DBE to launch lease financing for Agri equipment

A detailed regulation is being prepared by Develoment Bank of Ethiopia (DBE)to help farmers access agricultural financing in affordable interest rates.
The lease  financing which will incorporate farmers and agricultural equipment  retailers will provide loans for the purchase of  tractors, trailers, harvesters, seeders, fertilizer, sprayers, generators, and other equipment which are needed  to produce agricultural products.
The finance which is expected to begin by the end of this fiscal year is studying the role, and the responsibility of borrowers lenders and government offices in order to ensure that the correct people get the loan.
Esayas Lemma, Crop Development Director at Ministry Of  Agricultural and Natural Resources Capital that the farmers will not be asked for any collateral to obtain the loan.
“The main target of the loan is to reduce unemployment by helping people who work in agriculture. The bank will give the loan to the beneficiaries when they need agricultural equipment for their work and when they buy the machine from here or abroad. The bank will hold the machine’s ownership certificate until the borrower pays off their debt, we think this system will benefit them.”
It is expected that Agri lease financing will be applicable in all regions of the country.
When leasing farm machinery, ownership is retained by the finance lender. Periodic payments are made in the form of lease rentals, which are generally tax deductible. Lease terms vary, but 3-4 years is a common timeframe with a residual value at the end of the term usually 30-50 percent of the purchase price. Responsibility for the sale of machinery at the end of the lease will depend on the lease agreement.
According to Amalia Johnson, co-author of Nathan Associate’s Agricultural Leasing Market Scoping Study for Sub-Saharan Africa, supply, demand and regulatory conditions for agri-leasing in Ethiopia, Ghana, Kenya, Mozambique, Nigeria, Tanzania, Uganda and Zambia offers recommendations aimed at stimulating market growth.
The report highlights that the supply of agri-leasing is constrained by banks’ difficulty pricing the risk of lending to farmers, partly due to poor understanding of their needs and behaviour. Lenders are also concerned that equipment, which acts as collateral for the lease, may not be well maintained. The lack of a developed market for used agricultural equipment also makes it hard to resell equipment after a default. And, while banks and leasing companies are starting to eye agriculture, they make enough profit elsewhere for the sector to be low priority.
In terms of demand, even though agriculture is key to the economy in all countries studied, most smallholder farmers lack knowledge of agri-leasing, or do not work enough land to justify the expense and may not have the skills or motivation to maintain equipment. Typically, only mid- to large-sized farmers or cooperatives can realistically be leased to.