Leasing - An Underutilized Tool in Rural Finance
The objective of this paper is to examine the potential of leasing as a rural finance tool. The paper analyzes the utility of leasing for rural enterprises as a means to acquire equipment and reviews the experience of a cross-section of entities providing leasing in rural areas. Additionally, the paper provides an overview of leasing (types, advantages, risks, and enabling environment) and reviews World Bank and International Finance Corporation (IFC) experience in supporting development of the leasing sector. The paper concludes by providing recommendations for enhancing World Bank support to expand access to leasing in rural areas.
The paper makes four recommendations for World Bank involvement in enhancing access to leasing in rural areas of developing countries:
- First, the World Bank should increase the availability of information on the demand and supply of leasing (by banks and other institutions) in rural areas. Analytical work on rural finance should incorporate assessments of access to leasing;
- Second, the World Bank should incorporate operational support (technical and financial assistance) for leasing into rural finance projects and other projects that have rural finance components. Credit lines for rural finance should not discriminate between lenders and lessors, and projects with policy reform components should include reforms specific to leasing;
- Third, the World Bank should also consider creating, in cooperation with IFC, regional leasing development facilities to provide technical assistance for both policy reforms and leasing providers;
- Fourth, developing collaborative arrangements with other development agencies (such as the USAID and DFID) and development investors (such as the Netherlands Development Finance Company (FMO) and the German Development and Investment Company (DEG)) that have significant experience in supporting leasing development could also be beneficial. This could be done within existing and new projects.
