News Column

MFIs Tipped On Leasing

September 3, 2014

Peterson Tumwebaze



The Association of Microfinance Institutions Rwanda (AMIR) has started training members on how to develop and handle lease products.

This comes ahead of the pending publishing of the new lease law that seeks to streamline and ease access to lease loans, especially by small borrowers.

Ghislain Cyizihiro, Umutangaha Finance Marketing manager, said selected microfinance institutions (MFIs) were receiving technical support from AMIR and Rabobank through De Lage Landen International experts.

Cyizihiro said the experts are training MFIs officials on how to develop micro-leasing products, documentation, equipment evaluation and other necessary procedures involved in lease loans.

Alberta Falduto, a German leasing expert and one of the trainers, said they want to find a more efficient way to help microfinance institutions develop more products to increase financial inclusion and make lease loans affordable.

According to the Minister for Finance and Economic Planning, Claver Gatete the law could be gazetted by the end of September.

Gatete said when the new law is published in the national gazette, it will enable small-and-medium enterprises (SMEs) and farmers access equipment to improve production processes. "Once the law is in place, SMEs will be able to acquire equipment and machinery at subsidised rates," Gatete noted.

About the new law

Under the proposed lease model, leasing firms will sale equipment to banks and only charge VAT on the leaseholder when they are paying for the machinery.

The bank will then lease the equipment VAT free (on lease payments) since the tax will have been paid earlier. Banks will only pay VAT on behalf of the lessee if they cannot afford it at the time they are buying the equipment.

A look at old lease law

The old law considers leasing as a service. As such, every lease operation is subjected to 18 per cent VAT. It subjected clients to double taxation; withholding tax of 18 per cent and 18 per cent VAT on lease loan repayments.

Bankers and AMIR said this was making lease products expensive compared to other loans, forcing them to lobby for review of the law.

According to Jean Baptiste Hategekimana, a microfinance consultant, the new law will help stimulate economic growth as more micro-entrepreneurs acquire equipment to start income-generating projects.

He however said lease products must be competitive, sustainable and profitable to attract customers.

Rwanda's leasing spend is about $60 million (bout Rwf42.3 billion); so, will the new law boost these figures when it is enforced?


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Source: AllAfrica


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