The Competition Authority of Kenya is conducting a market inquiry in to the leasing sector with a view to safeguard and promote leasing as an alternative to financing capital goods.
“A robust leasing sector is likely to exert competitive pressure in the asset and operational lease market which would be beneficial to the consumers of leases including SMEs, Government and large enterprises in terms of reduced in prices and product innovation” reads the notice in the Gazette.
The authority acknowledges that leasing has significant potential for expanding SME finance and a regulatory framework is needed to exploit this opportunity. “The aim of the study is to assess the current state of play in the market for such leasing by examining the structure, dimensions and the intensity of competition, the conduct of market players and the regulatory framework under which leasing Sector operates,” it adds.
The study will focus on leasing in financial services, agriculture, health, extractives and retail sectors among others. The ultimate objective of the study is to develop an effective regulatory framework to govern the sector and also deepen competition.
While the government dangled the leasing carrot in the 2010/2011 financial year when Uhuru Kenyatta ordered the procurement of 1000 vehicles through leasing for the national security, it never took off until in 2014. The Kenya National Police Service got its first fleet of leased 1000 vehicles. There was to be an addition 1000 others in 2015.
National Treasury Cabinet Secretary Henry Rotich said that the biggest challenge the government has had is in transport is maintenance. “When a vehicle is taken for service, there is no service delivery. But in this leasing arrangement, there is no time we will be out of operation because when a vehicle goes for service, the leasing company provides another to fill the gap.”
Currently there are various leasing agreements in both government and private sector, with the biggest and perhaps controversial being the sh38 billion medical equipment to counties.
Experts argue that leasing solves the perennial government problem of getting stuck with expensive vehicles or equipment that lie idle or get misused. At the end of the lease, government get to return the vehicles to the leasing companies who then sell the vehicles and get into a new contract that delivers another set of new vehicles. This increases efficiency in government operations even as it saves money.
In addition, it is believed that leasing enable institutions concentrate on their core responsibilities such as provision of services, cut operational costs and achieve increased efficiencies.
The study by the Competition Authority aims to assess the legislative framework governing the operation of leasing entities and the mechanisms of enforcing leasing contracts, whether there are agreements in the sector which prevent, distort or restrict competition and affect consumer welfare and establish if there are any barriers to entry and exit pertaining to the sector that inhibit competition and effective market functions.
It also seeks to know the sources of competitive advantages being exploited by the key players and the main channels utilized to obtain business, determine whether any of the provider segments are better positioned for compliance within the existing regulatory framework than others and examine the licensing regimes for each provider segment to inform the legal and regulatory framework to encourage greater competition in the leasing sector in Kenya.