A study of the Development of the Leasing Industry in Zambia

Abstract

Access to credit is critical to businesses and individuals. This is because access to financing is crucial to their survival, sustainability, growth and ultimately to a country’s economic growth, employment and asset formation In Zambia, productive sectors, which are vital to economic development, face-increasing difficulty in accessing long-term finance. Leasing is an alternative to traditional forms of financing; unfortunately, the industry has not taken a prominent role in financing initiatives in Zambia. The aim of the study was to get insight of the development and challenges of leasing market in Zambia. Further, the study would provide an assessment of the contribution of the current legal and regulatory infrastructure in developing the leasing industry in Zambia. The study used primary data from nine non-bank leasing companies, Bank of Zambia officials and Ministry of Finance officials. Secondary data was gathered from various financial sector and leasing publications, reports and dissertations. The findings of the study reveal that the prudential performance of the sector has been unsatisfactory. The study revealed that the industry performed average in capital adequacy, but performed poorly in asset quality, earnings and liquidity performance. The regulatory system was still fragmented and operating in an environment with insufficient legislation. The study further revealed that the regulatory body had not yet put enough effort in promoting the leasing markets in Zambia. The main regulator, Bank of Zambia, lacked technical and supervisory capacity to adequately, supervise the industry. The industry faced a number of challenges that inhibited it from fully participating in the financial sector. In addition to regulatory infrastructure reforms that were needed to expand the industry, other factors such as access to long-term low cost funding needed to be attracted, the leasing market needed to be educated on the availability of lease finance and strengthened supply-chain relationships are necessary. The Zambian leasing market may not develop fully if banks and big corporate companies did not take active part in these modern financial products.