Welcome back to… - Central Bank of Seychelles | Home Two presentations... · Welcome back to … Seychelles ... Seychelles: Global leasing toolkit Jonathan Gigin, Program Manager,

SEYCHELLES LEASING

INVESTMENT FORUM “Unlocking access to finance, investment and economic

growth through leasing for MSMEs”

12-13 APRIL 2017

Savoy Resort - Mahé, Seychelles

Welcome back to…

Seychelles Leasing Investment Forum

12-13 April 2017 Mahé, Seychelles



Coming up… Session 4

09:15 – 11:00 Doing Business in Seychelles,

Opportunities and Challenges Overcoming challenges for investors and businesses: growing the leasing

market and partnerships for skills development

Alejandro Alvarez de la Campa, Manager, Finance and Markets,

Africa, IFC

Making leasing attractive in Seychelles: incentives for lessors, lessees,

suppliers and government in making businesses attractive for leasing

Kailash S. Ramnauth (Satyam), Country Manager for Comoros,

Madagascar, Mauritius and Seychelles, IFC

Opportunities and challenges for leasing

Dr. Steve Fanny, Principal Secretary, Department of Investment &

Industries

The Sri Lankan experience

Chandika Hettiarachchi, International Leasing Expert & Trainer (Sri

Lanka)

Moderator: Pamela Charlette, Principal Secretary, Entrepreneurship

Development & Business Innovation

PANEL DISCUSSION





Coming up… Session 5

11:15 – 13:00 Resources for the Way Forward

Adopting best practice models to make leasing work in the

Seychelles: Global leasing toolkit Jonathan Gigin, Program Manager, Africa Leasing Facility, IFC

Long term financing for leasing: the venture capital option Olivier Deiters, Investment Officer, Triple Jump B.V. (Kenya)

Agrileasing and microleasing Coy Buckley, CEO and Managing Director, EFTA (Tanzania)

Gilbert Port Louis, Principal Officer, Agricultural Extension Services

from Seychelles Agricultural Agency (SAA)

Financing renewable leasing equipment Tibor Kludovacz, Industry Specialist, Climate Business, IFC

Errol Renaud, Principal Officer, Tariffs and Economic Affairs Unit,

Seychelles Energy Commission

Moderator: Bertrand Belle, Economic Advisor the President of the

Republic of Seychelles

PANEL DISCUSSION



CONCLUDING REMARKS JENIFER SULLIVAN

SECOND DEPUTY GOVERNOR,

CENTRAL BANK OF SEYCHELLES



THANK YOU.

NB: A link for all slide presentations will be

shared with you after the Forum via email.

Kindly ensure you have noted your email

address during registration.

ALEJANDRO ALVAREZ DE LA CAMPA

IFC MANAGER, FINANCE AND MARKETS, AFRICA

OVERCOMING CHALLENGES FOR

INVESTORS AND BUSINESSES: GROWING THE LEASING MARKET AND PARTNERSHIPS

FOR SKILLS DEVELOPMENT

Seychelles Leasing Investment Forum 12-13 APRIL 2017 Mahé, Seychelles



Photo credit: Romano Laurence, Seychelles News Agency

TABLE OF CONTENTS

Challenges to investing in

the leasing sector:

Lack of awareness

and assessing

demand

Determining best

market approach

Dependency on easy

access to cash

Challenges for local

businesses interested in

leasing

Increasing

awareness

Incentives for growing the

leasing sector

Partnerships for skills

development



CHALLENGES TO INVESTING IN THE LEASING SECTOR

Lack of awareness and assessing demand

Although leasing is normally the favoured option (especially within the

SME sector) for asset acquisition, if the potential customer base is

unaware of the features and benefits of leasing, then there will be no

demand

Potential lessors must invest in creating awareness of the leasing

product by creating a marketing campaign that is focused on the

business sectors in which the lessors would like to operate




Determining the best market approach

Emphasizing the simplicity of financial leasing

Determining if it should be sold as a banking product or as a stand-alone

leasing company

Both approaches work but it is good to note that the largest non-

vendor leasing companies in the world are all subsidiaries of banks.




The leasing business is dependant upon easy access to cash to acquire

assets.

Common refinancing challenges and questions:

Can a bank provide all of its leasing subsidiaries’ needs?

Can leasing be offered in hard currency?

Are there local sources of local currency funding?

Are there any thin capitalisation issues?

Is there a minimum capital requirement?

Is it sensible?

Tax challenges and questions to consider:

Is there corporation tax?

Is there fiscal depreciation?

Is there special VAT treatment?

Can it be offset?

Can it be reclaimed?



CHALLENGES FOR LOCAL BUSINESSES INTERESTED IN LEASING

Understanding the leasing product

Raising awareness for potential lessees

Building capacity of lessors

Increasing the knowledge base for accountants and fiscal authorities

Common questions surrounding:

VAT treatment

Required credit information potential lessee must supply to lessor

Policy with respect to down payments to lessor

Types of assets most suitable for leasing



GROWING THE LEASING SECTOR

Incentives

Leasing provides access to finance for businesses that have little collateral

to pledge.

The leased asset provides the security required by the lessor as (s)he is the

legal owner of the asset.

A vibrant leasing sector helps grow the economy.



PARTNERSHIPS FOR SKILLS DEVELOPMENT

Partnership is key to understanding industry best practices and building capacity

necessary to create a flourishing local leasing market.

Lessors benefit from gaining exposure to established leasing companies in

other parts of the world.

Experienced “local” leasing consultants provide assistance using local

knowledge.

International consultants provide assistance using knowledge gained and

used worldwide.

IFC shares global best practices.

External investors bring their knowledge and experiences.

Equipment and vehicle vendors know that every purchasing decision is a

financing decision, so they also have experience to share.



Photo credit: Joe Laurence, Seychelles News Agency

CONTACT INFORMATION

Alejandro Alvarez de la

Campa

IFC Manager, Finance and

Markets, Africa

[email protected]

KAILASH SHARMA RAMNAUTH

IFC COUNTRY MANAGER FOR COMOROS,

MADAGASCAR, MAURITIUS AND SEYCHELLES

MAKING LEASING ATTRACTIVE

IN SEYCHELLES: INCENTIVES FOR LESSORS, LESSEES, SUPPLIERS AND

GOVERNMENT





TABLE OF CONTENTS

Making leasing attractive in

Seychelles

Incentives for lessors

Incentives for lessees

Incentives/key

requirements for

suppliers

Incentives/benefits for

government



MAKING LEASING ATTRACTIVE IN SEYCHELLES: A HOLISTIC APPROACH

A holistic approach which considers all involved parties:

Lessor

Lessee

Supplier

Government



INCENTIVES FOR LESSORS

Given the underlying goal is the ability to make a profit, or incremental profit,

lessors benefit from:

Fair tax treatment

Sensible, if any, thin capitalisation rules

Full recovery (i.e. not offset) of net input VAT

A safe environment in which to operate, including:

Access to reliable credit information

Understandable tax environment

Sensible (IAS) accounting requirements

Access to trained staff

Enabling legal environment

Sound leasing law, including recognition of legal ownership of

asset

Quick court procedures (in event of repossession)

Sensible regulatory environment

Minimal supervision (recognising that lessors are non deposit

takers)

Sensible reporting requirements

Sensible licence requirements

Sensible (if any) MCR

Trained supervisors



INCENTIVES FOR LESSEES

Lessees benefit most from:

Simplified tax rules

Corporation tax treatment

VAT treatment

Recognition of user and possession rights

Sound leasing law

Quick service from lessors

Quick credit decisions

Quick payout of supplier invoices

Easy documentation

Competitive pricing

No additional collateral requirements

Sensible down payment policies

Fast, simple, low-cost court system in the event of dispute with lessor



INCENTIVES/KEY REQUIREMENTS FOR SUPPLIERS

Suppliers benefit most from:

Availability of point-of-sale (POS) finance

Finance facilities that may be offered at point-of-sale either by supplier’s

staff or dedicated personnel from the lessor

Easy leasing documentation

Availability of wholesale finance

Financing provided by lessor to supplier (similar to an overdraft facility)

that is used by the supplier to buy stock from the distributor

Finance training for all sales staff provided free of charge by lessor

Simple tax treatment of leases for lessee, which makes product easier to sell

Good POS marketing materials



INCENTIVES/BENEFITS FOR GOVERNMENT

Government benefits most from:

Increased tax revenue from an improved economy benefiting from a vibrant

leasing sector

Reduced unemployment

Developed MSME sector with access to finance, which is not dependant upon

collateral




CONTACT INFORMATION

Kailash Sharma Ramnauth,

IFC Country Manager for

Madagascar, Mauritius and

Seychelles

[email protected]

© CHANDIKA HETTIARACHCHI






SRI LANKA AND THE LEASING MARKET

• Leasing was 1st introduced to Sri Lanka in the early 80s

• Partnership between IFC, Orix Leasing Japan and Lanka Orix Leasing

Company.

• Before the 80’s Hire-purchase was the only mode of financing assets.

• Population - 20 Million

- 25,500 SQR Miles

• Leasing Volumes - $ 1.6 Billion (2016)

• Leasing Providers - 64 - 47

• Micro Leasing - 50% (No of Cont.)

• 70% of the leases are granted to the rural areas.




• The IFC initially approached banks, and they were very slow to react

• Formed a leasing company

• Few NBFIs, followed

• Banks were still reluctant to offer leasing

• The NBFIs were thriving on leasing business

• Since banks were not offering leasing, they started loosing their clients to the

NBFIs

• Banks started to offer leasing purely to retain their clientele

• Banks realized the opportunity in leasing and started offering leasing to the

bankable (A grade) clientele aggressively.




• Increased competition and the NBFIs were compelled to target the 2nd tier (B

Grade Clientele)

• Increased competition among the B grade clientele as banks decided to get

in to the this segment

• NBFIs were compelled to target the MSME sector (Increased access to

finance)

• There was no leasing act from the inception in early 80s to 2000, until the

leasing act was enacted in the year 2000

• Before the introduction of leasing, asset financing was done through hire

purchase, hence repossession was practiced

• Unfortunately Leasing of equipment has been minimum throughout the last

30 years



• Main reason being the non availability of an movable asset registry, financial

interest of motor vehicles were registered at the registrar of motor vehicles.

• 95% of the assets financed were motor vehicles

• The major driving factor for financial institutions was that the capital allowance

benefit was given to the lessor instead of the lessee. This motivated the financial

institutions to grow the leasing portfolio.

• As per IAS 17, the general accepted principle is that the capital allowance is

given to the lessee.

• The capital allowance factor incentivized the financial institutions to take

additional risk by going in to new client segments to grow the lease portfolio.

• This fueled the growth of the leasing industry and increase access to finance at

MSME levels.

Footer



12-13 April 2017 Mahé, Seychelles Footer

ACCOUNTING AND TAX (LESSEE CLAIMS CA)

Lessor – Finance Lease

Interest is recognized as income

Cost is shown as an asset (lease stock)

Capital repayments are deducted from lease stock

Net interest income is recognized as income for taxation

Lessor – Operating Lease

Rental is

treated as income. Annual depreciation is charged.

Capitalized and depreciated

Rental is

treated as

income.

Depreciation is

an allowable

charge.

P & L Balance Sheet Tax

ACCOUNTING AND TAX (LESSOR CLAIMS CA)

Lessor – Finance Lease

Interest is recognized as income

Cost is shown as an asset (lease stock)

Capital repayments are deducted from lease stock

Rental income is assessed as income for taxation.

Depreciation is

an allowable

charge

Lessor – Operating Lease

Rental is

treated as income. Annual depreciation is charged.

Capitalized and depreciated

Rental is

treated as

income.

Depreciation is

an allowable

charge.

P & L Balance Sheet Tax

TAX LESSEE CLAIMS CA

Period Year 1 Year 2 Year 3 Year 4

Interest Income

146,189

112,787

73,630

27,728

Interest Cost

90,369

67,962

43,209

15,864

Net Interest

Income

55,820

44,825

30,421

11,864

Total Taxable Income

(4 Years)

142,929

TAX – LESSOR CLAIMS CA

Period Year 1 Year 2 Year 3 Year 4

Rental Income

340,083

340,083

340,083

340,083

Capital

Allowance (25%)

(250,000)

(250,000)

(250,000)

(250,000)

Interest Cost

(90,369)

(67,962)

(43,209)

(15,864)

Taxable Income

(285)

22,121

46,874

74,219

Total Taxable Income

(4 Years)

142,929

MICRO LEASING - SUCCESS

• Move away from traditional way of evaluating credit • Acceptable products (Equipment) • Good 2nd hand market • Affordable and economical • Competition • Taking leasing to the door step • MIS and recoveries

• Non performing leases – Big ticket leases 5.1% Micro leases 1.9%




CONTACT INFORMATION

Chandika Hettiarachchi

General Manager – Marketing & Product Development

Central Finance Co. PLC

Colombo 2

Sri Lanka

International Leasing Expert and Trainer

Email – [email protected]

Phone - +94777698664

+94775783313

mailto:[email protected]

JONATHAN GIGIN

SENIOR FINANCIAL SECTOR SPECIALIST

FINANCE & MARKETS – WORLD BANK GROUP

ADAPTING BEST PRACTICES MODEL

TO MAKE LEASING WORK IN

SEYCHELLES

GLOBAL LEASING TOOLKIT:

A STRATEGIC TOOL FOR LESSORS




A 40 Year Commitment to Leasing

A Core Component of WBG’s Financial Markets Strategy

Increase access to financing to small & medium businesses

Broaden the range of financial services available in EMs

A Historic Focus Area

Financed 239 leasing projects in 60 countries for $1.62 billion

over 40 years

IFC has participated in the set-up of the first leasing company in

30 countries

Set-up or improved leasing regulations in 96 countries

IFC has operated 60 leasing advisory projects across the globe

with $30 million of its own funding leveraged with donor funding.

Legal & regulatory support, market research, institution building,

public awareness, promotion of local and foreign investment



Strategic Focus

Support WBG/Global Strategic Priorities

IDA Focus, frontier/post conflict Markets

Climate change agenda through sustainable energy financing

Global food crisis agenda through agri-business financing, etc.

Develop Sustainable Financing Products

Micro, Small and Medium Enterprise financing

Energy efficiency, clean production and renewable energy lines of

credit

Agriculture equipment financing,

Islamic Finance, gender, etc.



Global Leasing Toolkit

A comprehensive working manual to

provide a practical guide to manage

and operate a leasing entity targeting

the SME market

Universally accepted principles and best

practices

Targeted at bank and non-bank financial

institutions

MFIs, equipment vendors, private equity inst.

Draws on IFC’s 35 years of experience

supporting equipment leasing entities

in emerging markets

Team of experienced IFC staff, diverse

backgrounds and regions

Practical experience of external leasing

professionals

A practical guide to entities engaging

in the SME equipment leasing business



Why the Global Leasing Toolkit?

Core Component of IFCs FM Strategy Increase SMEs access to finance

Broaden range of financial services in emerging markets

SME business development, build profitable SME leasing portfolio

Term financing, unique structure to help SMEs invest in income

generating assets

Flexible unsecured financing, does not require additional collateral nor

lien arrangements

Cash-flow financing, credit methodology focused on cash-flow

generation capability of asset

Support real sectors, strategic priority areas such as the food security

and climate change agendas



Why the Global Leasing Toolkit II?

Four Emerging Market Needs 1. Improved financing availability

Availability, term structure, price

2. Information about the benefits of leasing

SMEs unaware/do not understand benefits

Limited ability of FIs to explain benefits of leasing to SMEs

3. Industry constantly evolving in response to new market opportunities in

emerging markets

Agricultural equipment leasing

Sustainable energy equipment leasing

Islamic finance

4. Need to adapt to local conditions

How principles and best practices are applied in different regulatory and

supervisory regimes in use around the world



The “Life Cycle” Concept

Life Cycle of a Leasing Entity Life Cycle of a Leasing Transaction

Inception

Capital

/Funding

Initial

Organization

Start-Up

Operations

Origination

Credit Evaluation

Processing Closing

Servicing



Practical Tools and Case Studies

Over 80 practical case

studies and examples

applicable to emerging

markets

Funding

Marketing and Sales

Lease Mathematics

Risk Management and Credit

Insurance

Lease and Leasing Entity

Accounting

Information Technology (IT)

Lease Pricing Tools

Sample Lease Documents

Policies & Procedures Manual

Available on interactive CD Rom

Case Study: Rift Valley Manufacturing—Kenya

Rift Valley Manufacturing in Kenya wants to lease production equipment,

including lathes, drill presses, and other machine tools. The equipment cost is

$100,000. The lessor determines that the auction value of this equipment at

the end of the first year of the lease will be 60 percent of the original price; at

the end of the second year it will be 40 percent, and at the end of the third

year it will be 20 percent.

Lesson Learned. For the lessor, the first 12 months of the lease term presents

the highest level of risk. The net lease balance is high, and the equipment

depreciates rapidly. To be conservative, the lessor will consider the equipment

to be worth 60 percent of original cost at the beginning of the lease, thus

reducing the lessors exposure to $40,000. The lessor may feel the lessee has

enough resources to protect the lessor against the loss of $40,000, but if the

lessee’s credit is poor the lessor will ask for additional collateral in the form of

a security deposit, a security interest in some other equipment owned by the

lessee, or even a cash down payment.

If the lessor is owned by the manufacturer of the equipment, it may consider

its exposure to be based on the wholesale cost, not the retail price. If that is

the case, the only risk is the manufacturing profit, and the lessor may be

willing to provide the lease to a company that has a poor credit rating without

additional collateral. Some collateral lessors make it a policy to require

additional support with every transaction, most commonly two times the cost of

the new equipment.



BASE TOOLKIT

Creating & Operating a Leasing Entity

Funding a Leasing Entity & Funding a Lease Transaction

Lease Production

Marketing & sales

Leasing mathematics

Lease Processing

Credit & risk management

Documentation, insurance & monitoring

Lease Entity Operations

Accounting & information technology



The Focused Toolkits (FTKs)

Four Focused Toolkits

Practical information on three specialty

markets expected to account for major

leasing industry growth in EMs

Agricultural equipment leasing

Sustainable energy equipment

leasing

Islamic finance

The 4th Focused Toolkit

Leasing under various legal systems

and regulatory & supervisory regimes

FTKs not designed to be used as stand

alone toolkits

Principles and best practices discussed in

base toolkit applied to each FTK

Base toolkit sets out fundamental

techniques and methods



Agricultural Leasing Focused Toolkit (FTK)

Farmers obtain equipment to improve productivity, reduce waste, and

adopt sustainable methods

Variety of specialized approaches applicable to Agri-leasing

Draws on general principles governing leasing

Equipment Used by Farmers and entire Value Chain

Agricultural Leasing and Conventional leasing

Lease Types & Structures Common to Agri Equipment

Pricing Calculations for Agri Leases

Agricultural Credit and Underwriting Considerations in EMs

Documentation of Agricultural leases

Role of Insurance in Agri Leasing

Leasing Irrigation Equipment



Beneficiaries - Global Leasing Toolkit

Cover All Aspects of Leasing Operations

Potential Beneficiaries include All Stakeholders: Leasing Professionals

Financial Institutions considering entering the leasing industry

Equipment Supplies interested in offering leasing to facilitate equipment

acquisition

Regulators and Supervisors

Development Banks



Conclusion

Toolkit is best if used to complement range of investment and

advisory services provided by IFC.

Leasing is an effective tool to support investments in productive

real sectors e.g. agribusiness equipment across the value chain,

infrastructure, sustainable energy finance, etc.

Play a key role in increasing access to finance for SMEs/ rural areas

Leasing will continue to play an integral role in IFCs strategy given

the significant potential in financial and economic development,

private sector growth.




Jonathan Gigin

Africa Leasing Facility II,

Dakar – Senegal

Email: [email protected]

OLIVIER DEITERS

TRIPLE JUMP

(LONG TERM) FINANCING FOR LEASING


Founded by ASN Bank, the largest Dutch

ethical bank and Oxfam Novib and

Company management

Our vision: “Triple Jump envisions that a

responsible and inclusive financial

sector will enable people to unlock their

potential and improve quality of life”

Current shareholders: 23% ASN Bank,

23% Oxfam Novib, 23% NOTS Impact

Enterprises, 31% owned by TJ Staff

Strong regional presence: 70+ staff based

in Europe, Latin America, Africa and Asia

Triple Jump at a glance

Total AuM of EUR 675 million, 152 investee

companies in more than 60 countries

Several mandates and Investment Funds

under management (Open ended, LCY

possible)

Robust investment track-record (10 yr)

Expertise in investing in FI’s, Leasing

companies and SME’s

Technical Assistance program

Mandates, Funds, Track record

2

Triple Jump at a Glance

3

Development Triple Jump portfolio in AuM

2012 2013 2014 2015 2016

AUM EUR

322M

EUR

339M

EUR

475M

EUR

515M

EUR

675

Number of investees 177 163 168 149 152

Average exposure per investee EUR

1.6M

EUR

1.6M

EUR

1.6M

EUR

2M

EUR

3M

284 307 322 339 475 515

675

0

100

200

300

400

500

600

700

800

2010 2011 2012 2013 2014 2015 2016

AuM, in EUR million



Our Regional Presence



Our Investment Solutions

– ASN-Novib Fund Supports Finance institutions (FIs) in developing countries by providing equity/loans to

FIs that focus on underserved Micro/SME markets

– Dutch Good Growth Fund (DGGF) Financing local small and medium-sized enterprises(SMEs) in up to 68 countries

through investing in Intermediary Funds or directly in FI’s

– Oxfam-Novib mandate Supports high potential and high impact financial service providers (FSPs) in

developing countries that focus on underserved markets and target specific groups

(for example: rural communities and women borrowers)

– MicroBuild Fund Supplies debt capital to financial service providers that specifically offer housing

solutions to low-income end-clients

– Triple Jump Innovation Fund Provides loans to FSPs that offer rural and agricultural finance, operate in difficult

countries and/or offer innovative products & services to those at the Base of the

Pyramid

Investments Triple Jump – Take Aways

• Investment: Banks and Non-Bank FIs

• Structured: debt, subdebt, equity or guarantee

• Flexibility: Local currency, different tranches & term (Equity: ~5-7 yrs, Debt: along lease term)

• Range: from typically from 1M-10M EUR (Equity 3-7 M)

• Debt Exposure: ~20% of total lease book portfolio

• Equity Stake: 15%-30%

• With the different funds’ mandate: invest different stages of FIs - from early stage (with a view to

becoming profitable) to (more) mature FIs

• Aligned vision to sustainably serve underserved markets (eg Micro/SME)

Investments Triple Jump – Take Aways (2)

What are our investments in Africa and Leasing Companies?

Currently 39 investee companies in Africa, spread over +20 countries

Currently 4 investee Leasing companies: Georgia, Sri Lanka and Costa Rica (2)

Discussions (at different stages) are ongoing with Leasing Companies in Africa

What are the challenges Leasing Co’s face in raising funding?

In need of local currency financing facilities

Pricing not comparable to FIs (not leasing), often higher for leasing companies.

Leasing Companies do not have a local deposit base

Lenders to traditional MFIs/FIs are developing experience in lending to leasing

companies

Pool of available capital is small, but growing

Funding Challenges - Leasing Companies

Do Impact Investors have appetite to invest in Leasing COs? YES

Funds under management are growing

Many are looking to diversify their investment portfolio (traditionnaly more

geared towards Micro/SME Banks)

Impact in investing in a (equipment) leasing company focused on MSME, is

undeniable

… there might also be some challenges though:

Impact Investors Appetite

Leasing industry - nascent: leasing in many countries in Africa is characterized by

absence of favorable operating environment since the taxation, regulation and legal

regimes might not yet be adapted to the sector’s requirements

Leasing Companies, sometimes:

- are still underdeveloped organizations;

- mainly target only one sector;

- have not reached a certain scale to be investable.

• New segment: leasing segment is still a relatively new segment for many Impact

Investors – small track record built

Main challenges Impact Investors See

Demand and supply is there! But some steps need to be taken.

Leasing industry and Impact Investment Industry need to better connect and further

get to know each other

Platforms: Annual Leasing & Investor conferences would be a great platform

Impact Investors need to better understand Leasing and Leasing COs, so that they

(together with the other stakeholders) can actually support Leasing COs and

enhance the Leasing Industry

Conclusion

Triple Jump’s Role

Triple Jump wants and can play a role in supporting the Leasing Industry in Africa, by

partnering with Leasing Companies:

Regional presence

Experience in investing in Leasing Companies

Flexibility

Finance with different funds through the full graduation process

DGGF Fund: the catalyzer for (early stage) Leasing Companies (operating in a

nascent Leasing industry)!




Olivier Deiters

Triple Jump

[email protected]

Thank you!


COY BUCKLEY – CEO, EFTA

LEASING FOR AGRICULTURE AND

SMES




EFTA is a financial leasing company focused on small

businesses and farmers

• Loan sizes range from $10k-50k

• Received USD 1.4M Capacity

Development Grant from G-20

(managed by IFC) in 2012 to invest in

infrastructure and software

• First-mover in financial leasing

market for SMEs in Tanzania

• Partnered with over 50 equipment

suppliers

• Nation-wide branch network in

Tanzania

Moshi Arusha

Mwanza

Mbeya

Morogoro

Iringa

Dodoma

DSM

Tanga

Bukoba

With the opening of EFTA’s Dar es Salaam branch in 2016, EFTA created a nation-wide branch network for the provision of SME leasing to all major economic areas of Tanzania

EFTA offers its leasing product in all major economic areas of

Tanzania

Active locations

Potential 2018 - 2019

Mtwara



EFTA’s leasing product addresses a wide range of sectors,

enabling value creation with productive assets

• Unique product: no

collateral, three-year term,

10% down-payment (20% for

tractors)

• Accessible to semi-formal

enterprises

• Broad-ranging: can include

all durable equipment where

EFTA can find a reputable

supplier

Irrigation

Laundry

Agriculture

Animal feed

Carpentry

Bricks

Oil expelling

Printing

Poultry



Financial leasing provides a collateral substitute, which

unlocks the traditionally under-financed…

Private

Equity

(>$5m)

SME Funds

($50k-5m)

Microfinance

($0-2k)

EFTA

($2k-50k)

Scalable solution:

• Scalable, low cost cookie-cutter

approach like MFIs

• Financial leasing of equipment

provides effective collateral

substitute

• Relationship-based to

understand their situation

• Patient capital to accommodate

volatility: flexible 36 month

payback period

Small business challenges:

• Low transaction sizes: need

standardisation to lower cost

• Low collateral levels: need to

mitigate risk

• Lack of sophistication: requires

more engagement and

specialist team

• Lumpy business environment:

requires flexibility

• Need for fixed assets:

requires long loan terms


12-13 April 2017 Mahé, Seychelles Footer

Broad supplier network allows EFTA to target a variety of

sectors

Portfolio by sector, Tanzania, % of investments

11%

37%

26%

26%

Agri-

business

Agriculture Services

Manufacturing

• Seed oils: expellers and filters

• Animal feed: processors

• Flour (rice, maize, millet): millers

• Grains (rice, maize): hullers

• Rice farming: rice harvesters

• Direct Agriculture: tractors

• Horticulture: greenhouse / drip irrigation



Significant evolution in leasing market in Tanzania since

roll out of IFC sponsored leasing regulations…

2009 2010 2011 2012 2013 2014 2015 2016

Ministry of Finance

issues Financial

Leasing Act (2008)

along with IFC

support

Bank of Tanzania

issues Leasing

Regulations (2011)

EFTA receives $1.4M

CD grant to develop

existing leasing model

Maturation of Tanzanian Leasing Industry with IFC support

EFTA secured outside

equity investor;

underpinning

expansion across TZ

Governor of Bank of

Tanzania makes

financial leasing key

pillar in agricultural

finance strategy

IFC and FSDT host

round table with TRA

to discuss tax

considerations

Central Bank of Tanzania supports leasing as one of the

three pillars for creating access to finance in agriculture

• Bank of Tanzania’s Agribusiness and Agri-finance forum

in Arusha

• As part of his closing remarks, Governor Ndulu made

equipment leasing one of the BoT’s three pillars for

creating access to finance in Tanzania’s agricultural

sector

• Specifically stated that Tanzania’s banks “need to be

doing what EFTA is doing” to reach this target market

with lease finance to create growth and prosperity in

Tanzania

www.equityfortanzania.org

In 2016, EFTA’s work featured in the Economist

• In June 2016, the Economist’s article “Caught in

the Middle” noted the significant SME credit gap

in Africa, and highlighted EFTA as an innovative

provider of credit for small businesses in

developing countries

• The Economist noted that “Around two-thirds of

SMEs in poor countries cannot borrow as much

as they would like, compared with a sixth in the

rich world, says the International Finance

Corporation, the corporate-lending arm of the

World Bank. It put the “credit gap” for small but

formal businesses in developing countries at

around $1 trillion in 2011. Throw in informal

firms, and the shortfall is even greater.”

• The Economist mention was a significant

highlight for 2016, and a reflection of the team’s

hard work over the past four years

With over 50 suppliers in our network, EFTA creates new market for

equipment dealers and customer access to high quality equipment

Selected supplier logos

Co-branded events strengthen supplier relationships and

relational marketing to customers

Case Study: Pendo Laizer – Brick Making Machine

Customer Name: Pendo Laizer

Equipment: Brick Making Machine

Jobs Created: 4 casual employees

Sector: Manufacturing

Investment Amount: USD 10k

In 2014, Mrs. Laizer saw an opportunity to start her own

business and EFTA financed a high-quality brick making

machine from our supplier, Nile Machinery, in Dar es

Salaam. As EFTA provided a loan without collateral and

provided a relatively straightforward, and quick process

compared to the banks, Mrs. Laizer was excited to apply

for a loan from EFTA.

Mrs. Laizer sees opportunities to increase the size of her

business by adding a paving machine, as well as obtaining

financing for a tipper truck to enable her to sell larger

volumes.

In the words of Mrs. Laizer, “As a young entrepreneur and

as a woman, EFTA has changed my life in ways I cannot

explain…EFTA has given me an opportunity to be a strong,

financially independent young lady”




Coy Buckley

CEO

Equity for Tanzania,

Limited (EFTA)

[email protected]

+255 76 897 3338


CLIMATE FINANCE THROUGH LEASING


Tibor Kludovácz Industry Specialist - Climate Business IFC Financial Institutions Group - Sub-Saharan Africa




TABLE OF CONTENTS

1) What is Sustainable Energy Finance?

2) Opportunities in Sustainable Energy Finance

3) Leasing for Sustainable Energy Finance

4) Leasing Project Examples

2



What is Sustainable Energy Finance?

SECTION 1.

- 3 -



ENERGY: Energy efficiency, renewable energy, storage, smart grids, energy access

TRANSPORTATION: Energy efficient components, fuels

and logistics

WATER: Capture, treatment, conservation, wastewater

treatment, access

AIR & ENVIRONMENT: Carbon credits, trading and offsets

BUILDINGS: Low carbon strategy, energy efficiency,

sustainable materials, green buildings

MANUFACTURING: Green chemicals, RE/EE supply

chain, cleaner production

AGRICULTURE & FORESTRY: Land management, low

carbon/adaptation strategies, biomass, biofuels, EE

RECYCLING & WASTE: Recycling and waste treatment services

SUSTAINABLE ENERGY FINANCE (“SEF”)

4



SECTORAL OPPORTUNITIES FOR LEASING

5

Sector Potential Borrower Energy Efficient / Renewable Energy Equipment Typical Segment Interface

Agriculture Farmers, Cooperatives, Supply chains

Biomass/biogas digesters, Drip irrigation systems, efficient and/or solar/biogas powered pumps, Efficient agro-machineries, storage facilities

MF and Retail for Farmers, SME and Corporate depending on company size. Leasing

Residential/ Retail

Builders, home owners, home owner associations, individual households

Solar water heaters, wall/roof insulation, Water-saving shower heads, Solar lighting, CFL, improved cook stoves, water purifiers, efficient refrigerators, efficient HVAC units, double glazing

Mainly MF and Retail for households, SME and Corporate depending on size. Real estate leasing

Commercial Housing complexes operators, maintenance companies; Housing developers, Property Operators

Heating and ventilation equipment, Control and metering systems, Electricity peak-load control systems, Air-conditioners, Heat pumps, solar water heaters

Corporate and SME. Leasing for major equipment.

Municipal Municipalities, district heating companies, street lighting operators, public buildings operators

Boilers for district heating as well as for public/municipal buildings, Heat exchangers, pipes for infrastructure projects, Cogeneration units, Complex EE projects

Mainly SME and Corporate. Leasing

Industrial Industrial companies, SMEs and MSMEs

Energy efficient production lines, Waste heat recovery devices, Heating systems upgrades, Efficient boilers and heaters, Fuel switching (from coal to gas or biomass), Electricity peak-load control systems, Cogeneration units

SME and Corporate. Leasing for major equipment

Renewable generation

Project developers, Corporates/SMEs

Wastes to energy (wood waste etc.), production of fuel, biogas, biodiesel, solar (PV and thermal), hydro and wind power, geothermal

Corporate and SME lending on captive generation. Project Finance for grid attached RE plants. Specialized insurance product for solar PV. Leasing



BENEFITS FOR BUSINESSES

6



BENEFITS FOR FINANCIAL INSTITUTIONS

7

Expanded market share through a new

business line

Improved risk profile of the portfolio

Positive social and environmental

impacts

Innovative product – First mover advantage/differentiation

Sell on value to customer, not pricing

Monetize existing client base and attract quality new clients

New marketing channels through vendor partnerships

Improved competitiveness of clients

Reduced environmental risks of the clients

Better performing FI portfolio

Innovative and environmentally responsible bank

Leadership in Sustainability

Enhanced brand reputation

PR and marketing opportunities



Business opportunities in Sustainable Energy Finance

SECTION 2.

- 8 -



TRANSITION TO LOW CARBON ECONOMY

9

Structural and technological changes unfolding in the global economy, combined with multiple opportunities to improve economic efficiency, now make it possible to achieve both better growth and better climate outcomes.

Appx. $7trillion/year of capital investments required to move to a low-carbon economy in 15 years

SEF investment opportunities by region



ACCES TO ELECTRICTY AND MODERN COOKING

10

Source: Rio+ 20 policy paper #8, Riahi et al., 2012 Source: Washington Post, 2015-

Appx. 30 billion USD/year of financing required for modern cooking and electricity access



GLOBAL INVESTMENT IN RENEWABLE ENERGY

11

Source: IIF, Bloomberg



GLOBAL ENERGY EFFICIENCY MARKET

IEA member countries avoided USD 5.7 trillion of energy expenditure since 1990 by energy efficiency investment alone. Benefits of improving energy efficiency extend well beyond financial savings, relating also to improved energy security, higher productivity for businesses and reduced greenhouse gas emissions;

OECD energy consumption is now as low as it was in 2000, while GDP has expanded by USD 8.5 trillion, an increase of 26%. This suggests that these countries have successfully decoupled economic growth from energy consumption growth, with energy efficiency being the main contributing factor;

Approximately 40% of the emissions reductions required by 2050 to limit global temperature increase to less than 2 degrees centigrade would potentially come from energy efficiency;

In 2012 energy efficiency investments were estimate at USD 310-360 billion globally. Investments in energy efficiency are set to keep growing, despite lower oil and gas prices, driven by more assertive and more comprehensive policies.

12

Source: IEA Energy efficiency Market Report 2015



Note: US$ equivalent data represents IFC's climate own-account and core mobilization through financial institutions recorded during the period FY05 – FY16

IFC channels financing through financial intermediaries to support lending to SEF investments. To date IFC has supported more than 140 financial partners through 188 investment projects in 43 countries since 2005, providing close to US$4.3 billion in financing facilities.

IFC’S SEF BUSINESS THROUGH FINANCIAL INSTITUTIONS

13



Leasing for Sustainable Energy Finance

SECTION 3.

- 14 -



LEASING VS. TRADITIONAL BANK FINANCE FOR SEF

AREA LEASING VS. BANKING IN SUSTAINABLE ENERGY FINANCE

ASSET FINANCE Asset finance is the core area of Sustainable Energy Finance. Essentially, all climate transactions can be classified as asset finance;

Banks are involved in various other financing areas (working capital finance, housing finance, retail, SME, etc.) that are less conducive for green assets;

IDENTIFICATION OF CLIMATE ASSETS

Leasing focuses on the asset and the specific benefits it will bring to the operations of the company. This knowledge about the assets makes identification of green assets easier in the context of leasing;

Banks tend to struggle with identifying climate eligible assets as credit decisions are mainly driven by balance sheet and collateral, as opposed to the benefits generated by the assets purchased;

IN-HOUSE TECHNICAL SKILLS

Leasing companies tend to have in-house technical skills in relation to the valuation of the residual values of the assets they finance. These technical skills make it easier for them to identify and manage green assets;

Banks would typically have more difficulties to identify and manage green assets as they would not normally have in-house technical people (except for large project finance deals);

COLLATERAL VALUE OF ASSETS

Leasing companies will use the assets financed as collateral for the investment. Through their technical knowledge of the assets it is much easier for a leasing company to accepts certain assets as collateral than for banks;

One of the key barriers for the development of the solar PV market in many countries is that fact that most banks aren’t capable of accepting it as collateral;

VENDOR FINANCE Leasing companies will work through strong Vendor partnerships. This provides immediate access to relevant information about the assets to determine key benefits for End-users and, climate eligibility;

Banks typically work directly with the client and are less involved/interested in the use of proceeds if client has balance sheet and collateral.

15



EE/RE Leasing Features ADDITIONAL BENEFITS OF LEASING FOR SEF

LEASING BANK LOANS

AMOUNT FINANCED

Up to 100% financing is available including soft costs and sales tax, as well as future O&M contracts. No downpayment is required from Lessee.

Banks will generally lend only to a portion (up to 70%-90%) of the equipment or vehicle cost; exclusive of soft costs such as shipping, training, installation, etc.

TAX BENEFITS Under a true lease, the end user may claim the entire lease payment as a tax deduction. The equipment write-off is tied to the lease term, which can be shorter than other depreciation schedules, resulting in larger tax deductions each year.

Borrowers/owners may claim a tax deduction for a portion of the loan payment as interest and for depreciation which is tied to depreciation schedules.

COLLATERAL In most instances, the only collateral is the equipment being leased.

Banks usually secure their loans by requiring additional collateral such as real estate, equipment, inventory, receivable, etc.

EQUIPMENT TYPES

Leasing can provide funding for most equipment types. Leases tend to finance equipment, machinery, vehicles, hardware, software and services.

Banks will not finance equipment they do not understand or feel has limited collateral value.

OBSOLESCENCE RISK

Equipment obsolescence is transferred to the Lessor if no obligation exists to own the equipment at lease end. Some leases contain provisions for upgrading equipment during the lease term for additional rent.

The borrower/owner bears the risk of equipment obsolescence and devaluation, due to development of new technology.

REPAYMENT RATES

Repayments are generally fixed for the term of the lease. Fixed payments make budgeting and cash flow management much easier.

Banking interest rates are usually floating and based on Prime Rate or another reference index.

REPAYMENT TERMS

Flexible payment terms to include different tenors, and different payment terms (seasonal, deferred or step payments for example)

Banks tend to be less flexible than leasing companies as their SME business typically operates with standardized terms.

16



LEASING EXAMPLES 1.

INDUSTRIAL / SMEs

Cogeneration

Energy efficient boilers

Steam or gas turbines

Energy efficient production lines

Other EE equipment, like compressors, ovens, machinery, etc.

Waste water treatment technologies

RENEWABLE ENERGY

Wind power plants

Small hydro power plants

Solar PV panels

Concentrated solar power plants

Solar water heaters

Biogas/Landfill gas (cogeneration) units

17



LEASING EXAMPLES 2.

RETAIL / MICROLEASING

Efficient lighting

Small boilers for heating

HVAC systems (air conditioners)

Solar water heaters

Energy efficient domestic appliances (refrigerators, washing machines, etc.)

Solar Home Systems

VEHICLES

Electric / Hybrid Cars

LPG, CNG buses, trucks, corporate fleets

Electric utility vehicles (electric construction vehicles)

Efficient fleet management, route optimization software

18



SEF Leasing Project Examples

SECTION 4.



YAPI KREDI LEASING TURKEY

In 2008, IFC provided a loan of US$50 million to Yapi Kredi Leasing Turkey (YKL). This investment help YKL diversify its portfolio and increase its market share in very competitive market.

YKL’s objective was to target SME's and new

products in energy efficiency and renewable

energy financing. The transaction marks the

first time that the company has taken financing

to direct to sustainable energy projects.

YKL Leasing focused to develop sustainable

energy investments across all industry sectors.

Within two years, YKL SEF portfolio reached

US$200 million of loans

20



FRANSABANK / LEASING COMPANY LEBANON

In 2014, IFC has approved to Fransabank and its subsidiary LLC, The Lebanese, Leasing Company; a combined package of:

1) US$ 40mio SEF loan for energy efficiency and renewable energy financing, and

2) Technical assistance to build capacity to develop SEF operations, build the pipeline of eligible projects, and design SEF product

Fransabank have financed over US$ 40 million of projects within first year of SEF operations;

The IFC Advisory Services project contributed significantly to the establishment of efficient internal structures within the Bank to properly identify and capture SEF business opportunities and develop strategy towards EE/RE lending.

“Introduction of sustainable energy finance into our SME, corporate and leasing activities is part of our “Go Green” strategy”

Adnan Kassar, Chairman of the Board, 2014

21




THANK YOU!

Tibor Kludovácz Industry Specialist – Climate Business IFC Financial Institutions Group – Sub-Saharan Africa International Finance Corporation 14 Fricker Road, Illovo, 2196 P.O. Box 41283, Craighall 2024 Johannesburg, South Africa Switchboard: +27-11-731-3000 Direct Line: +27-11-731-3016 Facsimile: +27-11-268-0074 Mobile: +27-83-376-2095 Email: [email protected] Website: www.ifc.org

22

ERROL RENAUD SEYCHELLES ENERGY COMMISSION (SEC)

FINANCIAL LEASING IN THE ENERGY SECTOR




Table of Contents • Overview of Energy Sector in Seychelles • Energy Policy and Targets • Fuel Costs and Tariffs • Renewables and Energy Efficiency • Financial Programs and Results • Market Study and Research • Financial Leasing in the Energy Sector



Overview of Energy landscape in Seychelles

• Population of around 93000 spread across the archipelago.

• Grid connected, Mahe, Praslin and La Digue are inter connected.

• Out-lying islands, off-grid, auto producers.

• Energy access 99%.

• As of 2016 data 406 Gwh energy generated.

• 2.5% of RE 6MW wind 2MW distributed solar.

• 7.8Gwh installed power was from wind power.



Energy Policy and Targets

• Energy policy 2010-30.

• Targets 5% 2020, 15% 2030.

• Planning for 100% 2050 of RE in the electricity grid.

• INDC’s under UNFCCC, reducing its GHG emissions by 122.5 ktCO2 ( 21.4% 2025).



Fuel Costs and Tariffs

• Fuel costs per kilowatt-hour (kWh) made up almost 90% of the total power generation costs in 2014 (2.08 out of

2.33 SCR/kWh).

• Domestic tariff 0-200 kwh consumed is 0.79 cents as of 1st April 2017.

• Commercial tariff set at 3.13rs 0-200 kwh.

• Essentially we have a Subsidized domestic tariff.

• Approx 4% of GDP go to fuel imports for generation of electricity.



Two ways of achieving the policies and targets set…..

1. Increasing Renewable Energy (RE ) in our Energy mix.

2. Energy Efficiency.



Renewable Energy

• Emphasis on Renewables in generation of electricity.

• Inclusion of Independent Power Producers (IPP’s).

• Auto producers.

• Rebalancing of tariffs structures.

• Re drafting of current regulatory frameworks.

• Alignment of all the legislations in the energy sector.



Energy Efficiency in Seychelles

Implementation of the National Energy Efficiency Programme

Includes…

• Promotion of Energy Efficiency appliances.

• Promotion of solar water heating.

• New regulations on the use of air conditioning a/c.

• New Building code for household dwellings.

• Promotion of co generation. Turning waste heat.

• energy into electricity.

• Reduce Energy intensity to 10% by 2020.



Financial Programs Currently Available • SEEREP subsidized loan scheme.

• Up to 150,000rs , pay back 0- 5 years.

• 5% interest, GoS pay the bank the difference between the 5% and Prime Lending Rate.

• GoS cover up to 50% of any defaults by customers.

• Additionally GoS guarantees 50% of collateral.

• Loans above 75000rs are subjected to a 2.5% contribution.

• Below 75,000rs no personal contribution.

• Collateral should not exceed 100% of the value of loan being financed.



Financial Rebate Scheme: Solar PV

• GOS-UNDP-GEF rooftop solar PV systems program.

• Set to kick start the solar PV market.

• Reduce the upfront cost of solar PV systems.



Residential

• 25% rebate payment.

• Max payout is for 3kwp system.

• USD 2.8/W .

Commercial

• 15% rebate payment.

• Max payout is for 15kWp system.

• Dollar per watt basis – USD 3.2/W.



VAT Exemptions

On energy efficiency appliances

Value Added Tax Act 2010,

First Schedule – Exemptions,

Part I – Imports, section 16 (1) and (2).



Results of These Financial Programs

• SEEREP scheme in place since 2012.

• 113 applicants processed up till now April 2017.

• 23 applications up to April 2017.

• No SME’s applications in the database yet.



Market Study/ Research

Study in 2016 showed that the following technologies were highest on the list of MSME’s and households.

• A/C.

• Refrigeration.

• Lighting.

• Solar Water Heater.

These electrical appliances, are in high demand in Seychelles, and the energy efficiency ones should try and

increase its market share.



• Households and SME’s need additional services to be available to purchase the appliances.

• In-order to achieve the targets set in relation to RE and EE….

• Broader range of services if the energy sector if to increase.

• Including consulting services. One stop shop.

• Lessee concludes an insurance package for its equipment.

• Increase of solar household PV systems for both domestic and business, both MSME’s and large electricity

producers.



Financial Leasing in the Energy Sector

• There is potential for other alternatives financial vehicles to be incorporated in the energy market.

• On the EE side, the 4 appliances named previously, are in high demand, by households and SME’s.

• They are at a higher cost that conventional ones in the market even with the VAT exemptions they receive.

• Awareness by customers are on a positive, and if financial leasing can supplement the market as an alternative

to the existing financial programs.



……. On Renewable Energy (RE )

• Seychelles is actively promoting RE technologies as an alternative to conventional fossil fuel

based generation of electricity.

• Commercial entities are always looking to cut down their electricity cost.

• Battery storage as an investment.

• Leasing of rooftops for solar PV.



Seychelles Energy Commission (SEC)

Unity House , Block B

3rd Floor, Room 307/308

Palm Street , Victoria , Mahe

Tel: 00 248 461819

www.sec.sc

[email protected]

Ministry of Environment , Energy and

Climate change MEECC

Botanic Garden , Victoria, Mahe

P.O BOX 445

Tel : 4670500

[email protected]

http://www.sec.sc/



Thank you

[email protected]