The wide financing gaps in all sectors of the economy has increased the relevance of leasing to capital formation in the economy, accounting for growth in the sector. A recent report released by the Equipment Leasing Association of Nigeria, ELAN shows a 14.5% increase in leasing volume to N1.44trillion in 2017, up from N1.26trillion in 2016.
According to the report, the reasons for the continued upward trend witnessed in the industry during the period under review include: increasing lease demand, new entrants into the leasing industry and increased value of assets, due to the depreciation of the Naira.
Analysis of the volume by sector revealed that the Oil and Gas sector is leading with N449billion, representing 28 percent of the total portfolio, while transportation followed closely with N355billion, and representing 20 percent. Manufacturing moved to N217billion from N180billion in 2016, while Agriculture, Government, Telecommunications and other sectors (education, healthcare, construction and consumer sectors) recorded considerable growth.
As usual, finance lease remained the predominant type of leases accounting for 65 percent of the transactions while operating lease continued to make strong showing at 35 percent. In recent times there has been increase in the market share of operating lease due to its growing popularity among lessors as a risk mitigating mechanism against default and response to current market dictates, especially from corporate customers who require service-oriented lease.
In terms of transaction value, banks still maintain the lead, particularly financing big ticket leases, and providing funds to lessors for lease transactions. The non-bank lessors however accounted for about 80 percent of customer base mainly from the Small and Medium Scale Enterprises (SMEs). The industry continued to attract investors from the financial and other sectors desiring to tap into the opportunities in leasing and as means of hedging against other non-performing product offerings.
Also, in terms of assets categorisation, vehicles take the lead with about 52 percent of the leased assets including trucks for haulage and buses for inter-state commercial transportation, which have been a major attraction in recent times.
Another reason the sector should be considered by investors is that market projections indicate that the leasing industry will continue to blossom, especially as financing gaps continue to widen in all sectors of the economy.
Most banks have really slowed down in lending generally and the trend may not change soon. Access to finance is tough especially to MSMEs, which means that leasing will remain an important alternative for businesses, hence, an important business opportunity in the economy.
