Leasing is increasingly becoming a popular financial option for businesses in Nigeria, particularly as obtaining credit continues to be difficult.
In contrast to conventional loans that demand collateral and come with high interest rates, leasing enables companies to utilize equipment, vehicles, or machinery for a specified period in return for set payments.
This method is favored by businesses that wish to escape the responsibilities of full ownership while ensuring consistent cash flow.
In Nigeria, which has over 40 million small and medium enterprises, there exists a credit shortfall exceeding ₦13 trillion.
Experts indicate that bridging even a fraction of this gap via leasing could release trillions of naira into investments across areas like agriculture, logistics, energy, and manufacturing.
The equipment leasing sector in Nigeria reached an estimated value of ₦5.16 trillion in 2024, reflecting a 23 percent increase from the previous year.
The largest users of leases in Nigeria include sectors such as transportation, construction, oil and gas, and food processing.
However, despite this growth, analysts point out that leasing services are primarily utilized by larger companies, leaving many small businesses excluded due to limited knowledge, restricted access, and unfavorable tax regulations.
In Africa, leasing accounts for only a small fraction of business financing, with Nigeria’s penetration rate being below 0.2 percent, in contrast to higher rates in Morocco and South Africa.
This situation reveals significant potential for growth if regulatory hurdles can be tackled.
Nigeria has initiated steps to enhance the leasing sector. The Equipment Leasing Act of 2015 established a legal framework for leasing activities, while the Equipment Leasing Registration Authority, launched in 2023, has implemented contract registrations and digital platforms to boost transparency.
The authority has collaborated with the judiciary to ensure lease contracts are enforceable, which is critical for building investor confidence.
Industry organizations, such as the Equipment Leasing Association of Nigeria, are advocating for simpler tax regulations and the broader inclusion of small businesses in leasing programs.
Tax-related challenges persist. Under existing laws, equipment leases incur value-added tax, with the exception of agricultural machinery.
This adds to the cost of leasing and deters small enterprises from considering it a viable option.
Another issue is the instability of foreign currency rates. As most leased equipment is sourced internationally, a sudden fall in the naira’s value can render contracts unaffordable for businesses.
Analysts propose that promoting local production of essential machinery might alleviate this challenge and lessen dependency on imports.
Public financial institutions have also contributed to improving leasing accessibility. The Bank of Industry, through LECON Finance Company, has funded projects in agriculture, education, transportation, and manufacturing since the late 1980s.
LECON has set an example of how leasing can be tailored to assist small businesses while remaining sustainable.
The company’s history demonstrates that leasing can extend beyond large corporations to include sectors often overlooked by traditional bank financing.
An increasing focus is being placed on leasing options that are both green and digital. Various clean energy alternatives—such as solar panels, electric vehicles, and buses powered by compressed natural gas—are becoming easier to obtain through leasing agreements.
In the agricultural sector, small farmers can lower post-harvest losses and boost their yields by leasing tractors and harvesters, which they often cannot afford to purchase outright.
Additionally, micro-leases are becoming available for digital tools like smartphones, point-of-sale devices, and delivery bicycles, which opens doors for young entrepreneurs and gig workers.
According to experts, a unified policy approach is essential for further expanding leasing practices.
This effort should involve aligning state laws, encouraging banks to support leasing operations, and providing incentives for manufacturers to engage in vendor-financing arrangements.
Moreover, technology-based platforms, especially in fintech, are anticipated to help decrease transaction costs and enhance leasing accessibility for small and micro businesses.
Rather than replacing traditional loans, leasing should serve as an additional option that broadens access to essential assets.
With an effective framework in place, leasing has the potential to promote shared prosperity by equipping businesses with the necessary tools for growth, job creation, and competitiveness.
Achieving inclusive growth in Nigeria will rely on financial innovations that align with the realities faced by its enterprises.
Although still not fully developed, leasing is emerging as one of those crucial innovations.