• Terms and conditions
• Client and company safeguards
• Lessons learnt so far
• Vision and Hope

A client may be given a lease on an individual basis, partnership or as an association.

Unless there is a genuine reason, NLC repossesses the leased item if the lessee fails to make the full amount during the stipulated time.

Requirements:
To be eligible for lease finance, clients have to fulfill the following criteria.

• Minimum lease amount should be Rupees 1000 (US$ 18). The enterprise must be engaged in a productive/income generating activity.
• Completed application form, together with its attachments. (The company will assist the clients in the application formalities).
• Two guarantors from the business vicinity.
• Lease approvals are always subject to the requirements of the State Bank of Pakistan, the Securities & Exchange Commission of Pakistan and any other relevant  body.

Marketing & Evaluation Department/Credit Incharge-Branch is responsible for carrying out initial scrutiny of the applications.

The Incharge Operations/Manager Marketing/Branch Manager has a formal meeting with the applicant(s) as a part of the scrutiny process to obtain first hand impression of their requirement and repayment ability.  This process is carried out for each and every lease proposal that goes to the Credit Committee.  The initial assessment is then passed on to the Lease Administration Department.

Lease Administration Department is responsible for conducting the technical assessment of the proposal, evaluating factors like specification of assets, estimated cost, estimated incremental revenue etc, and to ensure that all regulatory requirements are duly adhered to.

The proposals are then recommended for approval bv the Credit Committee.

Disbursements are made to suppliers of the asset directly in all cases except where payment has already been made by the lessee.

Client and company safeguards:

Under this scheme, all lessees are covered under a "group life policy", for which the premium is paid by the company and is recovered through the monthly lease rental.  In case of a death, the insurance company will pay the outstanding amount to NLC and the asset will become the property of the lessee's family, with no further payments to make.

The human and social angle of such a scheme is that in the event of the death of the bread winner, (most of our clients are the main earners in their families) when the family is shattered any way, taking away probably the only income generating asset from the surviving members would devastate them.

If the asset on the other hand becomes theirs, with no further payments to make, there may be a good chance that the children or some other member of the family would continue with the income generating activity.

Residual value insurance:
Since the amount of the lease is rather small, we have developed a product with an insurance company whereby if the asset is surrendered by the client due to non payment of rentals, it would be sold by the insurance company and any shortfall in the outstanding amount to our company, due from the client, will be made good by the insurance company.  This product relieves the client from further liability.

All risk cover:
All assets that we finance irrespective of the amount, are insured trader the general insurance policy which covers fire, theft, malicious damage, floods and civil disturbances.  We assist the clients in making and settling the claims with the insurance company.

Insurance premia for all insurances are built into the monthly rentals and the client makes only one payment which includes the rental as well as the insurance charges.

Banking service :
We encourage our clients to open a bank account with the nearest branch of a commercial bank. Even the very small ones are explained the benefits of having a bank account. Our programme officers guide them through the process.

There are two advantages -

• They are brought (albeit slowly and gradually) into the formal business sector whereby at least one aspect of their business becomes part of the documented economy.
• We ask them to give us 36 post dated cheques (our normal lease is 3 years) so that the collection process is made that much simpler  and easy to administer.  A few days before the due date, we send a message that they should deposit sufficient funds in the bank account.

Our staff prepare clients' financial statements for the last 3 years, with the help of the information and figures provided by the clients.  This is a standard procedure and is followed in each and every case.

We guide our clients on banking services and help them open bank accounts.  Our staff also guide them through in preparing, post dated cheques and train them as to how the post dated cheques will be processed.  Few days before the due dates, each client is contacted by phone (if available nearby), letter or personal visits and is reminded that the required rental amount should be deposited into the bank account to cover the rental.

Lessons learnt so far:
Microleasing is a new product in Pakistan and it is different from other loan products in many ways.  The clients are given an asset instead of cash.  In case of general loan, the client may borrow money in the name of say a sewing machine.  She might however use it for childrens' wedding.  The reason is not that the client is necessarily dishonest.  At the micro level it is almost impossible to separate the private household from the business activities and therefore the temptations are enormous.  Such a misuse is difficult in case of leasing as the item is bought by the lessor through a competitive bidding process.  This ensures that the item is used strictly for productive purposes and thus reduces the probability of default.

NLC is responding to the ground realities that ask for flexibility, constant improvements and innovations in product design, The success of the leasing program call be attributed to the flexibility of its design.  A lessee could make partial or substantial payment of the leased amount any time.  This allows the borrowers to take advantage of say air improved market condition.  The lease contract can be structured in order to accommodate seasonal variations and trade cycles.

The ability to make variable installments enhances the debt capacity of the borrower because it allows them to synchronize payment with income flow.  They pay a small down payment and the income from the asset pays for the installment amounts.

Leasing appears to be more conducive to enhance the borrower's sustainability.  It could solve the problem of graduation Of successful borrowers.  In group lending, different members of the group differ in ability and entrepreneurship.  In these situations, it is difficult for a creditor to separate entrepreneurial borrowers from ordinary borrowers and reward them with larger and more flexible loans.  Through the leasing program, NLC is able to reward clients who have a good repayment record and the instrument can also be used to reward successful clusters (live stock leases in villages).  Recent developments in group lending theory suggest that if the liability constraint binds and the borrowers are risk averse, the relatively better off among the poor borrowers may prefer loans based oil individual incentives.  This is because as the wealth of the borrower increases, their incentive to monitor others in the group decreases.

The modest success of microleasing suggests some important lessons for the MFIS.  It shows that poor people have diverse credit needs.  To help the poor borrowers graduate out of poverty, MFIs have to provide different and flexible products.  If an MFI has a good institutional set-up in place and it can carefully design products that are flexible, borrowers will use the product to their advantage.

Vision and hope:
Since we are accountable to thousands of our small shareholders, our operations had to be not only self sufficient from day one, but also economically viable.

We now believe that this is the only way to make a break-through in the meaningful developement of the microenterprise sector if it is to be used for poverty alleviation.

The financial markets within and outside Pakistan must see that micro enterprise financing is a viable and sustainable proposition.  This we see as the process whereby the markets would feel comfortable in dealing with the microcredit practitioners.

NLC will grow, but it will not measure its growth by the amount it finances.  Rather, the key criteria will be the quality and efficiency of its services, the effectiveness of the programs it finances, and the depth and quality of the partnerships it develops, with its clients and its partners, the financial and development community and the Government.  In other words the real benefits accruing to its clients.

We would endeavor to expand our operations in the urban, semi urban and specially the rural areas of the country.

By increasing the scale of activities in the rural areas, we would make a humble attempt to foster rural industrialization in agro based activities. A strong and effective rural industrial base could be an important tool to reduce poverty.  Rural industries would create stable source of employment and check the out-migration of population to the urban areas.  It can be used to help the hardcore poor and thus create an environment in the country where at least some effort is made to develop the economy on a just and equitable basis.

Microenterprises will continue to play a significant role in the economic development as they will continue to create employment opportunities at relatively low capital inputs, provide the needed support linkages to other sectors and serve as effective training grounds for entrepreneurial and subsequently managerial talents.

Once the economic benefits start reaching the mijority in meaningful ways, the role of microenterprises will become catalytic in the move towards prosperity.

We would hope that in not too distant a future, Pakistan may advance to the level of a middle income economy.  Not so much in terms of statistics, but more in the way of human development and dignity.  It has near ideal landscape and sea shores and is endowed with hardworking and enterprising people.  It would sooner, rather than later, learn the art of economic and human resource management - equity - which is the main source of any meaningful progress.