Enhancing the Leasing Enabling Environment - Economic Growth ...

PRIMER
The objective of this primer is to provide U.S. government program designers with a basic
technical understanding of lease financing as a sustainable approach to increasing access to
financial services, as well as practical tools to integrate best practices and lessons learned into
effective economic growth programming. This primer defines leasing and describes how lease
financing can stimulate economic activity through increased access to credit for SMEs and the
agricultural sector. The information presented is based on a review and analysis of existing
literature and resources, lessons learned, and approaches used to implement USAID and non-
USAID programs.
Section A provides an introduction to leasing and demystifies the complexity of the alternative
types of lease products. It compares a loan product to a lease and considers programming
application for the micro and agriculture market segments. It explores applications with Islamic
banking practices, vendor leasing models, and gives an example of how USAID’s Development
Credit Authority (DCA) credit enhancements can support leasing initiatives and further develop
sustainable private-sector financing models.
Section B discusses the legal and tax platform necessary for leasing to become an effective and
sustainable financial product. It identifies important elements needed within leasing legislation
and highlights how VAT and profit taxes affect the economic value of leasing. Section C
describes the enabling environment and alternative lease products that offer program designers
guiding principles for designing and developing leasing in emerging economies.
Section D presents three case studies of leasing interventions that are potentially replicable in
other developing economies. These case studies have been supported by USAID and other
donors in Africa, Asia, Russia, and the Caucasus, and include agricultural, SME, and microcredit
program models. The cases present different approaches used to stimulate leasing and represent
lessons learned from alternative interventions that program designers can build upon.
Section E summarizes how alternative approaches have been used and their lessons learned. Key
programming considerations and prerequisites for replication provide further guidance in
developing market interventions.
Annex A provides a diagnostic checklist and Annex B offers a model SOW to assist USG
programmers with evaluating the preconditions and options available to integrate leasing as a
viable financial product. Both are intended as practical tools for integrating lessons learned and
best practices. Annex C provides a glossary of leasing and financial terminology.
A. Introduction to Leasing
Leasing is a type of financing that provides a business with the use of equipment, not necessarily
ownership. The company (borrower/lessee) earns profits by using the equipment, giving them the
ability (i.e., cash) to make the lease payments. A financial lease is a three-party transaction
between the lessor, the lessee, and the supplier of the equipment. The lessee, which in