Leasing: a new option for microfinance institutions

This Technical Note is one of a series designed to showcase innovative microfinance programmes from the February 2000 conference on “Advancing Microfinance in Rural West Africa” conference held in Bamako, Mali. The Note presents leasing as a type of business financing that is well suited to the microfinance industry, providing clients with access to medium term capital for fixed assets.

There is an excellent section describing the basic principles of lease agreements, the different types of leases and the comparative advantages and disadvantages of leasing. There is also a useful summary of the differences between leasing and lending and a checklist of the characteristics of clients for whom leasing might be suitable. Some guidance is given on determining leasing costs and the minimum legal framework that is required for implementing leasing contracts.

The Note includes brief summaries of leasing programmes that have been implemented in Kenya, Madagascar and Bangladesh and reaches the general conclusion that leasing does provide MFIs with new opportunities to reach borrowers and expand into existing, untapped markets.

Related Resources