Inside Politics

Why SMEs are embracing asset-based financing solutions

Thursday, September 24th, 2020 00:00 |
There are several opportunities right now in asset leasing, especially in machinery and inventories. Photo/PD/FILE

CREDIT: Asset-based lending, once considered a last resort finance option, is fast becoming a popular choice for small businessess that do not have credit ratings, track record or patience to pursue more conventional capital sources.

As traditional banks continue to pull back from lending to small and medium enterprises (SMEs) owing to their risky nature, micro finance institutions (MFIs) are now being urged to cast their nets as wide as possible to benefit from new opportunities springing from micro-leasing to boost revenues especially, during this pandemic period.

“There are several opportunities right now in asset leasing, especially in machinery, office equipment and inventories which are areas that most banks are yet to fully capitalise on, but at the same time offer opportunities to MFIs,” says Peter Macharia, a financial expert and the Chief executive of Jijenge Credit Ltd, a local micro lender.

Micro-leasing is a contractual agreement between two parties, which allows one party (the lessee) to use an asset owned by the other (the lessor) in exchange for specified periodic payments.

 The concept is already fast gaining popularity among SMEs keen to secure quick loans from flexible micro lenders.

Kennedy Omondi, the CEO of Electrinet Solutions, says these alternatives, which have low transaction costs compared to other loans as well as no additional security required are making a welcome contribution for the growth of SMEs seeking expansion options.

“It is among the fastest growing sources of debt finance and probably still the best route for companies seeking a very affordable, flexible option right now, which also allows them to secure significant funds for growth and expansion,” says Omondi – a major supplier of office equipment in Nairobi.

Movable assets

Asset finance is a product designed to facilitate financing of movable assets. The assets funded in Asset Finance include motor vehicles, school buses, construction equipment, and industrial equipment among others.

When a company leases for instance, cash is not tied up in equipment. Instead, money is available for opportunities such as marketing, working capital, investment or seasonal cash flow needs.

The company also saves 30 per cent corporate tax as a result of leasing and this gives it an ample peace of mind to concentrate on the core business of the organisation.

While banks can offer some relief to corporate and small business borrowers, there are few options to ease the pain for retail borrowers which is the current case for non-bank lenders and other financiers.

Kenya Association of Manufacturers CEO Phyllis Wakiaga said recently, urgently needs a credit guarantee scheme to protect SMEs from the impact of Covid-19.  

The call came just days before Cabinet approved the Sh10 billion Credit Guarantee Scheme which targets micro, small and medium-sized enterprises.

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