Rural Leasing

Topic :

This paper notes that in rural areas enterprises access to long-term finance is often limited by a lack of acceptable collateral. It points to leasing as a financing tool that has the potential to address this market failure in rural credit. While traditionally, more common in urban centres, leasing overcomes many of the constraints to accessing medium and longer-term financing in rural areas. Leasing can allow businesses with limited collateral, cash and credit history to acquire productivity-enhancing equipment, while providing lessors with the comfort they need to take on rural and agricultural clients.

The value of an asset from leasing is assumed to come from its use as opposed to lending where the value of an asset stems from its ownership. Leasing is defined here as a contractual arrangement between two parties, where the provider (the lessor) owns the asset and lets the client (the lessee) use the equipment in exchange for periodic payment. Leasing comes in two main forms: finance leases and operating leases – finance leases are seen as close substitutes for term loans for financing asset acquisition whereas operating leases are similar to rental agreements.

This paper from the Rural and Agricultural Finance Initiative explores the benefits that developing leasing markets can bring to farmers and rural businesses – it discusses accessibility, duration, flexibility, processing time, taxes, ownership and regulation. It also addresses the constraints that must be overcome in developing a viable leasing industry, and interventions that can help overcome those constraints, drawing on the leasing literature as well as recent donor experience in this sector.

  • Resource type
  • Author Rozner, S
  • Organisation
  • Year of Publication2006
  • Region
  • LanguageEnglish
  • Number of pages7 pp.
  • EditionRAFI notes

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