Equipment Finance for Small Contractors in Public Work Programmes

Small companies' constraints tendering for public work contracts in developing countries

The paper states that access to finance is one of the major constraints for the market entry and growth of small construction companies tendering for public work contracts in developing countries. It looks at equipment leasing in Uganda and Zambia, and the roles of contracting agencies in facilitating contractors' access to financial services. It recommends seeking and facilitating the involvement of local financial institutions such as MFIs in the delivery of leasing services to small contractors. It explores how small contractors finance the necessary construction equipment, and how public work programmes are involved in facilitating access to finance for these firms.

The paper states that financial mechanisms include:

  • Bridge finance;
  • Credit guarantees;
  • Pre-financing of equipment by public work programmes;
  • Leasing.

The paper argues that small contractors operating in countries where interest rate ceilings and collateral requirements generate a gap between small businesses and banks, are bound to rely on informal and ad-hoc types of financial services. It concludes that the difficulties contractors have in attracting finance can affect the outcome of the public works programmes as they lead to a variety of sub-optimal situations where construction companies delay operations, work with the wrong type of equipment and pull out because of sudden financial problems.

About this Publication

By Osei-Bonsu, K. & Deelen, L.