managing risk.pdf

Managing Risk and Creating Value with Microfinance83with support from the Inter-American Development Bank (IADB). 5 The purpose of ANED’s microleasingprogram is to improve access to medium- and long-term financing, according to the productive and investmentneeds of the microbusiness sector. Equipment and machinery made available by ANED’s microleasing programinclude farm implements; machinery for carpentry shops, bottling plants, and energy; and equipment for smallindustry (such as welders and compressors). Drawing on its experiences to date, ANED is expanding theprogram to meet its clients’ demand for livestock.ANED has assessed the advantages and problems of financial leasing. The advantages include (1) elimination ofguarantees, (2) the availability of a long-term financial arrangement, (3) a payment schedule that fits the firm’scashflow, and (4) lower transaction costs. ANED recognizes only two disadvantages to microleasing: those relatedto taxation and property. There is a 13 percent tax on value added, a 3 percent tax on interest payments, and another3 percent tax on the purchase at the end of the lease.ANED’s leasing program resolves the problem of inadequate or no guarantees. It incorporates productivetechnology and supports and strengthens the credit products already available. The leasing program hasultimately led to the establishment of strategic alliances among providers and, ultimately, has improved thesupply of machinery and equipment. Finally, it strengthens the relationship between the small producers andthe farmers, who were not originally seen as a potential market. ANED’s Web site provides information onneeded equipment across the country to enable businesses and suppliers to carry out transactions efficiently.Finarca: Leasing to micro and small businesses in NicaraguaIn 1997, Finarca launched its leasing operations in Nicaragua as the first leasing company licensed by theSuperintendency of Banks and Other Financial Institutions. 6 The International Finance Corporation (IFC)helped with technical assistance and investment capital. 7 The company evolved quickly after 2000, when theSuperintendency permitted it to offer a range of financial services, including working capital loans, consumerloans, housing finance, and letters of credit. Three years later, Finarca’s success in leasing and lending attractedthe attention of Corporación Interfin, which initially bought 25 percent of Finarca’s shares (later purchasinga total of 51 percent). Later, Scotia Bank of Canada acquired Corporación Interfin and eventually took soleownership of Finarca as well.Finarca has grown in two directions: (1) it expanded its range of leases, and (2) it moved into rural parts ofNicaragua to find new clients. With assistance from the IADB, Finarca recently launched a new program to leaseequipment (tools, machinery, and other productive assets) to at least 300 microbusinesses and small enterprises.The client firms can have up to 15 workers and US$20,000 in total assets. The maximum financing ranges fromUS$3,000 to US$8,000, with maturities from 12 months to 48 months and with commercial rates of interest.Eligible projects and products for leasing include industrial machinery, warehouse equipment, vehicles, hoteland restaurant supplies, tractors and agricultural machinery, photocopiers and other office equipment, andcomputers and communications equipment. As of June 2008, Finarca had a portfolio of US$18.8 million inleases, representing 85 percent of its total assets.5. See IADB (2009a) and National Ecumenical Development Association, http://www.aned.org.6. See Financiera Arrendadora Centroamericana, S.A., http://www.finarca.com.7. The IFC has worked with financial institutions with leasing products in a variety of countries in Africa, Central Asia, EasternEurope, Latin America, and the Middle East.