The leasing sub-sector of the financial sector remains the smallest in the country despite being one of the;oldest means of obtaining assets to undertake a project without necessarily owning them. According to the Bank of Ghana (BoG), as of End-December 2020, there was only one licensed Leasing Company in operation.
Total assets of the sub-sector, according to BoG, stood at GH¢59.59 million at End- December 2020, a 42.5 percent decline year-on-year over the value of the sector in 2019. The decline in the assets of the sector, BoG said, “was mainly due to the withdrawal of the license of one of the two leasing companies that operated in 2019”.
Bank of Ghana highlighted that the Non-Performing Loans within this sector remains relatively stable over the past two years. According to the Central Bank, the ratio was 9.9 percent at End-December 2020, same;as the figure recorded at End-December 2019. It is still not clear why most people do not venture into leasing in the country even though it plays;a significant role in the provision of capital and other assets at a relatively cheaper cost.
One of the reasons that may account for the small size of the sector is its profitability. However, the Bank of Ghana revealed that “the sector was fairly profitable, posting Return on Equity and Return on Assets of 11.3 percent and 6.9 percent respectively”.
Concept of leasing
A lease is an agreement in which one party (lessee) gains a long-term rental agreement for the use of some;fixed asset, and the other party (lessor), provides that asset and receives a series of periodic;contractual payments in return from the lessee.
In other words, a leasing company provides a physical asset or service for use by a commercial client;or individual for an established period of time in return for regular payments, known as financial leasing. In some instances, the arrangement may make room for the purchase of the asset at the end of the contract.
Aside the usual sources of obtaining credit such as from the commercial banks, savings and loans institutions;among others, leasing provides an alternative source of funding for businesses.
Leasing and SME financing
Leasing is particularly important for small and medium business enterprises that very often do not have sufficient;financial resources to purchase the necessary assets nor can they get bank loans at favorable terms. This means that SMEs in Ghana can resort to leasing to obtain some of their assets;since the cost of credit remains high in the country. Data from the Bank of Ghana show that the average lending of universal banks currently stands at 20.51 as of End-August 2021.
It is worrying that despite the numerous advantages of leasing compared to other asset financing methods, businesses or people still shy away from it in the country. Some advantages include simplified management and planning of current and future cash flows, better costs control, flexibility and ease of contracting, and tax treatment.
There is the need for measures to be put in place to encourage businesses, especially start-ups, to resort to leasing rather than direct purchasing of assets whenever it is profitable to do so. The Bank of Ghana also has a role to play in the survival of this important sector, otherwise, in no time, there wouldn’t be any licensed leasing company in the country.
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