their own lack of agricultural expertise as a major
barriers to agricultural leasing.
Risk remains a key concern for financial institutions and leasing companies
• Supply side actors require sizeable down payments to offset risk (policy, default risk,
extreme weather, commodity price fluctuations and market access)
Cost and access to funds is an additional constraint, especially for standalone
leasing companies
• Leasing is capital intensive and leasing companies often depend on financing from
commercial banks which can hold back growth
• Where commercial banks also provide leasing, they can often do so at lower cost
Despite these challenges financial service providers (FSPs),
notably in Ghana, are interested in increasing their exposure to
the agricultural sector if risks can be effectively shared/reduced

10. Key Findings: Demand Side
Effective demand in study countries is comparatively low:
• A large agricultural sector (in terms of GDP and employment) does not equate to large
demand for agricultural equipment, or equipment leasing.
• Effective demand is driven by size of farms, crop types, levels of market access, appetite
for productive investment as well as the structure of secondary agricultural sector.
Many farmers and SMEs are unfamiliar with leasing and lack the skills, resources
or motivation to adequately maintain equipment:
• Levels of financial capability and education are generally low and awareness of leasing
and its advantages is limited.
• The viability of a leasing product also depends on the lessee understanding and
fulfilling requirements to maintain and service equipment
Down payments remain a critical barrier to accessing leasing solutions:
• Although leasing does not require collateral, down payments (at 20-40% of asset value)
are often above the thresholds of what potential customers are able to pay

11. Key Findings: Supporting Functions
Basic support functions are in place across the study countries
• Study countries selected in part due to presence of major agricultural equipment suppliers,
as well as after sales services infrastructure (3S - sales, service, spare parts) infrastructure.
• Lack of financing options is a constraint in many study countries, holding back sales and
increased penetration by equipment suppliers in more remote rural areas.
Equipment suppliers can facilitate leasing but are not well placed to offer finance
directly
• Equipment suppliers can play a useful role in assessing the equipment needs of
farmers/SMEs
• Some suppliers have tried offering financing (payment plans etc) but generally this has not
been successful. Their business models, cash flow and risk management are not conducive
to providing finance.
“How many tractors will you sell
next year?”
“Is that with or without a leasing
solution?”

12. Key Findings: Supporting Functions
Innovations and ICT solutions so far do not address a number of core constraints
in the leasing sector
• Potential advantages of ICT in leasing include the possibility to make credit assessment
more efficient, generating better data to track performance of assets, or supporting
more efficient back office operations.
• A few models for integrating ICT into leasing already exist, but their ability to scale and
achieve commercial sustainability remain to be seen.

13. Key Findings: Rules and Regulations
A leasing law is not a necessary or sufficient condition for a supportive leasing
sector:
• Lack of a leasing law is not always a deterrent to the financial sector developing leasing
as a product.
• Leasing laws should ideally be simple but clearly constructed documents, including a
number of key components to allow for a transparent process.
• Political economy is also an important determinant of whether the regulatory
environment is conducive to leasing
It is not always clear who is best placed to regulate the leasing sector and
different solutions exist across the study countries:
• In Uganda, independent leasing companies are not regulated while those operating
under commercial banks are regulated by the Central Bank.
• In Kenya and Zambia, banks and leasing companies are both regulated by the Central
Bank.
• In Ethiopia operating and finance leases are regulated by different entities, the Ministry
of Trade and National Bank of Ethiopia respectively

14. Table of contents
1. Setting the stage
2. Key Findings
3. Country Analysis
4. Conclusions and recommendations

15. Country Analysis
In the near term Ghana, Kenya and Zambia show the strongest potential for agricultural leasing

16. Table of contents
1. Setting the stage
2. Key Findings
3. Country Analysis
4. Conclusions and recommendations

17. Conclusions
• Limited penetration: Agricultural equipment leasing remains very limited in
the eight study countries, though the sector is growing, notably in Kenya and
Uganda.
• Constraints at core level: Constraints to growth for leasing exist at all levels of
the market system but especially at the level of supply and demand
• Good opportunities exist: The potential to use agricultural leasing to improve
mechanization and strengthen access to finance exists in a number of
countries, though leasing is not appropriate in all instances or with all
customers.
• Considerable scope to grow: Agricultural equipment leasing tends to be a
preferred form of finance in many developing markets with well developed
financial and agricultural sectors.
• Complementary interventions: Effective interventions should re-inforce one
another by targeting several parts of the market system.

18. DEMAND/SUPPLY:
SUPPORTING
FUNCTIONS
RULES
Distribution
Network
Fiscal/VAT
Issues
Obligations of
lessor/lessee
Legal
Environment
Regulatory
Environment
Marketing
of Product
Equipment
Suppliers
Equipment
Servicing
Spare
Parts
Financial Institutions
/ Leasing Companies
Farmers/SMEs
ICT
Environment
Recommendations

19. Recommendations
Five ways to strengthen the core functioning (demand/supply) of agricultural
equipment leasing:
Encouraging Demand:
1. Raise awareness of leasing via targeted initiatives at different levels of the market
systems (farmers, financial service providers, suppliers)
2. Make leasing more affordable through a fund aiming to offset the credit risk faced by
leasing companies, in effect lowering down payments.
Facilitating Supply:
3. Develop an MIS solution to facilitate provision of leasing services. An effective platform
would provide better information on business performance and improve reporting,
strengthening operational efficiency
4. Provide technical assistance (TA) to financial service providers improving their
understanding of agricultural leasing and putting in place appropriate systems and
procedures.
5. Create refinancing facilities that can provide access to long term, affordable finance
and support leasing company growth

20. Q&A

21. THANK YOU
Contact details:
Amalia Johnsson
ajohnsson@nathaninc.com
Please find the full report here