Leasafric Ghana: The Biggest Leasing Company in Ghana Specialized in Finance and Operating Lease

Interview with Kalu Onyeamu Kalu, Managing Director of Leasafric Ghana

What is your assessment of the leasing sector in Ghana? What are the latest trends? Is the market competitive?

The leasing sector in Ghana is evolving. It is going through various stages of growth. Currently, Leasafric is the only regulated leasing company in Ghana. In 2012, the leasing companies were asked to recapitalized their operation to the tune of 10 million Ghana cedis. After the exercise, Leasafric was the only company that was able to recapitalize, making it the only fully capitalized leasing company currently in Ghana. It is also the only leasing company that is being regulated by the Bank of Ghana. However, there are also other leasing companies that are not regulated. That makes it challenging for us because as a regulated leasing company, there are certain things we are not able to do. We must do things the way they should be done and adhere to corporate governance and certain standards, but the other companies that are not regulated can do things however they like. They might not be as big as us and might structure things differently. So, it has its own advantages and disadvantages. One advantage is creditability. When an investor comes into the country and needs a leasing company, they meet with the government agencies or the Bank of Ghana. But they need a leasing company that they can work with and we are sure they will call Leasafric. The competition becomes a bit tough for Leasafric. The competition is there, but you can say that we do not really have a competitor. We have a lot of competitors because there are a lot of people that are doing leasing. For operating leasing or fleet management, you do not need a bank license, but to do finance leasing, you need the Bank of Ghana. So, most people will not do finance lease, only things like car rentals, etc. When it comes to the car rental aspect, of course we have quite a lot of competitors, such as Avis, Europcar Rental, Novo, Atlas Rent a Car. There are quite a lot of other rental companies around. Because we are already a big player in the area of fleet management, it gives us leverage. Also, we have a parent company in Nigeria that is very big. Other products like personnel outsourcing, staff busing, and other areas we are just coming up in are quite new to us. There are already established players in those industries but we are also trying to establish ourselves in those sectors. Fleet management is where we have the strongest presence as far as Ghana is concerned. Currently, as a leasing company we have over 1,000 fleets across the country. We also have most of the top multinational companies working with us and we are managing their fleets. In terms of competitors, while we have them, we still command a large aspect of the market.

What are you able to provide more than your competitors? Where is your extra service?

In fleet management, which is the operating lease side, Leasafric is still the only company that successfully offers operating lease products to the Ghanaian populace.

Can you explain the leasing aspect?

In 2012, the leasing companies were asked to recapitalized their operation to the tune of 10 million Ghana cedis. After the exercise, Leasafric was the only company that was able to recapitalize, making it the only fully capitalized leasing company currently in Ghana.

We have two types of leasing: the finance lease and the operating lease. The finance lease works more like normal credit but there is an aspect that you buy the asset, lease it to a company, and then at the end of the lease transaction, after parting with the purchase option, the point you have the asset, the lessee automatically starts enjoying the benefit. The operating lease is where I buy the asset, the ownership resides with me, the leasing company, but I will lease it to you, it will be working for you, and every month you pay me a rental, every month at any time if we decide not to continue the contract, I just call back my asset and it comes back to me. There is no ownership challenge. But for finance lease I cannot do that because you are a co-owner from the first day I started working with you. I cannot transfer full ownership to you until you have finished paying me at the end of the lease. The other leasing companies cannot do financing leases because they do not have the Bank of Ghana license to do so. In that aspect, we have an advantage over them. That is why the Bank of Ghana also looks into my books in relation to other products that I am offering. I am operating with their license so I must structure my business to operate in line with their regulatory standards.

Is the finance lease part of your business a major revenue provider compared to the operating lease?

The market is not very ripe for finance leasing. Because of that, we are not doing much in finance leases. When it comes to finance leasing, you do a lot of leasing in the agri sector or the transport sector. But here it has been a challenge in getting repayments. The default rate is high and because of this, most people find it difficult to go into that area. As a leasing company, because I do not mobilize deposit, I have a net in terms of funds so I need to get my fund to finance it. Sometimes, you go to the bank and they are not able to fund you to provide leasing to a sector like agri, so you would find it difficult to actually go into that area.

Is this something you would drop and not be attached to the Bank of Ghana?

It is something that has been discussed and we have even looked at it. But we have an advantage with the Bank of Ghana license and it gives us credibility with foreign investors and it also helps to shape our corporate governance structure because somebody is looking at us. When we want to borrow money from investors, it gives them comfort that somebody is checking how the fund is being managed. That is why Leasafric is still the biggest leasing company in Ghana. If you also look at our client base, we have the type of clients we have because we are working with this Bank of Ghana license and people know that this company is a strong company. That is one of the things that has also moved us into the Club 100 award. Last year we came in 48. The criteria they look at are structure, finances, and business model. That credibility is a key to us.

Can you describe the sectors that you are present in? What are your competitive advantages in each of them? For example, Switch Car Rental is a new brand you introduced last year. What does it have that the others do not?

Switch Car Rental is an indigenous brand that is developed locally. We are not selling a foreign brand. Just like the foreign brand also started somewhere, so did Switch Car Rental. We want to grow the brand to an international brand. One of the things that makes Switch Car Rental unique is that we are leveraging on the fact that Leasafric is already a known brand name when it comes to fleet management or car rental. For us, we have that advantage of the fact that you have a good, already existing brand to ride on. Also, we are the biggest leasing company in Ghana. We have excellent, knowledgeable staff that are driving the brand. These are people that have been in the car rental business for more than 15 or 20 years. That expertise is driving Switch Car Rental. Also, we have a tracking solution which comes with our cars. When you use Switch Car Rental, you do not have to be afraid because someone in our control room is monitoring the vehicle to ensure that at any point in time your security is guaranteed and that your life is not in danger through our tracking solution.

What other sectors are you present in? For fleet management, your major advantage is that you are the leader. Are you the leader in this market?

For now, we can say we are the leader, but being the leader does not mean that you can relax. You must continue working because the industry is evolving and so is the business itself. You have to continue to work on your brand. We are the leader, but we have done a lot of things to drive our business. Currently, we are looking at using technology to help us expand our business. For example, one of the things we are doing is a software that will help us to make our process more efficient. It helps you in tracking your maintenance so that when your car is working with the client, from your end, we should be able to know when the car is due for maintenance or renewal. This technology will be able to detect it earlier for you to be able to work on it so that it does not affect the company’s operation. Once you are able to have a very clean record from your own end, it will also help your process because our process is about services. You need to make sure that your car is in good condition for your client to work. So, we have discovered that we can do this through the use of technology and that is why we have the software with which we are currently operating.

What are your competitive advantages?

One thing is strong customer loyalty. It is an advantage for us because we know most of the clients that have been operating over the years with us. Most of them have been with us since 2009. This is because of our excellent service and our dedicated service. Most of them try to stay with us. We develop our product based on our clients’ needs. We go to you, you tell us what you need, and we will come back and develop something that will meet your need. That is the dynamic nature of our business. Fleet management is not just about giving you a car. We start with giving you a car, but then we give you a driver, we give you a transport manager, you can even outsource your transport division to us to manage for you. Whatever product you want or whatever way you want your transport section to operate, once we have a discussion with you, we develop something in that capacity. That is also how we came up with the tracking solution. We can help you track your cars and give you monthly reports on your cars. It was in that process, too, that the personnel outsourcing evolved. We said it is not about giving you a car or a driver, but we can also manage your key personnel for you. Most of our products are developed based on our clients’ needs. With some of our clients, we started with them when they were small and now, they have grown and because of how we operate with them they have stayed with us. In terms of visibility, we try to be visible. Wherever our clients are we try to be there. Currently, we are all over the country. We operate with many of the telcos and they have to be all over the country. So, we make sure that we move with them to wherever they are. That has also helped us as a company. One of the advantages is because we have a lot of expatriates coming into the country, we try to make sure that we work with them and that our staff are trained to be able to work with them. We developed not only a local brand, but an international brand that can be able to compete anywhere. When these expats come, they do not feel lost in the country because you have someone who is a local who is also working with you that can relate to you as someone who has been outside. We have a parent company outside the country in Nigeria which gives us leverage to operate both locally and internationally.

Internationally, how far do you want to develop? What is the plan for the company?

We are looking at moving into Liberia, Sierra Leone, and Abidjan. We made an attempt to go into Sierra Leone before the Ebola crisis. We are trying to go back and launch into that space. From there we will move to Liberia. The Switch is a brand that we want to expand not only here. Currently, we are also looking at how we want to start running it in Nigeria just like we are running it here and from there, we will launch to other areas.

Project yourself into the medium term, the next two to three years’ time. What are you looking to achieve?

Within the next two years, we want to have a company that is fully driven by technology because that is the way to go. We want all aspects of our operations to be fully automated including our workshops and supply chain management because that will help us in terms of reducing our cost.

Are you looking for international technology to attract partnerships?

Once we are able to find someone that can help our operation we would of course be interested. Currently, there are some things that we are able to do internally, but for those aspects that we cannot, if we see a way to partner with international companies, we can do that. Now, we have been able to develop an app for Switch. You can download the app and then from there, you are able to book online, unlike the old business where you may not be able to know the car that is coming. In our case, you can see the cars that are available and select the one you want. That is an area I want to go, where you can do everything for your business with your phone. Even for us now, if a car is due for service, I do not need to call the client on the phone. They simply receive a message or text that the car is due for service and to send it to a workshop or that a person is coming to take the car to the workshop.

What challenges are you facing?

The overall challenge we have is actually funding cost. Because Ghana has universal banking that allows the banks to do leasing and finance leasing, we cannot compete with them. That is one of the reasons why it will be difficult for us to move away from operating leasing. In finance leasing we are supposed to be the key person there, but we are competing with the bank. However, the bank has very cheap funding so we cannot compete with them. We have also had opportunities to get funding from outside, but because of the exchange rate challenge, it is also difficult when we borrow money from foreign markets and when the recession affects the currency it affects business. In other areas, banks have their core business but there is some aspect that they are not allowed to do. When you allow them to do business that means that you do not want the leasing companies to grow. We used to have banks as shareholders in Leasafric but when the universal banking came, most of them were sold and set up a desk within the bank to do finance leasing. What I now see is, those who are not able to meet the stringent bank conditions are the ones that will come to us as a leasing company. So, funding is a very big challenge. Also, in terms of leasing, we do not really have a leasing law, per se, in Ghana, unlike what you have in other jurisdictions. Once we are able to develop a leasing law in Ghana, that will also help even that challenge we have with those companies not being regulated with the Bank of Ghana. In Nigeria, Sierra Leone, Ethiopia, most countries have been able to pass a leasing law to regulate leasing, but we do not have one in Ghana. Another challenge is government tax. It is a bit harsh on the leasing companies when it comes to taxation. For most of the cars we are using, we see our cars as commercial but the government treats them as luxury cars and we are being taxed as such. The taxis that apply enjoy the benefit of not paying luxury tax, but a leasing company that is doing the same business is being taxed. There are a lot of restrictions on capital allowance and the government should do something to help the leasing companies because the leasing companies help to boost tourism and they help the economy. They need to have some incentive. We have had challenges in terms of all the tax that the government has imposed that have really affected the leasing companies coming from VAT, corporate tax, and then the luxury tax. At the end of the day, people are not making it because that is a huge challenge in this sector. Another issue is that the economy is still developing, but the awareness of leasing is still not very strong compared to Côte d’Ivoire or Nigeria or Kenya. Except for the multinationals that are coming in, the locals still do not have that awareness of leasing. They still believe they need to own the vehicle.

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