Microleasing in Livelihood Restoration Following a Natural Disaster
This paper explores the role of microleasing in disaster recovery.
Microleasing is now considered a viable option for quickly replacing productive assets lost by the poor in major disasters. In many ways, it can provide a win–win proposition to collateral-poor clients and liquidity-strapped financial institutions, as well as to donors and policy makers concerned about market distortions and creation of grant mentality.
Leasing usually incurs lower transaction costs compared to collateral-based term loans. Emerging lessons from the field demonstrate that:
- Leasing facilitates client screening in times of distress;
- Down payments can help reduce the lessor’s risk since he assumes the client’s business risk;
- Choice of long-term credit-worthy microfinance clients helps reduce risks if down payments are not possible;
- Microleasing provides an option for the poor to diversify livelihoods;
- Microleasing can help in providing grants without creating market distortions and creating productive assets;
- Microleasing can be provided through partnerships between MFIs with leasing companies, dealers and manufacturers;
- Microleasing is not suitable for remote areas;
- Liquidity-constrained MFIs will be unable to purchase assets to lease to clients.