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AFRICA LEASING
FACILITY II
AFRICA LEASING
FACILITY II
2017
1
© 2017 INTERNATIONAL FINANCE CORPORATION
2121 Pennsylvania Avenue, NW, Washington, DC 20433
All rights reserved.
This document may not be reproduced in whole or in part without the written consent of the International Finance Corporation. This information, while based on sources that IFC considers to be reliable, is not guaranteed as to accuracy and does not purport to be complete.
The conclusions and judgments contained in this report should not be attributed to, and do not necessarily represent the views of, IFC, its partners, or the World Bank Group. IFC and the World Bank do not guarantee the accuracy of the data in this publication and accept no responsibility for any consequence of their use.
Cover photo credit: Joe Laurence, Seychelles News Agency
We would like to thank all stakeholders whose efforts led to the creation of an enabling environment for leasing in Seychelles and have been valuable to the publication of this market study.
Specifically, the Central Bank of Seychelles and IFC would like to thank the following organizations for their contributions
Ÿ Ministry of Finance and Trade
Ÿ Ministry of Fisheries and Agriculture
Ÿ Ministry of Investment, Entrepreneurship Development and Business Innovation
Ÿ Ministry of Tourism and Culture
Ÿ Office of the Attorney General
Ÿ Seychelles Breweries Ltd
Ÿ Seychelles Chamber of Commerce
Ÿ Seychelles Energy Commission
Ÿ Seychelles Fishing Authority
Ÿ Seychelles Licensing Authority
Ÿ Seychelles Public Transport Corporation
Ÿ Seychelles Trading Company
Ÿ Small Enterprise Promotion Agency
Ÿ GOS-UNDP-GEF Programme Coordination Unit
Ÿ Abhaye Valabhji
Ÿ BDO Associates
Ÿ Ernst & Young Seychelles
Ÿ Meghjee Kalyanji & Co Pvt Ltd
Ÿ PMC Group
Ÿ Rent a Car Owners Association
Ÿ SODEPAK Industries Ltd
Ÿ Hotel L’ Archipel
ACKNOWLEDGEMENTS
1
© 2017 INTERNATIONAL FINANCE CORPORATION
2121 Pennsylvania Avenue, NW, Washington, DC 20433
All rights reserved.
This document may not be reproduced in whole or in part without the written consent of the International Finance Corporation. This information, while based on sources that IFC considers to be reliable, is not guaranteed as to accuracy and does not purport to be complete.
The conclusions and judgments contained in this report should not be attributed to, and do not necessarily represent the views of, IFC, its partners, or the World Bank Group. IFC and the World Bank do not guarantee the accuracy of the data in this publication and accept no responsibility for any consequence of their use.
Cover photo credit: Joe Laurence, Seychelles News Agency
We would like to thank all stakeholders whose efforts led to the creation of an enabling environment for leasing in Seychelles and have been valuable to the publication of this market study.
Specifically, the Central Bank of Seychelles and IFC would like to thank the following organizations for their contributions
Ÿ Ministry of Finance and Trade
Ÿ Ministry of Fisheries and Agriculture
Ÿ Ministry of Investment, Entrepreneurship Development and Business Innovation
Ÿ Ministry of Tourism and Culture
Ÿ Office of the Attorney General
Ÿ Seychelles Breweries Ltd
Ÿ Seychelles Chamber of Commerce
Ÿ Seychelles Energy Commission
Ÿ Seychelles Fishing Authority
Ÿ Seychelles Licensing Authority
Ÿ Seychelles Public Transport Corporation
Ÿ Seychelles Trading Company
Ÿ Small Enterprise Promotion Agency
Ÿ GOS-UNDP-GEF Programme Coordination Unit
Ÿ Abhaye Valabhji
Ÿ BDO Associates
Ÿ Ernst & Young Seychelles
Ÿ Meghjee Kalyanji & Co Pvt Ltd
Ÿ PMC Group
Ÿ Rent a Car Owners Association
Ÿ SODEPAK Industries Ltd
Ÿ Hotel L’ Archipel
ACKNOWLEDGEMENTS
AbbreviationsALF - AFRICA LEASING FACILITY (IFC)ASBS - AL SALAM BANK SEYCHELLESBAH - BANK AL HABIBBBS - BARCLAYS BANK (SEYCHELLES) LIMITEDBDC - BUREAUX DE CHANGEBOB - BANK OF BARODABOC - BANK OF CEYLONCA - CAPITAL ALLOWANCECBS - CENTRAL BANK OF SEYCHELLESCDR - COLLATERAL DATABASE REGISTRYCIS - CREDIT INFORMATION SYSTEMCUA - CREDIT UNION ACTFLA - FINANCIAL LEASING ACT, 2013FLIS - FINANCIAL LEASING INSTITUTIONSGDP - GROSS DOMESTIC PRODUCTIONHBL - HABIB BANK LIMITEDIAS - INTERNATIONAL ACCOUNTING STANDARDSIFC - INTERNATIONAL FINANCE CORPORATIONIFRS - INTERNATIONAL FINANCIAL REPORTING STANDARDSMCBS - MAURITIUS COMMERCIAL BANK OF SEYCHELLESMSMES - MICRO, SMALL AND MEDIUM-SIZED ENTERPRISESMFTBE - MINISTRY OF FINANCE, TRADE AND THE BLUE ECONOMY*NPL - NON-PERFORMING LOANSNVB - NOUVOBANQSCB - SEYCHELLES COMMERCIAL BANKSEYFA - SEYCHELLES FARMERS' ASSOCIATIONSEC - SEYCHELLES ENERGY COMMISSIONSEEREP - SEYCHELLES ENERGY EFFICIENCY AND RENEWABLE ENERGY PROGRAMSFA - SEYCHELLES FISHING AUTHORITYSPTC - SEYCHELLES PUBLIC TRANSPORT CORPORATIONSTA - SECURED TRANSACTIONS ACT, 2015VAT - VALUE ADDED TAX
Table of Contents
2 3
1. Seychelles Country Overview 07
Select country, population, economicand trade information 08
2. Executive Summary
3. Economic Performance as Reported by the Central Bank of Seychelles 2015 Annual Report 14
Fisheries
Agriculture
Industries
Construction
Manufacturing
Services
Tourism
Telecommunications
Financial services
4. Macro-Economic Indicators
5. Overview of Financial Sector and Role of the Central Bank of Seychelles
Primary sector 16
17
17
17
17
18
18
18
19
19
20
24
6. Overview of Banking Sector
Legislative and regulatory developments in the financial sector
Central Bank of Seychelles Act, 2004
Financial Institutions Act 2004 (FIA) as amended
Financial Leasing Act (FLA) 2013
Credit Union Act (CUA) 2009
Delegation of Statutory Functions (DBS Decree) Order 2009
2728
28
7. Overview of Seychelles Leasing Industry 30
Sector-wide distribution of advances
Non performing loan distribution among sectors
Leasing potential and investment opportunities in Seychelles
Opportunities for developing innovative leasing products in the future
31
33
34
34
Basic finance leases
Step-up leases
Step-down leases
Skipped payment leases
Balloon payment leases
Uneven payment leases
Full maintenance leases/Wet leases
Vendor captive leasing
Operating leases
35
35
35
36
36
36
36
36
36
SEYCHELLES LEASING MARKET STUDY: 2017
09
26
Central Bank of Seychelles (Credit Information System) Regulations
28
28
29
29
AbbreviationsALF - AFRICA LEASING FACILITY (IFC)ASBS - AL SALAM BANK SEYCHELLESBAH - BANK AL HABIBBBS - BARCLAYS BANK (SEYCHELLES) LIMITEDBDC - BUREAUX DE CHANGEBOB - BANK OF BARODABOC - BANK OF CEYLONCA - CAPITAL ALLOWANCECBS - CENTRAL BANK OF SEYCHELLESCDR - COLLATERAL DATABASE REGISTRYCIS - CREDIT INFORMATION SYSTEMCUA - CREDIT UNION ACTFLA - FINANCIAL LEASING ACT, 2013FLIS - FINANCIAL LEASING INSTITUTIONSGDP - GROSS DOMESTIC PRODUCTIONHBL - HABIB BANK LIMITEDIAS - INTERNATIONAL ACCOUNTING STANDARDSIFC - INTERNATIONAL FINANCE CORPORATIONIFRS - INTERNATIONAL FINANCIAL REPORTING STANDARDSMCBS - MAURITIUS COMMERCIAL BANK OF SEYCHELLESMSMES - MICRO, SMALL AND MEDIUM-SIZED ENTERPRISESMFTBE - MINISTRY OF FINANCE, TRADE AND THE BLUE ECONOMY*NPL - NON-PERFORMING LOANSNVB - NOUVOBANQSCB - SEYCHELLES COMMERCIAL BANKSEYFA - SEYCHELLES FARMERS' ASSOCIATIONSEC - SEYCHELLES ENERGY COMMISSIONSEEREP - SEYCHELLES ENERGY EFFICIENCY AND RENEWABLE ENERGY PROGRAMSFA - SEYCHELLES FISHING AUTHORITYSPTC - SEYCHELLES PUBLIC TRANSPORT CORPORATIONSTA - SECURED TRANSACTIONS ACT, 2015VAT - VALUE ADDED TAX
Table of Contents
2 3
1. Seychelles Country Overview 07
Select country, population, economicand trade information 08
2. Executive Summary
3. Economic Performance as Reported by the Central Bank of Seychelles 2015 Annual Report 14
Fisheries
Agriculture
Industries
Construction
Manufacturing
Services
Tourism
Telecommunications
Financial services
4. Macro-Economic Indicators
5. Overview of Financial Sector and Role of the Central Bank of Seychelles
Primary sector 16
17
17
17
17
18
18
18
19
19
20
24
6. Overview of Banking Sector
Legislative and regulatory developments in the financial sector
Central Bank of Seychelles Act, 2004
Financial Institutions Act 2004 (FIA) as amended
Financial Leasing Act (FLA) 2013
Credit Union Act (CUA) 2009
Delegation of Statutory Functions (DBS Decree) Order 2009
2728
28
7. Overview of Seychelles Leasing Industry 30
Sector-wide distribution of advances
Non performing loan distribution among sectors
Leasing potential and investment opportunities in Seychelles
Opportunities for developing innovative leasing products in the future
31
33
34
34
Basic finance leases
Step-up leases
Step-down leases
Skipped payment leases
Balloon payment leases
Uneven payment leases
Full maintenance leases/Wet leases
Vendor captive leasing
Operating leases
35
35
35
36
36
36
36
36
36
SEYCHELLES LEASING MARKET STUDY: 2017
09
26
Central Bank of Seychelles (Credit Information System) Regulations
28
28
29
29
15. Leasing potential per sector
Tourism sector
Fisheries sector
Renewable Energy
Transport sector
Manufacturing
Construction
Agriculture and livestock Equipment suppliers
16. Conclusion and Recommendations
17. IFC, member of the World Bank Group
IFC’s role and impact in leasing market development
IFC Africa Leasing Facility II and Cooperation Agreement with the Central Bank of Seychelles
18. References
19. Data Sources
List of interviews and discussions
20. Glossary
8. Leasing and the Development of MSMEs 37
Benefits of leasing to SME development
ME financing in Seychelles
9. Accounting Framework for Leasing
Classification of lease transaction
Finance lease
Operating lease
Lease term and non-cancellable period
Lessor’s responsibility for the leased asset
Lessee’s responsibility
Accounting for leasing in Seychelles
Finance leases – Accounting by lessee
Finance leases –A ccounting by lessor
Fair value
Operating leases – Accounting by lessee
Operating leases – Accounts of the lessor
12. The Credit Information System of Seychelles
13. Collateral Database Registry (CDR)
14. Training and Development Finance leasing institutions and banks
Corporations, MSMEs and self-employed individuals
Asset suppliers
Judiciary, revenue authority and the finance ministry
Regulators
39
42
44
45
45
40
44
45
45
45
45
46
46
46
47
49
10. Capital Allowances and Taxes
Capital Allowances (CA) – finance leasing
48
49
Capital Allowance (CA) – operating leases
Taxes applicable to financial institutions
Value added tax (VAT) on finance leases
49
49
59
61
62
63
63
63
64
64
11. Leasing Legislations & Regulations 50
Formation of a lease contract 51
Conclusion 57
Rights, obligations and duties 52
Registration of finance leases and leased assets 53
Licensing of finance leasing business 54
Financial leasing (lease classification and provisioning) regulations, 2014 55
Financial leasing (capital adequacy and reserve fund) regulations, 2014 56
65
66
69
73
76
78
80
81
83
84
85
86
87
88
89
89
91
SEYCHELLES LEASING MARKET STUDY: 2017
4 5
15. Leasing potential per sector
Tourism sector
Fisheries sector
Renewable Energy
Transport sector
Manufacturing
Construction
Agriculture and livestock Equipment suppliers
16. Conclusion and Recommendations
17. IFC, member of the World Bank Group
IFC’s role and impact in leasing market development
IFC Africa Leasing Facility II and Cooperation Agreement with the Central Bank of Seychelles
18. References
19. Data Sources
List of interviews and discussions
20. Glossary
8. Leasing and the Development of MSMEs 37
Benefits of leasing to SME development
ME financing in Seychelles
9. Accounting Framework for Leasing
Classification of lease transaction
Finance lease
Operating lease
Lease term and non-cancellable period
Lessor’s responsibility for the leased asset
Lessee’s responsibility
Accounting for leasing in Seychelles
Finance leases – Accounting by lessee
Finance leases –A ccounting by lessor
Fair value
Operating leases – Accounting by lessee
Operating leases – Accounts of the lessor
12. The Credit Information System of Seychelles
13. Collateral Database Registry (CDR)
14. Training and Development Finance leasing institutions and banks
Corporations, MSMEs and self-employed individuals
Asset suppliers
Judiciary, revenue authority and the finance ministry
Regulators
39
42
44
45
45
40
44
45
45
45
45
46
46
46
47
49
10. Capital Allowances and Taxes
Capital Allowances (CA) – finance leasing
48
49
Capital Allowance (CA) – operating leases
Taxes applicable to financial institutions
Value added tax (VAT) on finance leases
49
49
59
61
62
63
63
63
64
64
11. Leasing Legislations & Regulations 50
Formation of a lease contract 51
Conclusion 57
Rights, obligations and duties 52
Registration of finance leases and leased assets 53
Licensing of finance leasing business 54
Financial leasing (lease classification and provisioning) regulations, 2014 55
Financial leasing (capital adequacy and reserve fund) regulations, 2014 56
65
66
69
73
76
78
80
81
83
84
85
86
87
88
89
89
91
SEYCHELLES LEASING MARKET STUDY: 2017
4 5
6 7
SEYCHELLES LEASING MARKET STUDY: 2017
Table 8. Total Fish Ex ports 2006 - 2014 68
Table 7. Total Private Sect or Foreign Borrowings 65
56 Table 6. Asset Categories and Basis of Amortization for Provisioning Purposes
Table 5. Types of Provisioning, Rules and Classification 55
Table 3. Vehicle Registrations 2012 - 2013 54
Table 2. Sectorial Distribution of NPLs 33
Table 1. Sectorial Loan Distribution 32
Figure 10. Total Fish Exports 2006-2015 68
Figure 9. Tourism Indicators 2011 - 2015 64
Figure 8. Visitor Arrivals 2005 - 2015 64
Figure 7. Interest Rate Movement 2005 – 2015 23
Figure 6. Interest Rates 2011 - 2015 23
Figure 5. Inflation Rate Movement 2011 – 2015 22
Figure 4. Inflation Rates 2011 – 2015 21
Figure 3. Price Movements 2005 – 2015 21
Figure 2. Sector Distribution as Percentage of GDP 2015 16
Figure 1. GDP Growth Rates 2006 - 2015 15
FIGURES AND TABLES SEYCHELLES COUNTRY OVERVIEW
6 7
SEYCHELLES LEASING MARKET STUDY: 2017
Table 8. Total Fish Ex ports 2006 - 2014 68
Table 7. Total Private Sect or Foreign Borrowings 65
56 Table 6. Asset Categories and Basis of Amortization for Provisioning Purposes
Table 5. Types of Provisioning, Rules and Classification 55
Table 3. Vehicle Registrations 2012 - 2013 54
Table 2. Sectorial Distribution of NPLs 33
Table 1. Sectorial Loan Distribution 32
Figure 10. Total Fish Exports 2006-2015 68
Figure 9. Tourism Indicators 2011 - 2015 64
Figure 8. Visitor Arrivals 2005 - 2015 64
Figure 7. Interest Rate Movement 2005 – 2015 23
Figure 6. Interest Rates 2011 - 2015 23
Figure 5. Inflation Rate Movement 2011 – 2015 22
Figure 4. Inflation Rates 2011 – 2015 21
Figure 3. Price Movements 2005 – 2015 21
Figure 2. Sector Distribution as Percentage of GDP 2015 16
Figure 1. GDP Growth Rates 2006 - 2015 15
FIGURES AND TABLES SEYCHELLES COUNTRY OVERVIEW
8 9
EXECUTIVE SUMMARY
SEYCHELLES LEASING MARKET STUDY: 2017
Location East Africa
Ca itp al Victoria
Pop s at December 2015 ulation a 93,144
Monetary Unit Seychelles upe R es
Currency onv C ersion EUR 1 = SCR 14.7554U D 1 = RS SC 13.3096
Population Gro th Rate (2w 015) 1.1%
Urban on Populati 53.60%
Li cy tera 91 %.40
Offici l Lan ge a gua Seychell h and Frenchois Creole, Englis
Ma n Religioi ns Ro an Ca ol m th icism
GDP at curr t l e ( 01en market va u 2 5)¹ 18,351 i.8 SCR m llion
GDP Growth Rate (2015) 4.3%
GDP Compos or (2015) ition by Sect Services 80.0%,
Ind try (constructio nd ing) 9.5%, us n a manufactur
Agriculture 1.2%
Inflation (2015) 4%
Eas oing bu i nk ² (2015) e of d s ness ra ing 95 out of 189 countries
Tota Me hl rc andise Exports (2015) U D 253 ill on S m i
Total Mer h sc andise Import (2015) U D 848 milS lion
Sources - Central Bank of Seychelles Annual Report 2015 and Central Bank of Seychelles, Financial Ser vices Supervision Report 2014 & 2015
Select country, population, economic and trade information
8 9
EXECUTIVE SUMMARY
SEYCHELLES LEASING MARKET STUDY: 2017
Location East Africa
Ca itp al Victoria
Pop s at December 2015 ulation a 93,144
Monetary Unit Seychelles upe R es
Currency onv C ersion EUR 1 = SCR 14.7554U D 1 = RS SC 13.3096
Population Gro th Rate (2w 015) 1.1%
Urban on Populati 53.60%
Li cy tera 91 %.40
Offici l Lan ge a gua Seychell h and Frenchois Creole, Englis
Ma n Religioi ns Ro an Ca ol m th icism
GDP at curr t l e ( 01en market va u 2 5)¹ 18,351 i.8 SCR m llion
GDP Growth Rate (2015) 4.3%
GDP Compos or (2015) ition by Sect Services 80.0%,
Ind try (constructio nd ing) 9.5%, us n a manufactur
Agriculture 1.2%
Inflation (2015) 4%
Eas oing bu i nk ² (2015) e of d s ness ra ing 95 out of 189 countries
Tota Me hl rc andise Exports (2015) U D 253 ill on S m i
Total Mer h sc andise Import (2015) U D 848 milS lion
Sources - Central Bank of Seychelles Annual Report 2015 and Central Bank of Seychelles, Financial Ser vices Supervision Report 2014 & 2015
Select country, population, economic and trade information
10 11
EFFICIENT CREDIT INFORMATION SYSTEMThe country has an efficient and effective Credit Information System (CIS) which will help in financial institutions' decision making processes. Currently, CIS access is available for participating institutions, which will effectively also include financial leasing institutions as well.
Amendments effected to the legal framework in October 2014 have also allowed all customers of participating institutions, rather than just loan applicants and guarantors, to make inquiries from the CIS.
CLEARLY DEFINED FINANCE LEASING PROCESS, WITHOUT ACCESS TO FINANCE FOR MSMES
The licensing process is clearly defined in the Financial Leasing Act, 2013 as well as subsidiary legislations, more specifically the Financial Leasing (Licensing) Regulations, 2014. Companies wishing to offer finance leases are required to apply for a financial leasing license from CBS. In addition, banks wishing to offer finance leases under the purview of their existing banking business license would also be required to obtain prior approval. Currently, banks finance assets via loans, such as through motor vehicle loans. However, access to medium-term financing of assets for the MSME sector has been a major constraint.
VAT LIABILITY EXEMPTION INTRODUCED ON LEASE RENTALIn a positive development towards developing finance leasing in Seychelles, the Ministry of Finance, Trade and the Blue Economy (MFTBE)⁴ has exempted the lease rental from VAT liability. This is an incentive for the development of financial leasing and is expected to result in the growth of leasing to finance used assets. Considering the low depreciation of used motor vehicle value, this presents an additional opportunity for leasing industry expansion. As a result, the impact on the balance of payments is expected to decrease due to a likely decline in importation of new vehicles given the attractiveness of financing used vehicles, thereby positively affecting foreign currency outflows from the country.
The increased availability of financing for used vehicles and equipment will afford users the opportunity to acquire such equipment with a longer repayment period. In the absence of this, they must resort to acquiring a new asset, which would have to be imported from a foreign country.
Leasing is an innovative product that offers micro, small and medium-sized enterprises (MSMEs) with much needed term financing to invest in productive and income generating equipment. It is particularly effective in economies in which MSMEs provide strong growth and employment opportunities, but lack access to financing necessary to grow their businesses due to the unavailability of capital or collateral required by most financial institutions. A dynamic leasing sector can greatly benefit a country's economy as it generates access to finance that, in turn, may create employment and opportunities for domestic investment.
In general, there are two types of leases: finance leases and operating leases. Under financial leasing, legal ownership remains with the lessor during the tenor, while the lessee enjoys the right to economic use of the asset³. The asset could range from something as simple as a tractor or boat lift to high-tech equipment necessary to operate a factory, such as solar panels. At present, there are no licensed institutions which offer finance leasing in Seychelles. Although there are a few vehicle vendors offering operating leases to business entities, financial leasing is the driver in developing a flourishing leasing sector, hence the focus of this study.
Current governmental policies are working to support increased access to finance for MSMEs. In maintaining this momentum, the introduction of finance leasing would further facilitate improved efficiency in the allocation of capital and therefore have a greater multiplier effect on the overall economy, as well as dampen the impact of external shocks in the long run. In recent years, the Government of Seychelles has therefore been working to create a favorable regulatory and legislative environment for the introduction of a finance leasing industry.
SEYCHELLES LEASING INDUSTRY AT INCEPTION STAGE
Although the financial leasing industry is currently at the inception stage, the Central Bank of Seychelles (CBS) is aggressively working on the regulatory framework and the support structure required to properly develop the industry in Seychelles. The Financial Leasing Act was enacted in 2013, followed thereafter by the issuance of three pieces of regulations issued thereunder in 2014: Licensing, Capital Adequacy and Reserve Fund, and Lease Classification and Provisioning.
SEYCHELLES LEASING MARKET STUDY: 2017
10 11
EFFICIENT CREDIT INFORMATION SYSTEMThe country has an efficient and effective Credit Information System (CIS) which will help in financial institutions' decision making processes. Currently, CIS access is available for participating institutions, which will effectively also include financial leasing institutions as well.
Amendments effected to the legal framework in October 2014 have also allowed all customers of participating institutions, rather than just loan applicants and guarantors, to make inquiries from the CIS.
CLEARLY DEFINED FINANCE LEASING PROCESS, WITHOUT ACCESS TO FINANCE FOR MSMES
The licensing process is clearly defined in the Financial Leasing Act, 2013 as well as subsidiary legislations, more specifically the Financial Leasing (Licensing) Regulations, 2014. Companies wishing to offer finance leases are required to apply for a financial leasing license from CBS. In addition, banks wishing to offer finance leases under the purview of their existing banking business license would also be required to obtain prior approval. Currently, banks finance assets via loans, such as through motor vehicle loans. However, access to medium-term financing of assets for the MSME sector has been a major constraint.
VAT LIABILITY EXEMPTION INTRODUCED ON LEASE RENTALIn a positive development towards developing finance leasing in Seychelles, the Ministry of Finance, Trade and the Blue Economy (MFTBE)⁴ has exempted the lease rental from VAT liability. This is an incentive for the development of financial leasing and is expected to result in the growth of leasing to finance used assets. Considering the low depreciation of used motor vehicle value, this presents an additional opportunity for leasing industry expansion. As a result, the impact on the balance of payments is expected to decrease due to a likely decline in importation of new vehicles given the attractiveness of financing used vehicles, thereby positively affecting foreign currency outflows from the country.
The increased availability of financing for used vehicles and equipment will afford users the opportunity to acquire such equipment with a longer repayment period. In the absence of this, they must resort to acquiring a new asset, which would have to be imported from a foreign country.
Leasing is an innovative product that offers micro, small and medium-sized enterprises (MSMEs) with much needed term financing to invest in productive and income generating equipment. It is particularly effective in economies in which MSMEs provide strong growth and employment opportunities, but lack access to financing necessary to grow their businesses due to the unavailability of capital or collateral required by most financial institutions. A dynamic leasing sector can greatly benefit a country's economy as it generates access to finance that, in turn, may create employment and opportunities for domestic investment.
In general, there are two types of leases: finance leases and operating leases. Under financial leasing, legal ownership remains with the lessor during the tenor, while the lessee enjoys the right to economic use of the asset³. The asset could range from something as simple as a tractor or boat lift to high-tech equipment necessary to operate a factory, such as solar panels. At present, there are no licensed institutions which offer finance leasing in Seychelles. Although there are a few vehicle vendors offering operating leases to business entities, financial leasing is the driver in developing a flourishing leasing sector, hence the focus of this study.
Current governmental policies are working to support increased access to finance for MSMEs. In maintaining this momentum, the introduction of finance leasing would further facilitate improved efficiency in the allocation of capital and therefore have a greater multiplier effect on the overall economy, as well as dampen the impact of external shocks in the long run. In recent years, the Government of Seychelles has therefore been working to create a favorable regulatory and legislative environment for the introduction of a finance leasing industry.
SEYCHELLES LEASING INDUSTRY AT INCEPTION STAGE
Although the financial leasing industry is currently at the inception stage, the Central Bank of Seychelles (CBS) is aggressively working on the regulatory framework and the support structure required to properly develop the industry in Seychelles. The Financial Leasing Act was enacted in 2013, followed thereafter by the issuance of three pieces of regulations issued thereunder in 2014: Licensing, Capital Adequacy and Reserve Fund, and Lease Classification and Provisioning.
SEYCHELLES LEASING MARKET STUDY: 2017
12
Most entities in this sector carry out production to cater to local market demand. There is therefore tremendous potential for the leasing of specialized equipment to this segment in addition to opportunities in the relevant supply chain and distributor channels which require vehicles to transport raw materials and finished goods between suppliers and retailers. The loan disbursement rate to this sector was 1.76% in 2015, much lower compared to other sectors.
However, there is a large gap between local demand and the items produced in Seychelles. In order to minimize the country's reliance on imports, the country would therefore benefit from developing its manufacturing sector. Given the perceived lack of economies of scale, availability of flat land upon which to develop substantial manufacturing plants and the cost of production however, this would require some innovative solutions to address these concerns. In an effort to make local manufacturing financially possible and attractive, the government could, for example, place an additional impor t tax on products produced in country when it makes sense to do so.
The fisheries sector contributed to almost 1% of the country's GDP in 2014 and 2015. However, the sector has not witnessed expected growth over the last 10 years mainly due to the non-availability of f u n d i n g fo r fi s h i n g b o a t s a n d p ro c e s s i n g equipment. There is therefore great potential in this sector for leasing once introduced.
The renewable energy sector has been identified by the Government of Seychelles as an area for growth over the next 5 years, with its ambitious plan to support 8,500 households to begin utilizing renewable energy within this timeframe. With subsidies and guarantees given to households acquiring renewable energy photovoltaic systems, there is a promising opportunity for growth in the leasing business in this sector.
Given the public transport sector is managed by the Government of Seychelles through the Seychelles Public Transport Corporation (SPTC), the greatest oppor tunity for leasing in the transport sector is likely to be through rental car operators and individuals buying vehicles for private use. In addition, there is likely to be demand for leasing vehicles used for transporting goods in the tourism supply chain, manufacturing, construction and fisheries sectors.
13
CAPITAL ALLOWANCE ACCORDED TO LESSOR WOULD PROVIDE INCENTIVE TO FURTHER DEVELOP LEASINGThe accounting for lease transactions will be carried out based on the International Accounting Standards (IAS). The Capital Allowance (CA) for taxation would therefore be claimed by the lessee. It would have been an additional incentive to develop leasing in Seychelles if the CA was accorded as an allowable expense for the lessor when computing taxes.
NEED FOR ONGOING TRAINING FOR INDUSTRY STAKEHOLDERS AND ADEQUATE RESOURCE ALLOCATIONOne of the greatest challenges for regulators and the industry as a whole, is the ability to carry out training and development for key industry stakeholders. Without adequate training and a plan for such training, the success of sector development is likely to be hampered. In addition,lack of adequate resource allocation for the development of the industry on behalf of regulators, is also likely to impact its development.
FUTURE POTENTIAL…
As the sector which provides the greatest contribution to the country's GDP—29% directly and an estimated indirect contribution of 62% (Ministry of Tourism) —the tourism sector, as well as those involved in its supply chain are likely to be the biggest beneficiaries of a prospective leasing market as it presents ample opportunity for leasing business. With the government 's ambitious plans to promote tourism over the next few years, leasing penetration could experience a significant increase once leasing is formally introduced. Currently, the tourism sector has the highest loan distribution, recorded at 17.5% and 17% in 2014 and 2015 respectively.
With the development of the tourism sector and the introduction of the new international rating system for hotels beginning in 2017, the second highest potential for leasing business is likely to be in the construction sector which contributed 3% to the GDP in the year 2015. At present, although the majority of equipment in this sector is foreign funded, there is likely to be an increased opportunity for construction companies to finance such machinery locally following the introduction of leasing. In 2014 and 2015 the loan distribution to the construction sector was over 8%. (Source – Financial Services Supervision Report 2015)
SEYCHELLES LEASING MARKET STUDY: 2017
12
Most entities in this sector carry out production to cater to local market demand. There is therefore tremendous potential for the leasing of specialized equipment to this segment in addition to opportunities in the relevant supply chain and distributor channels which require vehicles to transport raw materials and finished goods between suppliers and retailers. The loan disbursement rate to this sector was 1.76% in 2015, much lower compared to other sectors.
However, there is a large gap between local demand and the items produced in Seychelles. In order to minimize the country's reliance on imports, the country would therefore benefit from developing its manufacturing sector. Given the perceived lack of economies of scale, availability of flat land upon which to develop substantial manufacturing plants and the cost of production however, this would require some innovative solutions to address these concerns. In an effort to make local manufacturing financially possible and attractive, the government could, for example, place an additional impor t tax on products produced in country when it makes sense to do so.
The fisheries sector contributed to almost 1% of the country's GDP in 2014 and 2015. However, the sector has not witnessed expected growth over the last 10 years mainly due to the non-availability of f u n d i n g fo r fi s h i n g b o a t s a n d p ro c e s s i n g equipment. There is therefore great potential in this sector for leasing once introduced.
The renewable energy sector has been identified by the Government of Seychelles as an area for growth over the next 5 years, with its ambitious plan to support 8,500 households to begin utilizing renewable energy within this timeframe. With subsidies and guarantees given to households acquiring renewable energy photovoltaic systems, there is a promising opportunity for growth in the leasing business in this sector.
Given the public transport sector is managed by the Government of Seychelles through the Seychelles Public Transport Corporation (SPTC), the greatest oppor tunity for leasing in the transport sector is likely to be through rental car operators and individuals buying vehicles for private use. In addition, there is likely to be demand for leasing vehicles used for transporting goods in the tourism supply chain, manufacturing, construction and fisheries sectors.
13
CAPITAL ALLOWANCE ACCORDED TO LESSOR WOULD PROVIDE INCENTIVE TO FURTHER DEVELOP LEASINGThe accounting for lease transactions will be carried out based on the International Accounting Standards (IAS). The Capital Allowance (CA) for taxation would therefore be claimed by the lessee. It would have been an additional incentive to develop leasing in Seychelles if the CA was accorded as an allowable expense for the lessor when computing taxes.
NEED FOR ONGOING TRAINING FOR INDUSTRY STAKEHOLDERS AND ADEQUATE RESOURCE ALLOCATIONOne of the greatest challenges for regulators and the industry as a whole, is the ability to carry out training and development for key industry stakeholders. Without adequate training and a plan for such training, the success of sector development is likely to be hampered. In addition,lack of adequate resource allocation for the development of the industry on behalf of regulators, is also likely to impact its development.
FUTURE POTENTIAL…
As the sector which provides the greatest contribution to the country's GDP—29% directly and an estimated indirect contribution of 62% (Ministry of Tourism) —the tourism sector, as well as those involved in its supply chain are likely to be the biggest beneficiaries of a prospective leasing market as it presents ample opportunity for leasing business. With the government 's ambitious plans to promote tourism over the next few years, leasing penetration could experience a significant increase once leasing is formally introduced. Currently, the tourism sector has the highest loan distribution, recorded at 17.5% and 17% in 2014 and 2015 respectively.
With the development of the tourism sector and the introduction of the new international rating system for hotels beginning in 2017, the second highest potential for leasing business is likely to be in the construction sector which contributed 3% to the GDP in the year 2015. At present, although the majority of equipment in this sector is foreign funded, there is likely to be an increased opportunity for construction companies to finance such machinery locally following the introduction of leasing. In 2014 and 2015 the loan distribution to the construction sector was over 8%. (Source – Financial Services Supervision Report 2015)
SEYCHELLES LEASING MARKET STUDY: 2017
14
According to the Central Bank of Seychelles 2015 Annual Report, the annual rate of growth in real gross domestic product (GDP) for 2015 was 4.3%, which was 1.9 percentage points lower than the previous year. This was due mainly to a decrease in earnings from the tourism sector resulting largely from a relatively weaker euro, which in turn impacted the overall outcome in the services sector as a whole.
In 2015, the main contributor to the economy was the services sector whose largest earners include the tourism, telecommunications, and financial services sub sectors and contributed to 80% to the country's GDP. The industries sector (manufacturing, construction, energy) contributed 9.5%, while the agricultural sector, 1.2%. Given the economy's heavy dependence on the service sector, any shocks or adverse conditions to the sector greatly affect the country's economy.
9.5% 9.6%
-1.3% -1.1%
5.9% 5.4%3.7%
5.0%6.2%
4.3%
-2.0%0.0%2.0%4.0%6.0%8.0%
10.0%12.0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
GDP Growth Rate
GDP Growth
Source – Central Bank of Seychelles Annual Reports 2010 - 2015
FIGURE 1 : GDP GROWTH RATES 2006 - 2015
ECONOMIC PERFORMANCE AS REPORTED BY THE CENTRAL BANK OF SEYCHELLES 2015 ANNUAL REPORT
15
SEYCHELLES LEASING MARKET STUDY: 2017
14
According to the Central Bank of Seychelles 2015 Annual Report, the annual rate of growth in real gross domestic product (GDP) for 2015 was 4.3%, which was 1.9 percentage points lower than the previous year. This was due mainly to a decrease in earnings from the tourism sector resulting largely from a relatively weaker euro, which in turn impacted the overall outcome in the services sector as a whole.
In 2015, the main contributor to the economy was the services sector whose largest earners include the tourism, telecommunications, and financial services sub sectors and contributed to 80% to the country's GDP. The industries sector (manufacturing, construction, energy) contributed 9.5%, while the agricultural sector, 1.2%. Given the economy's heavy dependence on the service sector, any shocks or adverse conditions to the sector greatly affect the country's economy.
9.5% 9.6%
-1.3% -1.1%
5.9% 5.4%3.7%
5.0%6.2%
4.3%
-2.0%0.0%2.0%4.0%6.0%8.0%
10.0%12.0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
GDP Growth Rate
GDP Growth
Source – Central Bank of Seychelles Annual Reports 2010 - 2015
FIGURE 1 : GDP GROWTH RATES 2006 - 2015
ECONOMIC PERFORMANCE AS REPORTED BY THE CENTRAL BANK OF SEYCHELLES 2015 ANNUAL REPORT
15
SEYCHELLES LEASING MARKET STUDY: 2017
80.0%
9.5%
1.2%9.3%
Services (Tourism,Telecom, FinancialServices)
Other
Agriculture
Industries (Constructionand Manufacturing)
16
Primary sectorSeychelles' primary sector comprises of agriculture and fisheries which in past years have recorded contractions in activities. In 2014 for instance, statistics showed a 19 percent decline in fisheries output.
The following events affected the fisheries sector in 2015, the:
Ÿ Operationalization of the Seychelles Fishing Authority (SFA)'s fish processing facility during the second half of 2014;
Ÿ Paris Club's endorsement for the Nature Conservancy to buy back USD 30 million of the Paris Club debt signaling an historic policy shift in the fisheries sector in the first quarter of 2015;
Ÿ Development of the Marine Spatial Plan (MSP), which aims at dividing the country's oceanic resources into economic and ecological zones which is expected to impact the overall output within the sector in the long run;
Ÿ Announcement of several projects by SFA to further facilitate development of the sector, including plans to address the ice shortage experienced sporadically during the year; and
Ÿ Algal bloom phenomena which resulted in a temporary cessation of fishing in the artisanal sector for a few days in the last quarter of the year that severely affected certain types of output.
Meanwhile, a severe shortage of animal feed on the local market affected the agriculture sector in 2015.
FisheriesAn increase in fish processing facilities, the installation of an ice plant and the four-stage extension project of the fishing port supported sector growth estimated at 2.0 percent in 2015. Growth occurred in spite of an annual decline of 3.7 percent in total fish catch by September 2015, in addition to additional decreases later in the year due to the algal bloom phenomena. During the year 2015, banks recorded an increase of 3.0 percent credit allocated to the sector.
AgricultureAgriculture accounted for 1.2 percent of GDP in 2015. The slaughtering of chicken and egg production grew by 56 percent and 15 percent respectively, while the reduction in the number of pigs was not as pronounced as in previous years. Nonetheless, the sector remained vulnerable to competition from cheaper imports, notwithstanding improvements made in relevant infrastructure since many consumers opt for price over quality.
IndustriesThe share of the industrial sector, which comprises of the construction and the manufacturing segments, is estimated to have remained broadly unchanged, representing 9.5 percent of GDP.
ConstructionThe construction sector has now recorded two consecutive years of growth following an expansion of 3.0 percent in 2015, albeit this was 12 percentage points below the outcome of the previous year. The year saw the continuation of the H Resort, Carana, Eden Island and Felicity Island projects. In addition, infrastructure projects such as for the fisheries sector continued with additional external funding sourced by a key parastatal, ensuring that energy demand is met in the medium term.
Source – Central Bank of Seychelles Annual Report 2015
FIGURE 2 : SECTOR DISTRIBUTION AS PERCENTAGE OF 2015 GDP
17
SEYCHELLES LEASING MARKET STUDY: 2017
80.0%
9.5%
1.2%9.3%
Services (Tourism,Telecom, FinancialServices)
Other
Agriculture
Industries (Constructionand Manufacturing)
16
Primary sectorSeychelles' primary sector comprises of agriculture and fisheries which in past years have recorded contractions in activities. In 2014 for instance, statistics showed a 19 percent decline in fisheries output.
The following events affected the fisheries sector in 2015, the:
Ÿ Operationalization of the Seychelles Fishing Authority (SFA)'s fish processing facility during the second half of 2014;
Ÿ Paris Club's endorsement for the Nature Conservancy to buy back USD 30 million of the Paris Club debt signaling an historic policy shift in the fisheries sector in the first quarter of 2015;
Ÿ Development of the Marine Spatial Plan (MSP), which aims at dividing the country's oceanic resources into economic and ecological zones which is expected to impact the overall output within the sector in the long run;
Ÿ Announcement of several projects by SFA to further facilitate development of the sector, including plans to address the ice shortage experienced sporadically during the year; and
Ÿ Algal bloom phenomena which resulted in a temporary cessation of fishing in the artisanal sector for a few days in the last quarter of the year that severely affected certain types of output.
Meanwhile, a severe shortage of animal feed on the local market affected the agriculture sector in 2015.
FisheriesAn increase in fish processing facilities, the installation of an ice plant and the four-stage extension project of the fishing port supported sector growth estimated at 2.0 percent in 2015. Growth occurred in spite of an annual decline of 3.7 percent in total fish catch by September 2015, in addition to additional decreases later in the year due to the algal bloom phenomena. During the year 2015, banks recorded an increase of 3.0 percent credit allocated to the sector.
AgricultureAgriculture accounted for 1.2 percent of GDP in 2015. The slaughtering of chicken and egg production grew by 56 percent and 15 percent respectively, while the reduction in the number of pigs was not as pronounced as in previous years. Nonetheless, the sector remained vulnerable to competition from cheaper imports, notwithstanding improvements made in relevant infrastructure since many consumers opt for price over quality.
IndustriesThe share of the industrial sector, which comprises of the construction and the manufacturing segments, is estimated to have remained broadly unchanged, representing 9.5 percent of GDP.
ConstructionThe construction sector has now recorded two consecutive years of growth following an expansion of 3.0 percent in 2015, albeit this was 12 percentage points below the outcome of the previous year. The year saw the continuation of the H Resort, Carana, Eden Island and Felicity Island projects. In addition, infrastructure projects such as for the fisheries sector continued with additional external funding sourced by a key parastatal, ensuring that energy demand is met in the medium term.
Source – Central Bank of Seychelles Annual Report 2015
FIGURE 2 : SECTOR DISTRIBUTION AS PERCENTAGE OF 2015 GDP
17
SEYCHELLES LEASING MARKET STUDY: 2017
18
ManufacturingIn 2015, the manufacturing sector accounted for 6.4 percent of GDP which was a decline from the previous year's contribution of 6.5 percent. Whilst the sector benefited from lower production costs, lower prices externally implied increased competition from imports. Nevertheless, manufacturing activity was given a boost from new financing facilities, inclusive of loans under the SME scheme.
The year 2015 also saw the production of:
Ÿ beer, stout, spirits and soft drinks increased by 14 percent, 2.7 percent, 28 percent and 15 percent respectively;
Ÿ mineral water increased by 14 percent, an outcome that benefited from the record increase in visitor arrivals;
Ÿ cigarette contracting by 9.2 percent, the output of which was possibly impacted adversely by the increased level of tax on the industry.
Ÿ 'manufacture of food' grew by 2.0 percent, despite a decline of 0.5 percent in the production of canned tuna;
Ÿ paint & paint products increased by 4.6 percent;
Ÿ toilet paper increased by 20 percent; and
Ÿ soaps declined by 40 percent.
ServicesThe services sector accounted for 80 percent of GDP in 2015, which was 0.1 percentage point higher than in 2014. The telecommunications sector has now recorded six consecutive years of double digit growth, with spill-over effects that provided for support platforms for growth in other sectors.
TourismFollowing a near flat outcome in 2014, in 2015, the total number of visitors amounted to 276,233, an increase of 19 percent due to robust performances mainly from French (37,356 visitors), German (35,895) and Italian (21,704), as well as emerging markets. Nevertheless, tourism earnings did not grow in line with visitor arrivals, an outcome which was to a large extent influenced by the relatively weaker euro.
The following helped increase air activity in 2015 which likely led to an increase in visitor arrivals:
Ÿ Emirates increased flights from 12 to 14 per week in October;
Ÿ Ethiopian Airl ines resumed flights in September;
Ÿ Air Seychelles introduced codeshare flights with Etihad Airways to Amman, Casablanca, as well as with Air Madagascar, Air France and Jet Airways;
Ÿ Etihad Airways increased its flights to Abu Dhabi to twice daily effective July 1;
Ÿ increase in the frequencies of Air Seychelles weekly flights on its regional network from April; and
Ÿ launch of Air Seychelles three-times a week non-stop Paris flights from July.
Qatar Airways resumed daily flights to Seychelles as of 12 December 2016.⁵
TelecommunicationsThe telecommunications sector continued to provide technological services to various segments of the economy. According to the CBS 2015 Annual Report, it is estimated that the sector has grown by 14 percent in 2015 compared to 2014 whilst its contribution to GDP rose from 5.2 percent to 5.3 percent over the same period. The main driver of this growth was the internet and data services market which expanded following increased availability and competition amongst the operators. Competition in the sector continued to be strong which encouraged the introduction of new innovative services.
Financial servicesThe financial services sector is estimated to have grown by 3.0 percent in 2015. During the year, there were 10 licensed banks, including United Helvetic Bank (UHB) which was licensed in April but yet to commence operations as at end-December.
As for activities of the Seychelles Securities Exchange, Trop-X, Seychelles Breweries Limited publicly announced its intention to trade on the platform. The decision was taken at the company's Annual General Meeting which was held in November.
19
SEYCHELLES LEASING MARKET STUDY: 2017
18
ManufacturingIn 2015, the manufacturing sector accounted for 6.4 percent of GDP which was a decline from the previous year's contribution of 6.5 percent. Whilst the sector benefited from lower production costs, lower prices externally implied increased competition from imports. Nevertheless, manufacturing activity was given a boost from new financing facilities, inclusive of loans under the SME scheme.
The year 2015 also saw the production of:
Ÿ beer, stout, spirits and soft drinks increased by 14 percent, 2.7 percent, 28 percent and 15 percent respectively;
Ÿ mineral water increased by 14 percent, an outcome that benefited from the record increase in visitor arrivals;
Ÿ cigarette contracting by 9.2 percent, the output of which was possibly impacted adversely by the increased level of tax on the industry.
Ÿ 'manufacture of food' grew by 2.0 percent, despite a decline of 0.5 percent in the production of canned tuna;
Ÿ paint & paint products increased by 4.6 percent;
Ÿ toilet paper increased by 20 percent; and
Ÿ soaps declined by 40 percent.
ServicesThe services sector accounted for 80 percent of GDP in 2015, which was 0.1 percentage point higher than in 2014. The telecommunications sector has now recorded six consecutive years of double digit growth, with spill-over effects that provided for support platforms for growth in other sectors.
TourismFollowing a near flat outcome in 2014, in 2015, the total number of visitors amounted to 276,233, an increase of 19 percent due to robust performances mainly from French (37,356 visitors), German (35,895) and Italian (21,704), as well as emerging markets. Nevertheless, tourism earnings did not grow in line with visitor arrivals, an outcome which was to a large extent influenced by the relatively weaker euro.
The following helped increase air activity in 2015 which likely led to an increase in visitor arrivals:
Ÿ Emirates increased flights from 12 to 14 per week in October;
Ÿ Ethiopian Airl ines resumed flights in September;
Ÿ Air Seychelles introduced codeshare flights with Etihad Airways to Amman, Casablanca, as well as with Air Madagascar, Air France and Jet Airways;
Ÿ Etihad Airways increased its flights to Abu Dhabi to twice daily effective July 1;
Ÿ increase in the frequencies of Air Seychelles weekly flights on its regional network from April; and
Ÿ launch of Air Seychelles three-times a week non-stop Paris flights from July.
Qatar Airways resumed daily flights to Seychelles as of 12 December 2016.⁵
TelecommunicationsThe telecommunications sector continued to provide technological services to various segments of the economy. According to the CBS 2015 Annual Report, it is estimated that the sector has grown by 14 percent in 2015 compared to 2014 whilst its contribution to GDP rose from 5.2 percent to 5.3 percent over the same period. The main driver of this growth was the internet and data services market which expanded following increased availability and competition amongst the operators. Competition in the sector continued to be strong which encouraged the introduction of new innovative services.
Financial servicesThe financial services sector is estimated to have grown by 3.0 percent in 2015. During the year, there were 10 licensed banks, including United Helvetic Bank (UHB) which was licensed in April but yet to commence operations as at end-December.
As for activities of the Seychelles Securities Exchange, Trop-X, Seychelles Breweries Limited publicly announced its intention to trade on the platform. The decision was taken at the company's Annual General Meeting which was held in November.
19
SEYCHELLES LEASING MARKET STUDY: 2017
2011
2012
2013
2014
2015
Annual Average Per cent (%) All Items 2.6 7.1 4.4 1.4 4.0 Fish 13.7 9.1 20.6 9.0 -12.1 Other Food Items 3.4 5.7 5.3 -0.3 1.8 Non-Food Items 1.8 7.6 3.2 1.8 4.7
Year-on-year All Items 5.5 5.8 3.4 0.5 3.2 Fish
20.5 3.5 31.2 -20.3 3.3
Other Food Items
4.8 4.9 3.5 -0.2 1.7 Non-Food Items 5.1 6.3 1.9 2.2 2.7
20
At the end of 2015, the CPI showed year-on-year price increase of 3.2%.
The average measure of inflation was 4.0% in 2015, compared to 1.4% in 2014.
Source – National Bureau of Statistics
FIGURE 3 : PRICE MOVEMENTS 2005 – 2015
Source - National Bureau of Statistics, Central Bank of Seychelles Annual Report 2015
FIGURE 4 : INFLATION RATES 2011 – 2015
MACRO-ECONOMIC INDICATORS
21
SEYCHELLES LEASING MARKET STUDY: 2017
-10.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
2 00 5 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Pe
nta
ge
rce
Average Inflation Rate
End of Year Inflation
2011
2012
2013
2014
2015
Annual Average Per cent (%) All Items 2.6 7.1 4.4 1.4 4.0 Fish 13.7 9.1 20.6 9.0 -12.1 Other Food Items 3.4 5.7 5.3 -0.3 1.8 Non-Food Items 1.8 7.6 3.2 1.8 4.7
Year-on-year All Items 5.5 5.8 3.4 0.5 3.2 Fish
20.5 3.5 31.2 -20.3 3.3
Other Food Items
4.8 4.9 3.5 -0.2 1.7 Non-Food Items 5.1 6.3 1.9 2.2 2.7
20
At the end of 2015, the CPI showed year-on-year price increase of 3.2%.
The average measure of inflation was 4.0% in 2015, compared to 1.4% in 2014.
Source – National Bureau of Statistics
FIGURE 3 : PRICE MOVEMENTS 2005 – 2015
Source - National Bureau of Statistics, Central Bank of Seychelles Annual Report 2015
FIGURE 4 : INFLATION RATES 2011 – 2015
MACRO-ECONOMIC INDICATORS
21
SEYCHELLES LEASING MARKET STUDY: 2017
-10.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
2 00 5 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Pe
nta
ge
rce
Average Inflation Rate
End of Year Inflation
22
The tight monetary policy stance of the Central Bank led to a reduction in the amount of free reserves held by deposit-taking institutions, hence translating to an overall increase in interest rates.
According to the Central Bank of Seychelles 2015 Annual Report, the average yield on fixed-term rupee deposits rose by 78 basis points, from 3.30% at end-2014 to 4.08%. The most significant rise in interest rates was recorded in the maturity brackets of 'above 3 months up to 6 months' and 'above 6 months but less than 12 months', and these were by 1.0 percentage point and 1.2 percentage points respectively. The average return on savings deposits also increased and this was by 59 basis points, from 2.31% to 2.91%.
During the year, government maintained its issuance calendar of Treasury bills with movements in the yields correlating with the prevailing monetary policy stance. By the year-end, yields on the 91-day, 182-day and 365-day bills stood at 5.70%, 6.39% and 7.15% correspondingly. These represented increases of 0.31 percentage points on the 91-day maturity, 1.52 percentage points on the 182-day maturity and 1.55 percentage points on the 365-day maturity.
Source – Central Bank of Seychelles, Annual report 2015
FIGURE 5 : INFLATION RATE MOVEMENT 2011 – 2015
2.6%
7.1%
4.4%
1.4%
4.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
2011 2012 2013 2014 2015
Inflation Rate
Rate
Source – Central Bank of Seychelles, Annual Report 2015
FIGURE 6 : INTEREST RATES 2011 - 2015
Source – Central Bank of Seychelles, Annual Report 2015
FIGURE 7 : INTEREST RATE MOVEMENT 2005 – 2015
0
5
10
15
20
25
30
20 50 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Perc
enta
ge
23
SEYCHELLES LEASING MARKET STUDY: 2017
Savings Deposit RateT mei Deposit Rate: > 6 months < =12 months91-da treasuryy bill rateAverage lending rate
22
The tight monetary policy stance of the Central Bank led to a reduction in the amount of free reserves held by deposit-taking institutions, hence translating to an overall increase in interest rates.
According to the Central Bank of Seychelles 2015 Annual Report, the average yield on fixed-term rupee deposits rose by 78 basis points, from 3.30% at end-2014 to 4.08%. The most significant rise in interest rates was recorded in the maturity brackets of 'above 3 months up to 6 months' and 'above 6 months but less than 12 months', and these were by 1.0 percentage point and 1.2 percentage points respectively. The average return on savings deposits also increased and this was by 59 basis points, from 2.31% to 2.91%.
During the year, government maintained its issuance calendar of Treasury bills with movements in the yields correlating with the prevailing monetary policy stance. By the year-end, yields on the 91-day, 182-day and 365-day bills stood at 5.70%, 6.39% and 7.15% correspondingly. These represented increases of 0.31 percentage points on the 91-day maturity, 1.52 percentage points on the 182-day maturity and 1.55 percentage points on the 365-day maturity.
Source – Central Bank of Seychelles, Annual report 2015
FIGURE 5 : INFLATION RATE MOVEMENT 2011 – 2015
2.6%
7.1%
4.4%
1.4%
4.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
2011 2012 2013 2014 2015
Inflation Rate
Rate
Source – Central Bank of Seychelles, Annual Report 2015
FIGURE 6 : INTEREST RATES 2011 - 2015
Source – Central Bank of Seychelles, Annual Report 2015
FIGURE 7 : INTEREST RATE MOVEMENT 2005 – 2015
0
5
10
15
20
25
30
20 50 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Perc
enta
ge
23
SEYCHELLES LEASING MARKET STUDY: 2017
Savings Deposit RateT mei Deposit Rate: > 6 months < =12 months91-da treasuryy bill rateAverage lending rate
24
The Central Bank of Seychelles (CBS) regulates the banking sector, bureaux de change (BDC) and other non-bank financial institutions, such as Seychelles Credit Union, Development Bank of Seychelles and the Housing Finance Company.
The CBS' Financial Services Supervision Division is discharging the following duties, with the objective of maintaining a sound financial system:
Ÿ Licensing financial institutions
Ÿ Policy and regulatory affairs
Ÿ Onsite examinations
Ÿ Offsite supervision
There were nine banks operating in Seychelles by the end of 2015, with 26 licences issued to BDCs.
CBS is now accepting financial leasing licence applications. The licensing application pack which contains all the relevant forms and information to be submitted upon application are available on the CBS' website.⁶ To date, although no formal applications have been received, potential applicants have shown interest.
OVERVIEW OF FINANCIAL SECTOR AND ROLE OF THE CENTRAL BANK OF SEYCHELLES
25
SEYCHELLES LEASING MARKET STUDY: 2017
24
The Central Bank of Seychelles (CBS) regulates the banking sector, bureaux de change (BDC) and other non-bank financial institutions, such as Seychelles Credit Union, Development Bank of Seychelles and the Housing Finance Company.
The CBS' Financial Services Supervision Division is discharging the following duties, with the objective of maintaining a sound financial system:
Ÿ Licensing financial institutions
Ÿ Policy and regulatory affairs
Ÿ Onsite examinations
Ÿ Offsite supervision
There were nine banks operating in Seychelles by the end of 2015, with 26 licences issued to BDCs.
CBS is now accepting financial leasing licence applications. The licensing application pack which contains all the relevant forms and information to be submitted upon application are available on the CBS' website.⁶ To date, although no formal applications have been received, potential applicants have shown interest.
OVERVIEW OF FINANCIAL SECTOR AND ROLE OF THE CENTRAL BANK OF SEYCHELLES
25
SEYCHELLES LEASING MARKET STUDY: 2017
26
Out of the nine banks operating in Seychelles, the Government of Seychelles has majority ownership in two banks, namely Nouvobanq (NVB) and Seychelles Commercial Bank (SCB) as at the end of 2015.⁷ All other banks have foreign ownership. The nine commercial banks operating in Seychelles are:
As at the end of 2015, there were 30 bank branches located in the country, out of which 20 of the branches are located on the main island, Mahé. The total number of ATM machines in the country is recorded as 48 of which 36 are cited on Mahé as at December 2015.
Legislative and regulatory developments in the financial sectorOver the past few years, the CBS has introduced legislations and regulations to improve the operations of the financial sector. These have been introduced with the objective of strengthening the soundness of the financial system and reinforcing the financial intuitions' ability to withstand shocks. Furthermore, these have resulted in safeguarding the interests, rights and obligations of the stakeholders in the industry. The following is a list of the main legislations and regulations issued over the years.
Central Bank of Seychelles Act, 2004The Act provides the establishment, objectives and functions of the CBS. It stipulates that the CBS is an independent body corporate which shall have a board of directors, responsible for its policy and affairs, and in which all powers of the CBS are vested. The Act highlights the objectives of the CBS, namely to promote domestic price stability and advise the government on banking, monetary and financial matters, fiscal policies and credit policies to promote a sound financial system.
OVERVIEW OF BANKING SECTOR
27
1. Al Salam Bank Seychelles⁸
2. Bank Al Habib
3. Barclays Bank (Seychelles) Ltd
4. Bank of Baroda
5. Bank of Ceylon
6. Habib Bank Ltd
7. Mauritius Commercial Bank (Seychelles) Ltd
8. Nouvobanq
9. Seychelles Commercial Bank
SEYCHELLES LEASING MARKET STUDY: 2017
26
Out of the nine banks operating in Seychelles, the Government of Seychelles has majority ownership in two banks, namely Nouvobanq (NVB) and Seychelles Commercial Bank (SCB) as at the end of 2015.⁷ All other banks have foreign ownership. The nine commercial banks operating in Seychelles are:
As at the end of 2015, there were 30 bank branches located in the country, out of which 20 of the branches are located on the main island, Mahé. The total number of ATM machines in the country is recorded as 48 of which 36 are cited on Mahé as at December 2015.
Legislative and regulatory developments in the financial sectorOver the past few years, the CBS has introduced legislations and regulations to improve the operations of the financial sector. These have been introduced with the objective of strengthening the soundness of the financial system and reinforcing the financial intuitions' ability to withstand shocks. Furthermore, these have resulted in safeguarding the interests, rights and obligations of the stakeholders in the industry. The following is a list of the main legislations and regulations issued over the years.
Central Bank of Seychelles Act, 2004The Act provides the establishment, objectives and functions of the CBS. It stipulates that the CBS is an independent body corporate which shall have a board of directors, responsible for its policy and affairs, and in which all powers of the CBS are vested. The Act highlights the objectives of the CBS, namely to promote domestic price stability and advise the government on banking, monetary and financial matters, fiscal policies and credit policies to promote a sound financial system.
OVERVIEW OF BANKING SECTOR
27
1. Al Salam Bank Seychelles⁸
2. Bank Al Habib
3. Barclays Bank (Seychelles) Ltd
4. Bank of Baroda
5. Bank of Ceylon
6. Habib Bank Ltd
7. Mauritius Commercial Bank (Seychelles) Ltd
8. Nouvobanq
9. Seychelles Commercial Bank
SEYCHELLES LEASING MARKET STUDY: 2017
28
Financial Institutions Act 2004 (FIA) as amended The Act provides the regulatory framework for the supervision of financial Institutions (FIs)⁹, including the licensing process, prudential standards and remedial measures. The Act vests the supervisory powers to the CBS. To complement the Act, the following regulations were issued under the FIA:
Ÿ Financial Institutions (Liquidity Risk Management) Regulations, 2009
Ÿ Financial Institutions (Bank License Fees) Regulations, 2010 and its amendments
Ÿ Financial Institutions (Credit Classification and Provisioning) Regulations 2010 and its amendments
Ÿ Financial Institutions (Capital Adequacy) Regulations, 2010
Ÿ Financial Institutions (Bank Charges and Fees) Regulations 2013
Ÿ Financial Institutions (Compounding of Offences) Regulations 2013
Ÿ Financial Institutions (Bureau de Change) Regulations, 2008
Ÿ Financial Institutions (Complaint Handling) Regulations, 2008
Financial Leasing Act (FLA) 2013The Act vests supervisory and regulatory powers over Finance Leasing Institutions (FLIs) on to the CBS. It provides for the regulation of FLIs, specifies the rights and the duties of the lessors and the lessees as well as the supplier of equipment. It also broadly provides for the licensing process of the FLIs, with more specificity provided within re g u l a t i o n s i s s u e d t h e re u n d e r. T h e s e regulations are detailed under Section 8.
Credit Union Act (CUA) 2009The CUA was enacted in 2009 and subsequently amended in 2010 and 2015. It replaced the Co-operatives Act, 1970 as the relevant legislation for credit unions. The Act provides for the establishment of credit unions, their powers and operations.
It also provides for the management and administration detailing the election of a board of directors and supervisory committees, as well as their functions. The Act also provides for such matters as ownership shares, dividends and abandoned funds, membership, loan specificities, fund investment policies, reserve and allowance requirements, as well as the designation and powers of the regulatory authority and liquidation procedures.
Delegation of Statutory Functions (DBS Decree) Order 2009The DBS decree was issued in 2009, in order to delegate to the CBS certain sections of the decree, for which the exercise of the power previously fell under the purview of the President and the Minister for Finance.
Central Bank of Seychelles (Credit Information System) Regulations In 2012, CBS issued the Central Bank of Seychelles (Credit Information System) Regulations with the aim to provide participating institutions with an additional tool to evaluate and monitor clients' credit worthiness. The credit reporting system also seeks to improve financial inclusion by improving access to credits, as well as contribute towards financial stability by cultivating financial discipline in the population and consequently reduce and control the level of non-performing loans (NPLs) in the banking and financial sector. The Credit Information System is further detailed in Section 13.
29
SEYCHELLES LEASING MARKET STUDY: 2017
28
Financial Institutions Act 2004 (FIA) as amended The Act provides the regulatory framework for the supervision of financial Institutions (FIs)⁹, including the licensing process, prudential standards and remedial measures. The Act vests the supervisory powers to the CBS. To complement the Act, the following regulations were issued under the FIA:
Ÿ Financial Institutions (Liquidity Risk Management) Regulations, 2009
Ÿ Financial Institutions (Bank License Fees) Regulations, 2010 and its amendments
Ÿ Financial Institutions (Credit Classification and Provisioning) Regulations 2010 and its amendments
Ÿ Financial Institutions (Capital Adequacy) Regulations, 2010
Ÿ Financial Institutions (Bank Charges and Fees) Regulations 2013
Ÿ Financial Institutions (Compounding of Offences) Regulations 2013
Ÿ Financial Institutions (Bureau de Change) Regulations, 2008
Ÿ Financial Institutions (Complaint Handling) Regulations, 2008
Financial Leasing Act (FLA) 2013The Act vests supervisory and regulatory powers over Finance Leasing Institutions (FLIs) on to the CBS. It provides for the regulation of FLIs, specifies the rights and the duties of the lessors and the lessees as well as the supplier of equipment. It also broadly provides for the licensing process of the FLIs, with more specificity provided within re g u l a t i o n s i s s u e d t h e re u n d e r. T h e s e regulations are detailed under Section 8.
Credit Union Act (CUA) 2009The CUA was enacted in 2009 and subsequently amended in 2010 and 2015. It replaced the Co-operatives Act, 1970 as the relevant legislation for credit unions. The Act provides for the establishment of credit unions, their powers and operations.
It also provides for the management and administration detailing the election of a board of directors and supervisory committees, as well as their functions. The Act also provides for such matters as ownership shares, dividends and abandoned funds, membership, loan specificities, fund investment policies, reserve and allowance requirements, as well as the designation and powers of the regulatory authority and liquidation procedures.
Delegation of Statutory Functions (DBS Decree) Order 2009The DBS decree was issued in 2009, in order to delegate to the CBS certain sections of the decree, for which the exercise of the power previously fell under the purview of the President and the Minister for Finance.
Central Bank of Seychelles (Credit Information System) Regulations In 2012, CBS issued the Central Bank of Seychelles (Credit Information System) Regulations with the aim to provide participating institutions with an additional tool to evaluate and monitor clients' credit worthiness. The credit reporting system also seeks to improve financial inclusion by improving access to credits, as well as contribute towards financial stability by cultivating financial discipline in the population and consequently reduce and control the level of non-performing loans (NPLs) in the banking and financial sector. The Credit Information System is further detailed in Section 13.
29
SEYCHELLES LEASING MARKET STUDY: 2017
30
The Financial Leasing Act (FLA) was enacted in the year 2013, and the CBS subsequently issued three regulations the following year to support the regulatory and supervisory framework, namely:
Ÿ Financial Leasing (Licensing) Regulations, 2014
Ÿ Financial Leasing (Capital Adequacy and Reserve Fund) Regulations, 2014; and
Ÿ Financial Leasing (Lease Classification and Provisioning) Regulations 2014
However, the CBS is yet to issue any license to a Finance Leasing Institution (FLI). Asset financing is conducted by banks via loan offerings for motor vehicles, machinery and other types of assets.
Tasked with the mandate to regulate leasing business in Seychelles, the CBS is committed to the development of the leasing regulatory framework. As part of this commitment, CBS i s i n i t i a t i n g w o r k o n t w o a d d i t i o n a l regulations which will set requirements for
liquidity risk management and gearing (leverage) management for companies engaging in the leasing business. Further work on the development of the regulatory and supervisory framework for financial leasing is anticipated as the industry develops and grows.
It is expected that the introduction of finance leasing will provide MSMEs with an additional financing option and enhance market competitiveness in the long run.
Sector-wide distribution of advancesThe banking industry's loan distribution was primarily weighted towards the tourism sector, during 2015. The private household sector accounted for the second largest loan p o r t f o l i o i n 2 0 1 5 . H o w e v e r, t h e l o a n distribution to the government sectors have seen a continuous decline over the last two years. Statistics in this regard are provided in Table 1.
OVERVIEW OF SEYCHELLES LEASING INDUSTRY
31
SEYCHELLES LEASING MARKET STUDY: 2017
30
The Financial Leasing Act (FLA) was enacted in the year 2013, and the CBS subsequently issued three regulations the following year to support the regulatory and supervisory framework, namely:
Ÿ Financial Leasing (Licensing) Regulations, 2014
Ÿ Financial Leasing (Capital Adequacy and Reserve Fund) Regulations, 2014; and
Ÿ Financial Leasing (Lease Classification and Provisioning) Regulations 2014
However, the CBS is yet to issue any license to a Finance Leasing Institution (FLI). Asset financing is conducted by banks via loan offerings for motor vehicles, machinery and other types of assets.
Tasked with the mandate to regulate leasing business in Seychelles, the CBS is committed to the development of the leasing regulatory framework. As part of this commitment, CBS i s i n i t i a t i n g w o r k o n t w o a d d i t i o n a l regulations which will set requirements for
liquidity risk management and gearing (leverage) management for companies engaging in the leasing business. Further work on the development of the regulatory and supervisory framework for financial leasing is anticipated as the industry develops and grows.
It is expected that the introduction of finance leasing will provide MSMEs with an additional financing option and enhance market competitiveness in the long run.
Sector-wide distribution of advancesThe banking industry's loan distribution was primarily weighted towards the tourism sector, during 2015. The private household sector accounted for the second largest loan p o r t f o l i o i n 2 0 1 5 . H o w e v e r, t h e l o a n distribution to the government sectors have seen a continuous decline over the last two years. Statistics in this regard are provided in Table 1.
OVERVIEW OF SEYCHELLES LEASING INDUSTRY
31
SEYCHELLES LEASING MARKET STUDY: 2017
% of total loans and advances 2013 2014 2015
Government 16.87% 13.39% 11.55%
Financial institutions 5.00% 3.39% 4.43%
Agriculture & horticulture 0.39% 0.60% 0.75%
Art & Entertainment 0.93% 0.48%
Building and Construction 10.27% 8.12% 8.59%
Education 0.46% 0.38%
Fishing 0.33% 0.70% 0.65%
Health 3.00% 2.55%
Manufacturing 0.75% 1.07% 1.76%
Professional, Scientific & Technical Services
0.54% 0.47%
Real estate 10.32% 11.74% 12.02%
Telecommunications, Computer & Information
0.55% 0.33%
Tourism 12.17% 17.49% 16.83%
Trade 4.43% 6.29% 6.91%
Transport 3.88% 3.04% 2.78%
Community, Social & Personal 0.56% 0.54%
Non Profit Institutions 0.58% 1.03% 0.68%
Private household 15.86% 16.45% 15.78%
Mortgage loans 10.04% 8.72% 8.61%
Others 9.12% 1.94% 3.90%
32
Non performing loan distribution among sectorsThe largest non-performing loan (NPL) growth in 2015 was recorded in the professional and technical services sector with a growth of 372.41%, however the share of NPL in this sector is negligible compared to the total NPL. The second largest NPL growth is in mortgage loans. However, decreases were noted mainly in the art and entertainment, agriculture and horticulture, building and construction, manufacturing and transport sectors. The largest share of NPL in 2015 was held by the health sector; however the industry has experienced a marginal decline in the total NPLs. These statistics are vital to understanding where financial institutions offering leasing could concentrate on volume growth and where they need to be careful in financing equipment. This trend could carry over to the leasing business as well.
Source – Central Bank of Seychelles, Annual report 2015 Source – Central Bank of Seychelles, Financial Ser vices Supervision Report 2015
TABLE 1 : SECTORIAL LOAN DISTRIBUTION
TABLE 2 : SECTORIAL DISTRIBUTION OF NON-PERFORMING LOANS
33
Sector Description/ SCR 2014 (000s)
2015 (000s)
Change (000s)
% Change
Agriculture and horticulture 3,370 834 -2,536 -75.25% Art and entertainment 248 0 -248 -100.00% Buildi s 37,346 9,948 -27,398 -73.36% ng and con tructionEducation 64 59 -5 -7.81% Health 137,315 144,787 7,472 5.44% Manufa 722cturing 6 326 -6,900 -95.49% Professional and es 116 548 432 372.41% technical servicReal estate 73,153 62,996 -13.88% -10,157 Tourism 117,726 19,023 19.27% 98,703 Trade 13,208 23,379 10,171 77.01% Transport 86 5,6 3,038 -2,648 -46.57% Community, social and personal 13 25 12 92.31% Others 14,696 13,488 -1,208 -8.22% Pr useholds 26,614ivate ho 45,406 18,792 70.61% Mortgage loans 7,184 22,645 15,461 215.21% Total 424,943 445,205 20,262 4.77%
SEYCHELLES LEASING MARKET STUDY: 2017
% of total loans and advances 2013 2014 2015
Government 16.87% 13.39% 11.55%
Financial institutions 5.00% 3.39% 4.43%
Agriculture & horticulture 0.39% 0.60% 0.75%
Art & Entertainment 0.93% 0.48%
Building and Construction 10.27% 8.12% 8.59%
Education 0.46% 0.38%
Fishing 0.33% 0.70% 0.65%
Health 3.00% 2.55%
Manufacturing 0.75% 1.07% 1.76%
Professional, Scientific & Technical Services
0.54% 0.47%
Real estate 10.32% 11.74% 12.02%
Telecommunications, Computer & Information
0.55% 0.33%
Tourism 12.17% 17.49% 16.83%
Trade 4.43% 6.29% 6.91%
Transport 3.88% 3.04% 2.78%
Community, Social & Personal 0.56% 0.54%
Non Profit Institutions 0.58% 1.03% 0.68%
Private household 15.86% 16.45% 15.78%
Mortgage loans 10.04% 8.72% 8.61%
Others 9.12% 1.94% 3.90%
32
Non performing loan distribution among sectorsThe largest non-performing loan (NPL) growth in 2015 was recorded in the professional and technical services sector with a growth of 372.41%, however the share of NPL in this sector is negligible compared to the total NPL. The second largest NPL growth is in mortgage loans. However, decreases were noted mainly in the art and entertainment, agriculture and horticulture, building and construction, manufacturing and transport sectors. The largest share of NPL in 2015 was held by the health sector; however the industry has experienced a marginal decline in the total NPLs. These statistics are vital to understanding where financial institutions offering leasing could concentrate on volume growth and where they need to be careful in financing equipment. This trend could carry over to the leasing business as well.
Source – Central Bank of Seychelles, Annual report 2015 Source – Central Bank of Seychelles, Financial Ser vices Supervision Report 2015
TABLE 1 : SECTORIAL LOAN DISTRIBUTION
TABLE 2 : SECTORIAL DISTRIBUTION OF NON-PERFORMING LOANS
33
Sector Description/ SCR 2014 (000s)
2015 (000s)
Change (000s)
% Change
Agriculture and horticulture 3,370 834 -2,536 -75.25% Art and entertainment 248 0 -248 -100.00% Buildi s 37,346 9,948 -27,398 -73.36% ng and con tructionEducation 64 59 -5 -7.81% Health 137,315 144,787 7,472 5.44% Manufa 722cturing 6 326 -6,900 -95.49% Professional and es 116 548 432 372.41% technical servicReal estate 73,153 62,996 -13.88% -10,157 Tourism 117,726 19,023 19.27% 98,703 Trade 13,208 23,379 10,171 77.01% Transport 86 5,6 3,038 -2,648 -46.57% Community, social and personal 13 25 12 92.31% Others 14,696 13,488 -1,208 -8.22% Pr useholds 26,614ivate ho 45,406 18,792 70.61% Mortgage loans 7,184 22,645 15,461 215.21% Total 424,943 445,205 20,262 4.77%
SEYCHELLES LEASING MARKET STUDY: 2017
34
Leasing potential and investment opportunities in SeychellesThe Seychelles economy has experienced moderate GDP growth of 5.0, 6.2 and 4.3 percent during years 2013, 2014 and 2015 respectively. However, the country has seen a decline in the inflation rate as well. With the restructuring and the economic policies of the government, the country should see the economy strengthening further and growth over the next five years. The growth in the economy brings along increased investment, which would also result in increased opportunities for leasing business. Construction and infrastructure development is considered a major factor in the development of Seychelles. In a rapidly developing country, the need to acquire equipment will lead to an increased demand for leasing business, as leasing is one of the main modes of financing equipment.
A variety of interested parties have expressed interest in venturing into the leasing business, including financial institutions, vehicles suppliers and many other business entities. However, the biggest constraint to these investors is the technical knowledge of leasing and experience in running a leasing operation. With the required technical knowledge and guidance, the leasing industry has tremendous potential for expansion in Seychelles.
The CBS has been working tirelessly to get leasing operations off the ground, while working on the required policy and regulatory guidelines. Once the CBS issues the licenses, initial leases will most likely be offered to help finance the acquisition of motor vehicles. However the real opportunity is in financing assets for the tourism, construction, agriculture and fisheries sectors. (See Section 16 on leasing potential per sector for more information). Given the low penetration in asset financing in Seychelles, leasing would help increase access to finance in the MSME sectors.
Opportunities for developing innovative leasing products in the futureCurrently, there are no finance leasing products commercially offered in Seychelles, and, as indicated in the previous sections, the Central Bank has yet to issue any financial leasing licenses to any entity to carry out financial leasing business. However, once the first financial leasing license is granted, the industry will witness the introduction of basic finance leasing products offered across the market.
The expansion and development of the leasing industry and the Seychelles economy is likely to bring additional opportunities to offer more innovative and attractive lease products to meet the needs of the rapidly changing market as has been the general experience in many countries including Sri Lanka and Ghana.
The Seychelles market would also go through t h e s t a n d a rd fi n a n c e l e a s i n g l i fe c yc l e experienced throughout many countries.
At the introductory stage, Seychelles is likely to witness the offering of basic finance leases, but as the market gains experience other leasing products as specified in 8.4.2 – 8.4.9 are likely to be offered along the life cycle to reach maturity stage.
Seychelles is likely to see a higher penetration of leases in the tourism sector followed by private households. The construction sector loan distribution for 2014 and 2015 was at 8% and disbursement to the real estate sector was at 12% over these two years. There would be a very high potential for leasing business in these sectors. (Source – Financial Services Supervision Report 2014 & 2015) A higher rate of disbursement of leases in the fisheries sector is also possible
given current loan disbursements to the sector have been far below expectations. A detailed analysis of sector-wise opportunities, type of equipment to be financed and supplier information is available in Section 16.
Basic finance leasesInitially, the industry would offer basic finance leases, where the lease rentals are equal throughout the lease period and once the last rental is paid the ownership may be transferred to the lessee. However, there would be opportunities to offer various other leasing products to suit the needs of the lessees.
Step-up leasesThese are lease contracts where the rentals increase over time. These types of leases are offered generally for startup projects where the initial cash flow is low. However, since the capital repayments of these contracts are slower compared to the basic equated installment lease, the risk of loss in case of default is higher compared to a normal lease contract.
Step-down leasesThese are leases where the lease rentals decrease over time. Such leases are applicable for assets which experience a decline in productivity over time. This is offered to minimize losses on higher depreciation of the assets due to the decline in productivity.
FINANCELEASES
MATURITY
INNOVATIVELEASES
OPERATINGLEASES
FINANCELEASING
LIFECYCLE
FLEXIBLECREATIVEFINANCE
LEASES
35
SEYCHELLES LEASING MARKET STUDY: 2017
34
Leasing potential and investment opportunities in SeychellesThe Seychelles economy has experienced moderate GDP growth of 5.0, 6.2 and 4.3 percent during years 2013, 2014 and 2015 respectively. However, the country has seen a decline in the inflation rate as well. With the restructuring and the economic policies of the government, the country should see the economy strengthening further and growth over the next five years. The growth in the economy brings along increased investment, which would also result in increased opportunities for leasing business. Construction and infrastructure development is considered a major factor in the development of Seychelles. In a rapidly developing country, the need to acquire equipment will lead to an increased demand for leasing business, as leasing is one of the main modes of financing equipment.
A variety of interested parties have expressed interest in venturing into the leasing business, including financial institutions, vehicles suppliers and many other business entities. However, the biggest constraint to these investors is the technical knowledge of leasing and experience in running a leasing operation. With the required technical knowledge and guidance, the leasing industry has tremendous potential for expansion in Seychelles.
The CBS has been working tirelessly to get leasing operations off the ground, while working on the required policy and regulatory guidelines. Once the CBS issues the licenses, initial leases will most likely be offered to help finance the acquisition of motor vehicles. However the real opportunity is in financing assets for the tourism, construction, agriculture and fisheries sectors. (See Section 16 on leasing potential per sector for more information). Given the low penetration in asset financing in Seychelles, leasing would help increase access to finance in the MSME sectors.
Opportunities for developing innovative leasing products in the futureCurrently, there are no finance leasing products commercially offered in Seychelles, and, as indicated in the previous sections, the Central Bank has yet to issue any financial leasing licenses to any entity to carry out financial leasing business. However, once the first financial leasing license is granted, the industry will witness the introduction of basic finance leasing products offered across the market.
The expansion and development of the leasing industry and the Seychelles economy is likely to bring additional opportunities to offer more innovative and attractive lease products to meet the needs of the rapidly changing market as has been the general experience in many countries including Sri Lanka and Ghana.
The Seychelles market would also go through t h e s t a n d a rd fi n a n c e l e a s i n g l i fe c yc l e experienced throughout many countries.
At the introductory stage, Seychelles is likely to witness the offering of basic finance leases, but as the market gains experience other leasing products as specified in 8.4.2 – 8.4.9 are likely to be offered along the life cycle to reach maturity stage.
Seychelles is likely to see a higher penetration of leases in the tourism sector followed by private households. The construction sector loan distribution for 2014 and 2015 was at 8% and disbursement to the real estate sector was at 12% over these two years. There would be a very high potential for leasing business in these sectors. (Source – Financial Services Supervision Report 2014 & 2015) A higher rate of disbursement of leases in the fisheries sector is also possible
given current loan disbursements to the sector have been far below expectations. A detailed analysis of sector-wise opportunities, type of equipment to be financed and supplier information is available in Section 16.
Basic finance leasesInitially, the industry would offer basic finance leases, where the lease rentals are equal throughout the lease period and once the last rental is paid the ownership may be transferred to the lessee. However, there would be opportunities to offer various other leasing products to suit the needs of the lessees.
Step-up leasesThese are lease contracts where the rentals increase over time. These types of leases are offered generally for startup projects where the initial cash flow is low. However, since the capital repayments of these contracts are slower compared to the basic equated installment lease, the risk of loss in case of default is higher compared to a normal lease contract.
Step-down leasesThese are leases where the lease rentals decrease over time. Such leases are applicable for assets which experience a decline in productivity over time. This is offered to minimize losses on higher depreciation of the assets due to the decline in productivity.
FINANCELEASES
MATURITY
INNOVATIVELEASES
OPERATINGLEASES
FINANCELEASING
LIFECYCLE
FLEXIBLECREATIVEFINANCE
LEASES
35
SEYCHELLES LEASING MARKET STUDY: 2017
36
Skipped payment leasesThese are leases where there are payments only in certain months. It is offered to sectors or businesses with seasonal income. Generally, these types of leases are offered to the agricultural, fisheries and tourism sectors, as many businesses in these sectors are subject to seasonal cash flows.
Balloon payment leasesThese are lease contracts that have a very high rental at the end of the term. By having a higher rental at the end of the term, the initial lease rentals will be lower compared to an equated monthly installment lease. These types of lease contracts are generally offered to lessees with cash flow restrictions or lessees who intend to return/trade in the asset after the lease period.
Uneven payment leasesThese are types of leases where the lease rentals are uneven over the lease period. In most cases, the leases are structured based on the lessee's cash flow. This exemplifies the kind of flexibility available under a lease, not offered by traditional bank loans.
Full maintenance leases/Wet leasesThese are finance lease contracts where the additional services such as maintenance, insurance, revenue licensing, registration cost are built in to the lease contracts. These are
referred to as wet leases or full service leases. There is a common misconception that these types of leases fall within the category of operating leases, which is not necessarily the case. Any lease failing the finance lease “test” would be categorized as an operating lease. (Refer to Section 9 to determine what constitutes a finance lease.)
Vendor captive leasingThis is where the equipment suppliers have their own leasing arm which focuses primarily on offering financing for their own equipment. This thus results in an enhanced access to fi n a n c e w h e n i t c o m e s t o c u s t o m e r s purchasing their equipment. Vendors could use this option as a market penetration strategy.
Operating leasesMost multinational companies and leading corporates do not wish to have ownership of the asset and usually want to replace them on a periodic basis. Additionally, this offers them the opportunity of off balance sheet financing. Though operating leasing licenses are not issued so far by the CBS, there are few vendors who have offered this product in a different form. A leading brewery in Seychelles has obtained vehicles under such a scheme.
37
LEASING AND THE DEVELOPMENT OF MSMEs
SEYCHELLES LEASING MARKET STUDY: 2017
36
Skipped payment leasesThese are leases where there are payments only in certain months. It is offered to sectors or businesses with seasonal income. Generally, these types of leases are offered to the agricultural, fisheries and tourism sectors, as many businesses in these sectors are subject to seasonal cash flows.
Balloon payment leasesThese are lease contracts that have a very high rental at the end of the term. By having a higher rental at the end of the term, the initial lease rentals will be lower compared to an equated monthly installment lease. These types of lease contracts are generally offered to lessees with cash flow restrictions or lessees who intend to return/trade in the asset after the lease period.
Uneven payment leasesThese are types of leases where the lease rentals are uneven over the lease period. In most cases, the leases are structured based on the lessee's cash flow. This exemplifies the kind of flexibility available under a lease, not offered by traditional bank loans.
Full maintenance leases/Wet leasesThese are finance lease contracts where the additional services such as maintenance, insurance, revenue licensing, registration cost are built in to the lease contracts. These are
referred to as wet leases or full service leases. There is a common misconception that these types of leases fall within the category of operating leases, which is not necessarily the case. Any lease failing the finance lease “test” would be categorized as an operating lease. (Refer to Section 9 to determine what constitutes a finance lease.)
Vendor captive leasingThis is where the equipment suppliers have their own leasing arm which focuses primarily on offering financing for their own equipment. This thus results in an enhanced access to fi n a n c e w h e n i t c o m e s t o c u s t o m e r s purchasing their equipment. Vendors could use this option as a market penetration strategy.
Operating leasesMost multinational companies and leading corporates do not wish to have ownership of the asset and usually want to replace them on a periodic basis. Additionally, this offers them the opportunity of off balance sheet financing. Though operating leasing licenses are not issued so far by the CBS, there are few vendors who have offered this product in a different form. A leading brewery in Seychelles has obtained vehicles under such a scheme.
37
LEASING AND THE DEVELOPMENT OF MSMEs
SEYCHELLES LEASING MARKET STUDY: 2017
38
The importance of MSMEs to economic development especially in less developed countries and middle income countries has been cited in several studies. Typically over 90% of businesses in most developing countries are MSMEs. Some studies have indicated that MSMEs and informal enterprises account for over 60% of GDP and over 70% of total employment in low-income countries, while they contribute over 95% of total employment and about 70% of GDP in middle-income countries. (IFC Survey of Leasing Market in Ghana 2013)
Leasing is an alternative financing mechanism and thus provides an additional option for financing assets. By developing additional financing options, countries are able to deepen the activities of their financial sector by introducing new products and/or industry players. This provides a means to deliver increased domestic investment within economies.
The benefits of leasing in the development of MSMEs cannot be over-emphasized. One of the primary challenges faced by MSMEs across the world is access to finance. Leasing as an alternative financing option provides access to finance for MSMEs and has been identified as one of the tools for driving growth within the MSME sector. Although leasing is used as a means of asset financing
by all business types, from micro-companies to large multi-nationals and for assets worth a few dollars to those worth millions of dollars, its key benefit is the access it provides to those without a significant or any asset base at all. MSMEs usually fall within this categor y. The development of leasing therefore aids the growth of the domestic MSME sector and the private sector in general.
The importance of leasing to the development of the MSME sector is one of the reasons why I F C h a s p l a y e d a l e a d i n g r o l e i n t h e development of leasing across the world. For the past 38 years, IFC has helped countries around the world develop and enhance a viable and vibrant leasing industry and has contributed much to the development of the leasing industry in emerging markets through investments and advisory services. IFC believes that supporting SMEs is a key factor to alleviating poverty and that a major barrier to their growth is a lack of access to finance. An effective approach to financing MSMEs is by supporting leasing companies and other financial institutions that ser ve these enterprises. (IFC Survey of Leasing Market in Ghana 2013)
39
Benefits of leasing to SME developmentLeasing is sometimes the only means of access to finance for MSMEs. MSMEs in emerging economies do not have the credit history required by the traditional banks to access finance. As a result, there are often limited financing facilities available to domestic entrepreneurs. The leasing sector increases the range of financial products in the marketplace and provides an alternative for accessing finance for businesses that would otherwise not have it. Moreover, MSMEs in most developing countries usually do not have assets that could serve as collateral for loans or other forms of secured lending which more often than not is required by financing institutions in developing countries. Leasing enables the asset being financed to be used as the collateral for the lending. MSMEs therefore may not require additional collateral to finance the asset needed for their businesses. This is even more important in countries where unsecured lending is not an option. However, there could be instances where the financial institution may require additional collateral, in financing specialized assets considering the risks involved in the asset under finance.
Leasing also plays a critical role in bringing small businesses usually found in the informal sectors of developing countries into the formal financial system. As informal businesses gain access to lease financing, they start building a history of financial transactions. When the appropriate credit information-sharing infrastructure is in place, banks and other financial institutions are able to access the records and provide financial services to these small businesses. With this new opportunity, small businesses also find a new incentive to join the formal sector. A dynamic leasing sector can greatly benefit the economy of a country as it creates access to finance, facilitates investments and that in-turn can creates employment opportunities. (IFC Survey of Leasing Market in Ghana 2013)
Leasing promotes the development of MSMEs and enables them to take advantage of new opportunities that may arise in the market. A specific example in Seychelles is the development of the tourism, fisheries and the renewable energy sectors. Most of the MSMEs who want to take advantage of the new opportunities of this new sector may
SEYCHELLES LEASING MARKET STUDY: 2017
38
The importance of MSMEs to economic development especially in less developed countries and middle income countries has been cited in several studies. Typically over 90% of businesses in most developing countries are MSMEs. Some studies have indicated that MSMEs and informal enterprises account for over 60% of GDP and over 70% of total employment in low-income countries, while they contribute over 95% of total employment and about 70% of GDP in middle-income countries. (IFC Survey of Leasing Market in Ghana 2013)
Leasing is an alternative financing mechanism and thus provides an additional option for financing assets. By developing additional financing options, countries are able to deepen the activities of their financial sector by introducing new products and/or industry players. This provides a means to deliver increased domestic investment within economies.
The benefits of leasing in the development of MSMEs cannot be over-emphasized. One of the primary challenges faced by MSMEs across the world is access to finance. Leasing as an alternative financing option provides access to finance for MSMEs and has been identified as one of the tools for driving growth within the MSME sector. Although leasing is used as a means of asset financing
by all business types, from micro-companies to large multi-nationals and for assets worth a few dollars to those worth millions of dollars, its key benefit is the access it provides to those without a significant or any asset base at all. MSMEs usually fall within this categor y. The development of leasing therefore aids the growth of the domestic MSME sector and the private sector in general.
The importance of leasing to the development of the MSME sector is one of the reasons why I F C h a s p l a y e d a l e a d i n g r o l e i n t h e development of leasing across the world. For the past 38 years, IFC has helped countries around the world develop and enhance a viable and vibrant leasing industry and has contributed much to the development of the leasing industry in emerging markets through investments and advisory services. IFC believes that supporting SMEs is a key factor to alleviating poverty and that a major barrier to their growth is a lack of access to finance. An effective approach to financing MSMEs is by supporting leasing companies and other financial institutions that ser ve these enterprises. (IFC Survey of Leasing Market in Ghana 2013)
39
Benefits of leasing to SME developmentLeasing is sometimes the only means of access to finance for MSMEs. MSMEs in emerging economies do not have the credit history required by the traditional banks to access finance. As a result, there are often limited financing facilities available to domestic entrepreneurs. The leasing sector increases the range of financial products in the marketplace and provides an alternative for accessing finance for businesses that would otherwise not have it. Moreover, MSMEs in most developing countries usually do not have assets that could serve as collateral for loans or other forms of secured lending which more often than not is required by financing institutions in developing countries. Leasing enables the asset being financed to be used as the collateral for the lending. MSMEs therefore may not require additional collateral to finance the asset needed for their businesses. This is even more important in countries where unsecured lending is not an option. However, there could be instances where the financial institution may require additional collateral, in financing specialized assets considering the risks involved in the asset under finance.
Leasing also plays a critical role in bringing small businesses usually found in the informal sectors of developing countries into the formal financial system. As informal businesses gain access to lease financing, they start building a history of financial transactions. When the appropriate credit information-sharing infrastructure is in place, banks and other financial institutions are able to access the records and provide financial services to these small businesses. With this new opportunity, small businesses also find a new incentive to join the formal sector. A dynamic leasing sector can greatly benefit the economy of a country as it creates access to finance, facilitates investments and that in-turn can creates employment opportunities. (IFC Survey of Leasing Market in Ghana 2013)
Leasing promotes the development of MSMEs and enables them to take advantage of new opportunities that may arise in the market. A specific example in Seychelles is the development of the tourism, fisheries and the renewable energy sectors. Most of the MSMEs who want to take advantage of the new opportunities of this new sector may
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not be able to purchase the asset that will allow them to exploit this opportunity; neither will they have a property of any value that they can use as collateral to secure a loan. The MSME may however, be able to make a down payment on the asset to a leasing company. The MSME then based on a verification of the expected cash flow from the business plan by the leasing company, will be able to acquire the asset and make the lease payments to the leasing company. It will further enjoy the surplus income from the business opportunity. This surplus income can then be re-invested in the company to expand and promote its growth.
Leasing allows smaller scale entrepreneurs to become more economically active by enabling access to finance—and subsequently, access to income-producing assets. The asset leased enables the local enterprises that otherwise would not have the resources to purchase the assets required to engage in the productive sector – thus promoting local production, economic growth, and job creation.(IFC Survey of Leasing Market in Ghana 2013)
SME financing in SeychellesAt the end of 2015, the Seychelles had roughly 2,000 registered MSMEs in the country. The breakdown is as follows:
In partnership with the commercial banks, the Government of Seychelles through its Ministry of Finance commenced an SME financing scheme in 2013. The main objective of introducing the “SME Scheme” and the “SME Plus Scheme” was to increase access to finance to the SMEs in Seychelles. These schemes are offered to SMEs through the commercial banking sector in the country.
Source – Ministry of Investment, Entrepreneurship Development and
Business Innovation
SALES TURNOVER NUMBER
Micro less than SCR2 million 1089
Medium above SCR10 million but not more than SCR20 million
122
Small above SCR2 million but not more SCR10 million
693
To date, all commercial banks have been able to offer such loan facilities under the scheme to clients trading across various sectors i n c l u d i n g fi s h e r i e s , a g r i c u l t u re , a r t s , manufacturing, tourism, services, and construction. All credit applications are reviewed under the specific lending rules and criteria of each of the commercial bank.
T h i s n e w S M E s c h e m e re p re s e n t s a n opportunity for SME sector customers and is a key segment to venture into new business opportunities. In addition, the scheme allows banks to target new startups on a selective basis, if they have a compelling business proposition. The SME Plus scheme has been particularly introduced to finance innovative projects.
The scheme is subsidized by the government and also provides a guarantee of 70% against the full value of the loan. This has resulted in many commercial banks offering the SME loan scheme. The terms of the SME loan scheme are as follows:
Extension of the SME financing scheme to include leasing would significantly increase the SME sector's access to finance, thereby accelerating further development of the sector. Any cost incurred by the government through its 70% guarantee would be minimal given its right to repossess the leased asset itself in case of default.
SME LOAN SCHEME TERMS
SCR 3,000,000/-
Interest rate: First SCR 1million @ 5%, Second SCR 2,million @ 7%
Loan period: 5 – 7 years
Grace Period: Up to 6 months
Maximum loan amount:
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not be able to purchase the asset that will allow them to exploit this opportunity; neither will they have a property of any value that they can use as collateral to secure a loan. The MSME may however, be able to make a down payment on the asset to a leasing company. The MSME then based on a verification of the expected cash flow from the business plan by the leasing company, will be able to acquire the asset and make the lease payments to the leasing company. It will further enjoy the surplus income from the business opportunity. This surplus income can then be re-invested in the company to expand and promote its growth.
Leasing allows smaller scale entrepreneurs to become more economically active by enabling access to finance—and subsequently, access to income-producing assets. The asset leased enables the local enterprises that otherwise would not have the resources to purchase the assets required to engage in the productive sector – thus promoting local production, economic growth, and job creation.(IFC Survey of Leasing Market in Ghana 2013)
SME financing in SeychellesAt the end of 2015, the Seychelles had roughly 2,000 registered MSMEs in the country. The breakdown is as follows:
In partnership with the commercial banks, the Government of Seychelles through its Ministry of Finance commenced an SME financing scheme in 2013. The main objective of introducing the “SME Scheme” and the “SME Plus Scheme” was to increase access to finance to the SMEs in Seychelles. These schemes are offered to SMEs through the commercial banking sector in the country.
Source – Ministry of Investment, Entrepreneurship Development and
Business Innovation
SALES TURNOVER NUMBER
Micro less than SCR2 million 1089
Medium above SCR10 million but not more than SCR20 million
122
Small above SCR2 million but not more SCR10 million
693
To date, all commercial banks have been able to offer such loan facilities under the scheme to clients trading across various sectors i n c l u d i n g fi s h e r i e s , a g r i c u l t u re , a r t s , manufacturing, tourism, services, and construction. All credit applications are reviewed under the specific lending rules and criteria of each of the commercial bank.
T h i s n e w S M E s c h e m e re p re s e n t s a n opportunity for SME sector customers and is a key segment to venture into new business opportunities. In addition, the scheme allows banks to target new startups on a selective basis, if they have a compelling business proposition. The SME Plus scheme has been particularly introduced to finance innovative projects.
The scheme is subsidized by the government and also provides a guarantee of 70% against the full value of the loan. This has resulted in many commercial banks offering the SME loan scheme. The terms of the SME loan scheme are as follows:
Extension of the SME financing scheme to include leasing would significantly increase the SME sector's access to finance, thereby accelerating further development of the sector. Any cost incurred by the government through its 70% guarantee would be minimal given its right to repossess the leased asset itself in case of default.
SME LOAN SCHEME TERMS
SCR 3,000,000/-
Interest rate: First SCR 1million @ 5%, Second SCR 2,million @ 7%
Loan period: 5 – 7 years
Grace Period: Up to 6 months
Maximum loan amount:
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The International Financial Repor ting Standards (IFRS) set two criteria that must be met in order to determine whether an arrangement is, or contains a lease. These are as follows:
Ÿ Fulfillment of the arrangement depending on a specific asset or assets; and
Ÿ The arrangement conveys the right to use the asset.
Fulfillment of the arrangement depending on a specific assetLeasing applies only to an arrangement in which there is a right to use an asset. Therefore, an arrangement will not contain a lease unless it depends on a specific asset or assets. The IFRS reporting committee interpretation number 4 on determining whether an arrangement contains a lease states that some arrangements transfer the right to use the asset, that is a component of a larger asset but the issue of whether and when such right should be accounted for as a lease is not dealt with in the interpretation.
There are many such arrangements in practice. For example, a plant that consists of more than one production unit or a line might be considered as a single component or each of its units might be regarded as separate components.
The arrangement conveys the right to use the assetI n o r d e r t o d e t e r m i n e w h e t h e r t h e arrangement conveys the right to use the assets, the following factors need to be taken into account:
Ÿ The lessee has the ability or the right to operate the asset or direct others to operate the asset in a manner it determines while obtaining or controlling more than an insignificant amount of the output or other utility of the asset;
Ÿ The lessee has the ability or the right to control the physical access to the asset in concern, while obtaining or controlling more than an insignificant amount of the output or other utility of the asset; and
Ÿ Facts and circumstances indicate that it is remote that one or more parties other than the lessee will take more than an insignificant amount of the output or other utility that will be produced or generated by the asset during the term of the arrangement; and the price that the lessee will pay for the output is neither contractually fixed per unit of output nor equal to the current market price per unit of output as of time of delivery of the output.
ACCOUNTING FRAMEWORK FOR LEASING
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The International Financial Repor ting Standards (IFRS) set two criteria that must be met in order to determine whether an arrangement is, or contains a lease. These are as follows:
Ÿ Fulfillment of the arrangement depending on a specific asset or assets; and
Ÿ The arrangement conveys the right to use the asset.
Fulfillment of the arrangement depending on a specific assetLeasing applies only to an arrangement in which there is a right to use an asset. Therefore, an arrangement will not contain a lease unless it depends on a specific asset or assets. The IFRS reporting committee interpretation number 4 on determining whether an arrangement contains a lease states that some arrangements transfer the right to use the asset, that is a component of a larger asset but the issue of whether and when such right should be accounted for as a lease is not dealt with in the interpretation.
There are many such arrangements in practice. For example, a plant that consists of more than one production unit or a line might be considered as a single component or each of its units might be regarded as separate components.
The arrangement conveys the right to use the assetI n o r d e r t o d e t e r m i n e w h e t h e r t h e arrangement conveys the right to use the assets, the following factors need to be taken into account:
Ÿ The lessee has the ability or the right to operate the asset or direct others to operate the asset in a manner it determines while obtaining or controlling more than an insignificant amount of the output or other utility of the asset;
Ÿ The lessee has the ability or the right to control the physical access to the asset in concern, while obtaining or controlling more than an insignificant amount of the output or other utility of the asset; and
Ÿ Facts and circumstances indicate that it is remote that one or more parties other than the lessee will take more than an insignificant amount of the output or other utility that will be produced or generated by the asset during the term of the arrangement; and the price that the lessee will pay for the output is neither contractually fixed per unit of output nor equal to the current market price per unit of output as of time of delivery of the output.
ACCOUNTING FRAMEWORK FOR LEASING
SEYCHELLES LEASING MARKET STUDY: 2017
44 45
Therefore, control of the asset may be obtained in circumstances in which an entity obtains more than an insignificant amount of the output, but only if it has the ability or right to operate in a manner that it determines or can control physical access to the asset.
Whether an arrangement contains a lease or not should be made at the inception of the arrangement, being either the:
Ÿ date of the arrangement; or
Ÿ date of commitment by the parties to the principle terms of the arrangement,
and on the basis of all the facts and circumstances.
Classification of lease transactionThe classification of leases adopted in the International Reporting Standards (IFRS) is based on the extent to which the risks and rewards incidental to ownership of a leased asset lie with the lessor or the lessee. Risks include the possibility of losses from idle capacity or technological obsolescence and of variations in return due to change in economic conditions. Rewards may be represented by the expectation of profitable operation over the asset's economic life and gain from appreciation in value of realization of a residual value. The IFRS standard takes a more principles-based
substance over form approach. It further states that the classification of a lease depends more on the substance of the transaction than the legal form of the contract. Based on this, leases are classified as finance or operating leases.
Finance leaseA finance lease transfers substantially all risks and rewards incidental to ownership of an asset to the lessee. A finance lease should meet one or a combination of the following conditions: (Finance Lease Test)
Ÿ The lessor transfers ownership of the asset to the lessee at the end of the lease period;
Ÿ The lessee has the option to purchase the asset at a price which is expected to be substantially lower than the fair market value at the date the option becomes exercisable such that at the inception of the lease it is reasonably c e r t a i n t h a t t h e o p t i o n w i l l b e exercised¹⁰;
Ÿ The lease term is for the major part of the economic life of the asset; and
Ÿ The present value of the minimum lease payment should be more than 90% of the fair market value of the asset at the inception.
Operating leaseAn operating lease contract is a transaction that does not transfer all risks and rewards incidental to ownership to the lessee. Accordingly, the risks and rewards incidental to ownership lie with the lessor. Any lease contract failing the finance lease test would be classified as an operating lease.
Lease term and non-cancellable periodThe lease term is a non-cancellable period where the lessee has contracted with the lessor to use the asset, together with any other terms for which the lessee has the option to continue to lease the asset, with or without payment, if it is reasonably certain at the inception of the lease that the lessee will exercise the option. A non-cancellable lease is either a lease that has no cancellation terms or one that has terms that effectively force the lessee to continue to use the asset for the period of the agreement. Therefore a lease is considered cancellable only if, occurrence or a remote contingency, with the permission of the lessor, if the lessee enters into a lease agreement with the same lessor for the same equipment or if the lessee is required to make additional amounts that make is reasonably certain at the inception that the lessee will continue the lease.
Lessor's responsibility for the leased assetThe duties of the lessor depend on the conditions in the lease agreement and the type of lease. In some lease contracts the lessor agrees to maintain the asset in fair usable condition, renew the annual insurance and licensing. In such instances it is the lessor's responsibility to ensure compliance.
Lessee's responsibilityThe principle duty of the lessee is to honor the lease payments and maintain the asset in fair condition as per the terms and conditions in the lease agreement.
Accounting for leasing in SeychellesAccounting for leasing transactions will be guided by the International Financial Reporting Standards (IFRS).
Accounting for leases by the lessors depends upon the type of lease arrangement, finance leasing or operating leasing.
Finance leases – Accounting by lesseeThe lessees recognize finance leases as assets and liabilities in the balance sheet at the commencement of the lease term at amounts equal to the fair value of the leased asset, or the present value of the minimum lease term. The
SEYCHELLES LEASING MARKET STUDY: 2017
44 45
Therefore, control of the asset may be obtained in circumstances in which an entity obtains more than an insignificant amount of the output, but only if it has the ability or right to operate in a manner that it determines or can control physical access to the asset.
Whether an arrangement contains a lease or not should be made at the inception of the arrangement, being either the:
Ÿ date of the arrangement; or
Ÿ date of commitment by the parties to the principle terms of the arrangement,
and on the basis of all the facts and circumstances.
Classification of lease transactionThe classification of leases adopted in the International Reporting Standards (IFRS) is based on the extent to which the risks and rewards incidental to ownership of a leased asset lie with the lessor or the lessee. Risks include the possibility of losses from idle capacity or technological obsolescence and of variations in return due to change in economic conditions. Rewards may be represented by the expectation of profitable operation over the asset's economic life and gain from appreciation in value of realization of a residual value. The IFRS standard takes a more principles-based
substance over form approach. It further states that the classification of a lease depends more on the substance of the transaction than the legal form of the contract. Based on this, leases are classified as finance or operating leases.
Finance leaseA finance lease transfers substantially all risks and rewards incidental to ownership of an asset to the lessee. A finance lease should meet one or a combination of the following conditions: (Finance Lease Test)
Ÿ The lessor transfers ownership of the asset to the lessee at the end of the lease period;
Ÿ The lessee has the option to purchase the asset at a price which is expected to be substantially lower than the fair market value at the date the option becomes exercisable such that at the inception of the lease it is reasonably c e r t a i n t h a t t h e o p t i o n w i l l b e exercised¹⁰;
Ÿ The lease term is for the major part of the economic life of the asset; and
Ÿ The present value of the minimum lease payment should be more than 90% of the fair market value of the asset at the inception.
Operating leaseAn operating lease contract is a transaction that does not transfer all risks and rewards incidental to ownership to the lessee. Accordingly, the risks and rewards incidental to ownership lie with the lessor. Any lease contract failing the finance lease test would be classified as an operating lease.
Lease term and non-cancellable periodThe lease term is a non-cancellable period where the lessee has contracted with the lessor to use the asset, together with any other terms for which the lessee has the option to continue to lease the asset, with or without payment, if it is reasonably certain at the inception of the lease that the lessee will exercise the option. A non-cancellable lease is either a lease that has no cancellation terms or one that has terms that effectively force the lessee to continue to use the asset for the period of the agreement. Therefore a lease is considered cancellable only if, occurrence or a remote contingency, with the permission of the lessor, if the lessee enters into a lease agreement with the same lessor for the same equipment or if the lessee is required to make additional amounts that make is reasonably certain at the inception that the lessee will continue the lease.
Lessor's responsibility for the leased assetThe duties of the lessor depend on the conditions in the lease agreement and the type of lease. In some lease contracts the lessor agrees to maintain the asset in fair usable condition, renew the annual insurance and licensing. In such instances it is the lessor's responsibility to ensure compliance.
Lessee's responsibilityThe principle duty of the lessee is to honor the lease payments and maintain the asset in fair condition as per the terms and conditions in the lease agreement.
Accounting for leasing in SeychellesAccounting for leasing transactions will be guided by the International Financial Reporting Standards (IFRS).
Accounting for leases by the lessors depends upon the type of lease arrangement, finance leasing or operating leasing.
Finance leases – Accounting by lesseeThe lessees recognize finance leases as assets and liabilities in the balance sheet at the commencement of the lease term at amounts equal to the fair value of the leased asset, or the present value of the minimum lease term. The
SEYCHELLES LEASING MARKET STUDY: 2017
46 47
rate on which the lease has been structured will have to be used as the discount rate to calculate the present value. Any initial direct cost to the lease is added to the asset.
Lease payments made by the lessee are apportioned between the finance charge and the outstanding liability. The finance charge should be allocated to periods during the lease term based on the rate of interest on the capital outstanding at different time periods.
Finance leases – Accounting by lessorUnder a finance lease a lessor retains the legal title to an asset but passes substantially all risks and rewards of ownership to the lessee in return for a stream of lease rentals. In substance, the lessor provides finance and expects a return for it. The standard requires the lessor to recognize assets held under a finance lease as receivables in their balance sheets, and present them as a receivable at an amount equal to the net investment in the lease. The lease payment received from the lessee is treated as repayment of principle and interest (finance income). Initial direct cost which may include commissions, legal fees and internal costs that are directly attributable to negotiating and arranging the lease, are included in the measurement of the net investment of the lease at the inception and reflected in the calculation of the implicit
interest rate. The recognition of interest income should be based on a pattern reflecting a constant periodic rate of return on the lessor's net investment outstanding in respect of the finance lease.
Fair valueThe fair value is defined as the amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties in an arm's length transaction. It is also the present value of the minimum lease rental payments of the contract. In practice, the purchase price of the leased asset would be the fair value.
Operating leases – Accounting by lesseeInternational Accounting Standards (IAS) 17 requires the lease payments under an operating lease should be recognized as an expense on a straight line basis over the lease term, unless another systematic basis is representative of the time pattern of the user's benefits, even if the payments are not on that basis. Generally the only other acceptable basis are where the rentals are based on a unit of use or unit of production.
IAS 17 requires straight line recognition of the lease expenses even when amounts are not payable on this basis. This does not require anticipation of contingent rental increases,
such as those that will result from a periodic re-pricing to market rates or those that are based on some other index.
Operating leases – Accounts of the lessor
Lessor should present assets subject to operating leases as an asset in their balance sheet according to the nature of the asset. Lease income from operating leases should be recognized as income on a straight-line basis over the lease term, unless another systematic basis is more representative of the time pattern in which, the standard states, “user benefit derived from the leased asset is diminished”. Generally, the only other basis that is encountered is based on unit of production or usage.
Lease income includes receipts for services provided such as insurance and maintenance. Cost, including depreciation, incurred in earning the lease income is recognized as an expense. The depreciation policy for depreciable leased assets is to be consistent with the entity's policy for similar assets that are not subject to lease arrangements and calculated in accordance with IAS 16 or IAS 38 as appropriate.
SEYCHELLES LEASING MARKET STUDY: 2017
46 47
rate on which the lease has been structured will have to be used as the discount rate to calculate the present value. Any initial direct cost to the lease is added to the asset.
Lease payments made by the lessee are apportioned between the finance charge and the outstanding liability. The finance charge should be allocated to periods during the lease term based on the rate of interest on the capital outstanding at different time periods.
Finance leases – Accounting by lessorUnder a finance lease a lessor retains the legal title to an asset but passes substantially all risks and rewards of ownership to the lessee in return for a stream of lease rentals. In substance, the lessor provides finance and expects a return for it. The standard requires the lessor to recognize assets held under a finance lease as receivables in their balance sheets, and present them as a receivable at an amount equal to the net investment in the lease. The lease payment received from the lessee is treated as repayment of principle and interest (finance income). Initial direct cost which may include commissions, legal fees and internal costs that are directly attributable to negotiating and arranging the lease, are included in the measurement of the net investment of the lease at the inception and reflected in the calculation of the implicit
interest rate. The recognition of interest income should be based on a pattern reflecting a constant periodic rate of return on the lessor's net investment outstanding in respect of the finance lease.
Fair valueThe fair value is defined as the amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties in an arm's length transaction. It is also the present value of the minimum lease rental payments of the contract. In practice, the purchase price of the leased asset would be the fair value.
Operating leases – Accounting by lesseeInternational Accounting Standards (IAS) 17 requires the lease payments under an operating lease should be recognized as an expense on a straight line basis over the lease term, unless another systematic basis is representative of the time pattern of the user's benefits, even if the payments are not on that basis. Generally the only other acceptable basis are where the rentals are based on a unit of use or unit of production.
IAS 17 requires straight line recognition of the lease expenses even when amounts are not payable on this basis. This does not require anticipation of contingent rental increases,
such as those that will result from a periodic re-pricing to market rates or those that are based on some other index.
Operating leases – Accounts of the lessor
Lessor should present assets subject to operating leases as an asset in their balance sheet according to the nature of the asset. Lease income from operating leases should be recognized as income on a straight-line basis over the lease term, unless another systematic basis is more representative of the time pattern in which, the standard states, “user benefit derived from the leased asset is diminished”. Generally, the only other basis that is encountered is based on unit of production or usage.
Lease income includes receipts for services provided such as insurance and maintenance. Cost, including depreciation, incurred in earning the lease income is recognized as an expense. The depreciation policy for depreciable leased assets is to be consistent with the entity's policy for similar assets that are not subject to lease arrangements and calculated in accordance with IAS 16 or IAS 38 as appropriate.
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The Seychelles tax law does not include specific provisions for leasing transactions. Parties to leasing deals apply general provisions of the law in their operations. The tax law does not specifically cater for capital allowances.
Capital Allowances (CA) – finance leasingAs there is no specific provision in the law to specify which party will benefit from the capital allowance (CA), the accounting principle of substance over form will have to be followed. Hence the question arises as to who would be taking the risks and rewards incidental to ownership. In finance leasing, the risk and rewards incidental to ownership is with the lessee. Hence, the lessee would claim capital allowances. Accordingly, the lessor recognizes net interest income as income for the assessment of tax liability.
Capital Allowance (CA) – operating leasesThe risks and rewards incidental to ownership is with the lessor in operating leases, hence the capital allowance (CA) on the lease assets would be claimed by the lessor. Accordingly, the lease rental is treated as income for the purpose of calculating the tax liability. However, the capital allowance is an allowable charge against income when calculating the taxes.
Taxes applicable to financial institutionsThere are three main types of taxes applicable to financial institutions in Seychelles. They are as follows:
A special provision has been issued excluding lease transactions from VAT liability, which is discussed in the next chapter.
Value added tax (VAT) on finance leasesThe Value Added Tax Act was enacted in 2010, wherein finance leases are liable for VAT. However, 2015 amendments effected to this Act have exempted finance leases from VAT liability.
This is indeed a very favorable initiative taken towards the development of leasing in Seychelles. This will result in comparable prices for assets, regardless of whether financed via a finance lease or a loan. The exemption of VAT for financial leasing also promotes its use for the acquisition of second-hand assets and also assets where the supply is exempted from VAT.
CAPITAL ALLOWANCES AND TAXESThe fir t taxeds SCR1 million is at 25% a d the aini xable n rem ng taprofit a e at 33% bal nc
CSR tax: 0.5% urn on t over
Tourism Marketing Tax:
0.5% urn on t over
Busines ts axes 33%): (25% -
Taxes applicable to financial institutions in Seychelles
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48 49
The Seychelles tax law does not include specific provisions for leasing transactions. Parties to leasing deals apply general provisions of the law in their operations. The tax law does not specifically cater for capital allowances.
Capital Allowances (CA) – finance leasingAs there is no specific provision in the law to specify which party will benefit from the capital allowance (CA), the accounting principle of substance over form will have to be followed. Hence the question arises as to who would be taking the risks and rewards incidental to ownership. In finance leasing, the risk and rewards incidental to ownership is with the lessee. Hence, the lessee would claim capital allowances. Accordingly, the lessor recognizes net interest income as income for the assessment of tax liability.
Capital Allowance (CA) – operating leasesThe risks and rewards incidental to ownership is with the lessor in operating leases, hence the capital allowance (CA) on the lease assets would be claimed by the lessor. Accordingly, the lease rental is treated as income for the purpose of calculating the tax liability. However, the capital allowance is an allowable charge against income when calculating the taxes.
Taxes applicable to financial institutionsThere are three main types of taxes applicable to financial institutions in Seychelles. They are as follows:
A special provision has been issued excluding lease transactions from VAT liability, which is discussed in the next chapter.
Value added tax (VAT) on finance leasesThe Value Added Tax Act was enacted in 2010, wherein finance leases are liable for VAT. However, 2015 amendments effected to this Act have exempted finance leases from VAT liability.
This is indeed a very favorable initiative taken towards the development of leasing in Seychelles. This will result in comparable prices for assets, regardless of whether financed via a finance lease or a loan. The exemption of VAT for financial leasing also promotes its use for the acquisition of second-hand assets and also assets where the supply is exempted from VAT.
CAPITAL ALLOWANCES AND TAXESThe fir t taxeds SCR1 million is at 25% a d the aini xable n rem ng taprofit a e at 33% bal nc
CSR tax: 0.5% urn on t over
Tourism Marketing Tax:
0.5% urn on t over
Busines ts axes 33%): (25% -
Taxes applicable to financial institutions in Seychelles
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LEASING LEGISLATIONS AND REGULATIONS
SEYCHELLES LEASING MARKET STUDY: 2017
The Finance Leasing Act (FLA) was enacted on the November 11, 2013. The Act provides for the regulation of finance leasing business, to specify the rights, duties and obligations of the lessor, lessee and the supplier of assets. It also provides for the licensing, regulating and monitoring of business entities carrying on the business of finance leasing. It is applicable to any finance leasing business, if the:
Ÿ asset which is the subject of a finance lease is within Seychelles;
Ÿ lessee's principal business is within Seychelles; or
Ÿ finance lease agreement provides that the laws of Seychelles govern the transaction.
Formation of a lease contractAs per the FLA, a finance leasing transaction is specified as an agreement entered into between two parties, whereby the lessor in exchange for monetary consideration, leases an asset to the lessee. Under such an agreement,
Ÿ An asset which the lessor agrees to acquire from a supplier is chosen and specified by the lessee, so that the lessor shall retain full title to the asset and the lessee is granted the right to possess and enjoy the said asset during the lease period; and
Ÿ The lessee may exercise an option to purchase the equipment, return the asset or renew the finance lease at the end of the lease term.
Ÿ The finance leasing contract and terms should be in writing and state the following aspects:
Confirmation that the parties have agreed to enter into a finance lease;
Confirmation that the prospective lessee has chosen the asset and supplier without relying primarily on the skill and judgment of the lessor;
Description of the asset covered under the finance lease;
Total finance lease payments to be paid by the lessee to the lessor;
Amount of each installment payment payable by the lessee to the lessor;
Date on which the installment is payable;
Declaration acknowledging and confirming that the lessee holds the asset as a mere bailee of the lessor and the lessee does not, during the term of the finance lease, have any proprietary right, title, interest in the asset other than as a lessee;
Full payout period;
50 51
LEASING LEGISLATIONS AND REGULATIONS
SEYCHELLES LEASING MARKET STUDY: 2017
The Finance Leasing Act (FLA) was enacted on the November 11, 2013. The Act provides for the regulation of finance leasing business, to specify the rights, duties and obligations of the lessor, lessee and the supplier of assets. It also provides for the licensing, regulating and monitoring of business entities carrying on the business of finance leasing. It is applicable to any finance leasing business, if the:
Ÿ asset which is the subject of a finance lease is within Seychelles;
Ÿ lessee's principal business is within Seychelles; or
Ÿ finance lease agreement provides that the laws of Seychelles govern the transaction.
Formation of a lease contractAs per the FLA, a finance leasing transaction is specified as an agreement entered into between two parties, whereby the lessor in exchange for monetary consideration, leases an asset to the lessee. Under such an agreement,
Ÿ An asset which the lessor agrees to acquire from a supplier is chosen and specified by the lessee, so that the lessor shall retain full title to the asset and the lessee is granted the right to possess and enjoy the said asset during the lease period; and
Ÿ The lessee may exercise an option to purchase the equipment, return the asset or renew the finance lease at the end of the lease term.
Ÿ The finance leasing contract and terms should be in writing and state the following aspects:
Confirmation that the parties have agreed to enter into a finance lease;
Confirmation that the prospective lessee has chosen the asset and supplier without relying primarily on the skill and judgment of the lessor;
Description of the asset covered under the finance lease;
Total finance lease payments to be paid by the lessee to the lessor;
Amount of each installment payment payable by the lessee to the lessor;
Date on which the installment is payable;
Declaration acknowledging and confirming that the lessee holds the asset as a mere bailee of the lessor and the lessee does not, during the term of the finance lease, have any proprietary right, title, interest in the asset other than as a lessee;
Full payout period;
52 53
interest of the lessor. Hence this section too requires some attention. It is recommended to introduce more clarity to the above sections to avoid confusion when practically going through the litigation process.
Section 27(4)(b) of the FLA states that where the lessor becomes entitled to repossess the leased asset through breach of agreement by the lessee or otherwise through operation of law, and the lessee does not deliver the asset after having been given due notice to surrender the asset to the lessor, the lessor may apply for a court order for repossession or recovery of the leased asset. It specifies that if the lessee does not consent to the repossession of the asset, a court order should be obtained to repossess the leased asset. The process is likely to be time consuming. It is therefore prudent to establish a mechanism to fast-track the process within the court system whereby the lessors would be in a position of obtaining a repossession order much faster to avoid further loss on the lease contract. Furthermore, there are provisions in the current legal system to file an application for repossession through the Commercial Court (Supreme Court (Commercial List) Rules 2012). This option should be positively looked at. In fact CBS has been in consultations with the Judiciary in an attempt to explore the possibility of establishing a fast-tracking
mechanism. This is further discussed in section 15.4.
Registration of finance leases and leased assetsPar t IV of the FLA requires the CBS to designate by notice in the Gazette, a registry for the registration of assets under finance leases. The parties to the lease are required to register any and all assets under a finance lease with the registrar of finance leases. A registered asset in the finance lease registry would serve as a notice to third party purchasers of the existence of any interests in the leased asses.
Currently, assets are registered with the Registration Division in Seychelles. However, the registration process is quite lengthy. In some instances it may take up to three months. This has been a common problem faced by many financial institutions in their day-to-day lending activities. Motor vehicles, on the other hand, are registered with the Seychelles Licensing Authority (SLA). This process is faster compared to the process at the Registration Division.
Declaration that the lessee confirms and acknowledges the fact that the finance lease is an irrevocable agreement; and
End of term option.
Rights, obligations and dutiesPart III of the FLA goes on to specify the rights and obligations of the lessor, lessee and supplier. This has been clearly defined with the exception of some clauses which are discussed below. This enables all three parties to clearly identify their roles. However, with regard to the performance of the contracts the following sections need some degree of attention as the lessors/lessees could face practical difficulties in carrying out financial leasing business.
Section 4(1) of the FLA prevents the lessor from being the supplier of the asset. This clause is reasonable with regards to new assets to which the lessor does not have title. It is understood that allowing a party to be the supplier and the lessor may be detrimental to the industry as lessors being supplier may lead to compromises on quality of the evaluation process/credit in order to sell more assets. This has been experienced in many developing countries where lessors have compromised on quality of credit to sell more assets.
However, this clause in effect prevents lessors from in essence being suppliers of their own repossessed assets. This would result in lessors having to sell all repossessed assets through outright sales and would result in a slower resale process. This would quite likely adversely affect the prices fetched on repossessed assets which in turn would result in an eventual loss to the lessor. Therefore, it is recommended that the lessor is allowed to effectively be the supplier when dealing with repossessed assets.
There appears to be a degree of disharmony between sections 21(1) and 21(3) of the FLA. Section 21(1) provides that the lessor can transfer or assign its rights under the finance lease with the consent of the lessee, whereas section 21(3) provides that the lessor has a unilateral right to assign the finance lease to third parties, but without infringement of the lessee's right to the quiet enjoyment of the leased asset. This would create a lot of ambiguity in its practical application.
Section 27(8) of the FLA states that the lessor shall not be entitled to recover damages to the extent that the lessor has failed to take reasonable steps to mitigate the losses. However, the basis used to determine reasonableness is not provided and this leaves a lot of scope for interpretation. This could create confusion and be detrimental to the
SEYCHELLES LEASING MARKET STUDY: 2017
52 53
interest of the lessor. Hence this section too requires some attention. It is recommended to introduce more clarity to the above sections to avoid confusion when practically going through the litigation process.
Section 27(4)(b) of the FLA states that where the lessor becomes entitled to repossess the leased asset through breach of agreement by the lessee or otherwise through operation of law, and the lessee does not deliver the asset after having been given due notice to surrender the asset to the lessor, the lessor may apply for a court order for repossession or recovery of the leased asset. It specifies that if the lessee does not consent to the repossession of the asset, a court order should be obtained to repossess the leased asset. The process is likely to be time consuming. It is therefore prudent to establish a mechanism to fast-track the process within the court system whereby the lessors would be in a position of obtaining a repossession order much faster to avoid further loss on the lease contract. Furthermore, there are provisions in the current legal system to file an application for repossession through the Commercial Court (Supreme Court (Commercial List) Rules 2012). This option should be positively looked at. In fact CBS has been in consultations with the Judiciary in an attempt to explore the possibility of establishing a fast-tracking
mechanism. This is further discussed in section 15.4.
Registration of finance leases and leased assetsPar t IV of the FLA requires the CBS to designate by notice in the Gazette, a registry for the registration of assets under finance leases. The parties to the lease are required to register any and all assets under a finance lease with the registrar of finance leases. A registered asset in the finance lease registry would serve as a notice to third party purchasers of the existence of any interests in the leased asses.
Currently, assets are registered with the Registration Division in Seychelles. However, the registration process is quite lengthy. In some instances it may take up to three months. This has been a common problem faced by many financial institutions in their day-to-day lending activities. Motor vehicles, on the other hand, are registered with the Seychelles Licensing Authority (SLA). This process is faster compared to the process at the Registration Division.
Declaration that the lessee confirms and acknowledges the fact that the finance lease is an irrevocable agreement; and
End of term option.
Rights, obligations and dutiesPart III of the FLA goes on to specify the rights and obligations of the lessor, lessee and supplier. This has been clearly defined with the exception of some clauses which are discussed below. This enables all three parties to clearly identify their roles. However, with regard to the performance of the contracts the following sections need some degree of attention as the lessors/lessees could face practical difficulties in carrying out financial leasing business.
Section 4(1) of the FLA prevents the lessor from being the supplier of the asset. This clause is reasonable with regards to new assets to which the lessor does not have title. It is understood that allowing a party to be the supplier and the lessor may be detrimental to the industry as lessors being supplier may lead to compromises on quality of the evaluation process/credit in order to sell more assets. This has been experienced in many developing countries where lessors have compromised on quality of credit to sell more assets.
However, this clause in effect prevents lessors from in essence being suppliers of their own repossessed assets. This would result in lessors having to sell all repossessed assets through outright sales and would result in a slower resale process. This would quite likely adversely affect the prices fetched on repossessed assets which in turn would result in an eventual loss to the lessor. Therefore, it is recommended that the lessor is allowed to effectively be the supplier when dealing with repossessed assets.
There appears to be a degree of disharmony between sections 21(1) and 21(3) of the FLA. Section 21(1) provides that the lessor can transfer or assign its rights under the finance lease with the consent of the lessee, whereas section 21(3) provides that the lessor has a unilateral right to assign the finance lease to third parties, but without infringement of the lessee's right to the quiet enjoyment of the leased asset. This would create a lot of ambiguity in its practical application.
Section 27(8) of the FLA states that the lessor shall not be entitled to recover damages to the extent that the lessor has failed to take reasonable steps to mitigate the losses. However, the basis used to determine reasonableness is not provided and this leaves a lot of scope for interpretation. This could create confusion and be detrimental to the
SEYCHELLES LEASING MARKET STUDY: 2017
54 55
The table below provides an illustration of the number of vehicles registered with the SLA over the last five years.
Registration with the SLA provides a possible alternate avenue and/or future model for the registration of assets under finance leases. In the event of repossession, if registered through the SLA, the lessor would not be subjected to the transfer process as the vehicle, or other asset, would already be registered under the lessor's name.¹¹
In an effort to create a comprehensive, all-encompassing register for movable assets for the registration of assets, work is being initiated on the establishment of a Collateral Database Registry (CDR). Section 14 of the report provides more information on the CDR.
Licensing of finance leasing businessThis section covers the licensing process and briefly provides some of the procedures for acquiring a finance leasing l icense in Seychelles. It also highlights the regulatory and monitoring framework of FLIs by the CBS.
In order to offer and carry out financial leasing business in Seychelles, all such business entities are required to obtain a financial leasing license from the CBS after fulfilling the requirements of Part V of the FLA. By default, FLIs are not authorized to accept deposits from the public. They may however, in addition to their financial leasing licenses, apply for an approval to accept deposits, in which case the entity will be regulated at par with banks.
In addition to prescribing certain authority for the CBS when processing applications for licensing, the following fees and charges would be applicable.
Year No of Vehicle Registrations
2010 1,829
2011 2,219
2012 1,692
2013 1,712
2015 2,165
Source – Seychelles Licensing Authority
TABLE 3 : VEHICLE REGISTRATIONS 2010-2015
Financial leasing (lease classification and provisioning) regulations, 2014
These regulations specify the treatment and classification of finance leases for prudential purposes and adopts the standard percentages method that is applicable to banks with regards to their loans. Therefore, the minimum percentage indicated in table 5 needs to be applied on the sum of the gross finance lease portfolio for general provisions and the sum of the net finance lease balance for specific provisions.
TABLE 4 : APPLICATION AND LICENSING FEES PAYABLE BY APPLICANTS/LICENSED FLIS
Source – Financial Leasing Act, 2013
Description Amount (SCR) · Non-refunda e sing license application fee bl financial lea 30,000/-
· Application fee for extension of financial leasing license to accept deposits fr om the public
20,000/-
· Ap ee payable by banks for plication f app nancial roval to engage in fileasing as a part of its existing ba ess license nking busin
50,000/-
· Annual financial leasing license fees payable by a deposit taking FLI 125,000/-
· Annual financial leasing license fees payable by a non-de sit taking FLI po 50,000/-
· Annual licens fe ble undee es applica r the Financial Institutions (Bank license fees) Reg ill ulations, 2010 w be applicable to banks which have been given approval to carry out leasing business
As pe ank r the blicense fees
Regulations,2010
Source – Central Bank of Seychelles, Financial Ser vices Supervision Report 2014
TABLE 5 : TYPES OF PROVISIONING, RULES & CLASSIFICATION
Type of Provisions
Provisioning Rules
Provisioning classification
General Provisions
1% 0% for facilities
extended to Seychelles
government
Pass
Specific
Provisions
5% Special Mention
25% Sub-standard
50% Doubtful
100% Loss
SEYCHELLES LEASING MARKET STUDY: 2017
54 55
The table below provides an illustration of the number of vehicles registered with the SLA over the last five years.
Registration with the SLA provides a possible alternate avenue and/or future model for the registration of assets under finance leases. In the event of repossession, if registered through the SLA, the lessor would not be subjected to the transfer process as the vehicle, or other asset, would already be registered under the lessor's name.¹¹
In an effort to create a comprehensive, all-encompassing register for movable assets for the registration of assets, work is being initiated on the establishment of a Collateral Database Registry (CDR). Section 14 of the report provides more information on the CDR.
Licensing of finance leasing businessThis section covers the licensing process and briefly provides some of the procedures for acquiring a finance leasing l icense in Seychelles. It also highlights the regulatory and monitoring framework of FLIs by the CBS.
In order to offer and carry out financial leasing business in Seychelles, all such business entities are required to obtain a financial leasing license from the CBS after fulfilling the requirements of Part V of the FLA. By default, FLIs are not authorized to accept deposits from the public. They may however, in addition to their financial leasing licenses, apply for an approval to accept deposits, in which case the entity will be regulated at par with banks.
In addition to prescribing certain authority for the CBS when processing applications for licensing, the following fees and charges would be applicable.
Year No of Vehicle Registrations
2010 1,829
2011 2,219
2012 1,692
2013 1,712
2015 2,165
Source – Seychelles Licensing Authority
TABLE 3 : VEHICLE REGISTRATIONS 2010-2015
Financial leasing (lease classification and provisioning) regulations, 2014
These regulations specify the treatment and classification of finance leases for prudential purposes and adopts the standard percentages method that is applicable to banks with regards to their loans. Therefore, the minimum percentage indicated in table 5 needs to be applied on the sum of the gross finance lease portfolio for general provisions and the sum of the net finance lease balance for specific provisions.
TABLE 4 : APPLICATION AND LICENSING FEES PAYABLE BY APPLICANTS/LICENSED FLIS
Source – Financial Leasing Act, 2013
Description Amount (SCR) · Non-refunda e sing license application fee bl financial lea 30,000/-
· Application fee for extension of financial leasing license to accept deposits fr om the public
20,000/-
· Ap ee payable by banks for plication f app nancial roval to engage in fileasing as a part of its existing ba ess license nking busin
50,000/-
· Annual financial leasing license fees payable by a deposit taking FLI 125,000/-
· Annual financial leasing license fees payable by a non-de sit taking FLI po 50,000/-
· Annual licens fe ble undee es applica r the Financial Institutions (Bank license fees) Reg ill ulations, 2010 w be applicable to banks which have been given approval to carry out leasing business
As pe ank r the blicense fees
Regulations,2010
Source – Central Bank of Seychelles, Financial Ser vices Supervision Report 2014
TABLE 5 : TYPES OF PROVISIONING, RULES & CLASSIFICATION
Type of Provisions
Provisioning Rules
Provisioning classification
General Provisions
1% 0% for facilities
extended to Seychelles
government
Pass
Specific
Provisions
5% Special Mention
25% Sub-standard
50% Doubtful
100% Loss
SEYCHELLES LEASING MARKET STUDY: 2017
56
Financial leasing (capital adequacy and reserve fund) regulations, 2014The main features and provisions of the above regulations are as follows:
Ÿ Every FLI, excluding banks authorized to engage in financial leasing business is r e q u i r e d t o m a i n t a i n a m i n i m u m unimpaired paid up capital /assigned capital of SCR2million;
Ÿ Deposit-taking FLIs are required to maintain a minimum unimpaired paid up capital of SCR10million;
Ÿ The CBS may impose additional capital requirements upon specific institutions or group of FLIs on the basis of the institutional risk profile and market developments;
Ÿ A FLI shall not reduce its paid up/ assigned capital without the prior written approval of the CBS
Ÿ Maintenance of a minimum capital adequacy ratio of 12% by FLIs is prescribed. The risk-weighting methodology to be used by institutions carrying out finance leasing business is specified;
Ÿ The CBS approval is required prior to declaring and distributing dividends and transferring profits overseas ; and
Ÿ FLIs that have obtained approval to accept deposits are required to maintain a reserve fund. The FLI is required to transfer a minimum of 20% of its net profits each year (before dividend and transfer of profits to head office or elsewhere) to the reserve fund until the amount of the reserve fund is equal to the paid-up /assigned capital.
(Source – Central Bank of Seychelles, Financial Services Supervision Report 2014)
The regulations also provide for the value of the assets to be determined on the unamortized amount for the each of the following asset categories.
The value of the asset would guide computation of lease payments to be made for the use of the asset as reflected in the finance lease agreement. (Source – Central Bank of Seychelles, Financial Services Supervision Report 2014)Source – Central Bank of Seychelles, Financial Ser vices Supervision Report 2014
Asset Category Description Amortization for provisioning purposes
Standard Assets Assets that may be easily resold
Shall be amortized fully over 5 years
Specific Assets Assets that are difficult to resell
Shall be amortized fully over 3 years based on the following criteria (40% each during the first and second year, and 20% during the third year)
TABLE 6 : ASSET CATEGORIES AND BASIS OF AMORTIZATION FOR PROVISIONING PURPOSES
SEYCHELLES LEASING MARKET STUDY: 2017
ConclusionThe enactment of the Finance Leasing Act, 2013, in addition to the minimum required set of regulations for the establishment of a vibrant financial leasing sector have been put in place. The Collateral Database Registry (discussed in Section 13) which can facilitate asset registrations under financial leasing t r a n s a c t i o n s i s b e i n g d e v e l o p e d a n d establ ished. International accounting standards have been adopted which are clear and straight forward. Capital Allowance would be claimed by the lessee and the lessor would be taxed on the net interest income as per the amortization schedule. Finance leases have been exempt from VAT liability, fur ther incentivizing the development of leasing in Seychelles and increasing possibilities for the creation of a market for leasing used assets. Lessees would therefore not solely depend on costly brand new imported assets, but have the option to lease used assets, which is likely to have a positive effect on the country's foreign currency outflows.
In spite of the few concerns highlighted in this report, they do not present any significant barriers to commence financial leasing operations in Seychelles at this time. Adoption of the following recommendations would nonetheless benefit the development of the country's leasing industry and safeguard the rights and obligations of lessees and lessors.
Ÿ Section 27(4)(b)of the Financial Leasing Act, 2013, requires the lessor to obtain a court order when repossessing assets in the event of default. It specifies that if the lessee does not consent to the repossession of the asset (there is a breach of peace upon repossession) a court order should be obtained to repossess the leased asset. This process is generally time consuming, which therefore may deter potential future lessors from wishing to enter the finance leasing business.
In order to minimize risk on behalf of the lessor in case of default, it is recommended that a relevant fast-track mechanism addressing this issue in the court system be established.
Ÿ Currently, concessions are granted to SME loan financing through banks, by offering a government guarantee of 70% of the loan and offering concessionary rates.
It is recommended to offer the same concessions for extending financial leasing through FLIs as well. Given the leased asset itself is the collateral, claims on government guarantees would be limited in case of default.
Ÿ Section 4(1) of the Finance Leasing Act, 2013, prevents the lessor from being the supplier of the asset. In cases in which the lessor does not have title, as is often the case with new assets, there is no problem. However, this clause in effect prevents lessors from being suppliers of their own repossessed assets in the case of default. Although there
57
56
Financial leasing (capital adequacy and reserve fund) regulations, 2014The main features and provisions of the above regulations are as follows:
Ÿ Every FLI, excluding banks authorized to engage in financial leasing business is r e q u i r e d t o m a i n t a i n a m i n i m u m unimpaired paid up capital /assigned capital of SCR2million;
Ÿ Deposit-taking FLIs are required to maintain a minimum unimpaired paid up capital of SCR10million;
Ÿ The CBS may impose additional capital requirements upon specific institutions or group of FLIs on the basis of the institutional risk profile and market developments;
Ÿ A FLI shall not reduce its paid up/ assigned capital without the prior written approval of the CBS
Ÿ Maintenance of a minimum capital adequacy ratio of 12% by FLIs is prescribed. The risk-weighting methodology to be used by institutions carrying out finance leasing business is specified;
Ÿ The CBS approval is required prior to declaring and distributing dividends and transferring profits overseas ; and
Ÿ FLIs that have obtained approval to accept deposits are required to maintain a reserve fund. The FLI is required to transfer a minimum of 20% of its net profits each year (before dividend and transfer of profits to head office or elsewhere) to the reserve fund until the amount of the reserve fund is equal to the paid-up /assigned capital.
(Source – Central Bank of Seychelles, Financial Services Supervision Report 2014)
The regulations also provide for the value of the assets to be determined on the unamortized amount for the each of the following asset categories.
The value of the asset would guide computation of lease payments to be made for the use of the asset as reflected in the finance lease agreement. (Source – Central Bank of Seychelles, Financial Services Supervision Report 2014)Source – Central Bank of Seychelles, Financial Ser vices Supervision Report 2014
Asset Category Description Amortization for provisioning purposes
Standard Assets Assets that may be easily resold
Shall be amortized fully over 5 years
Specific Assets Assets that are difficult to resell
Shall be amortized fully over 3 years based on the following criteria (40% each during the first and second year, and 20% during the third year)
TABLE 6 : ASSET CATEGORIES AND BASIS OF AMORTIZATION FOR PROVISIONING PURPOSES
SEYCHELLES LEASING MARKET STUDY: 2017
ConclusionThe enactment of the Finance Leasing Act, 2013, in addition to the minimum required set of regulations for the establishment of a vibrant financial leasing sector have been put in place. The Collateral Database Registry (discussed in Section 13) which can facilitate asset registrations under financial leasing t r a n s a c t i o n s i s b e i n g d e v e l o p e d a n d establ ished. International accounting standards have been adopted which are clear and straight forward. Capital Allowance would be claimed by the lessee and the lessor would be taxed on the net interest income as per the amortization schedule. Finance leases have been exempt from VAT liability, fur ther incentivizing the development of leasing in Seychelles and increasing possibilities for the creation of a market for leasing used assets. Lessees would therefore not solely depend on costly brand new imported assets, but have the option to lease used assets, which is likely to have a positive effect on the country's foreign currency outflows.
In spite of the few concerns highlighted in this report, they do not present any significant barriers to commence financial leasing operations in Seychelles at this time. Adoption of the following recommendations would nonetheless benefit the development of the country's leasing industry and safeguard the rights and obligations of lessees and lessors.
Ÿ Section 27(4)(b)of the Financial Leasing Act, 2013, requires the lessor to obtain a court order when repossessing assets in the event of default. It specifies that if the lessee does not consent to the repossession of the asset (there is a breach of peace upon repossession) a court order should be obtained to repossess the leased asset. This process is generally time consuming, which therefore may deter potential future lessors from wishing to enter the finance leasing business.
In order to minimize risk on behalf of the lessor in case of default, it is recommended that a relevant fast-track mechanism addressing this issue in the court system be established.
Ÿ Currently, concessions are granted to SME loan financing through banks, by offering a government guarantee of 70% of the loan and offering concessionary rates.
It is recommended to offer the same concessions for extending financial leasing through FLIs as well. Given the leased asset itself is the collateral, claims on government guarantees would be limited in case of default.
Ÿ Section 4(1) of the Finance Leasing Act, 2013, prevents the lessor from being the supplier of the asset. In cases in which the lessor does not have title, as is often the case with new assets, there is no problem. However, this clause in effect prevents lessors from being suppliers of their own repossessed assets in the case of default. Although there
57
THE CREDIT INFORMATION SYSTEM OF SEYCHELLES
is risk involved in allowing one sole party to serve as both supplier and lessor as it could lead to compromises on evaluation process quality in order to sell more assets, without the right to do so, the lessor is more likely to assume a loss. Lessors would be forced to sell all repossessed assets through outright sales, resulting in not only a slower resale process, but in fetching a lower price as well.
It is therefore recommended that the lessor be allowed to effectively act as supplier when dealing with repossessed assets.
Ÿ There appears to be a degree of disharmony between sections 21(1) and 21(3) of the Financial Leasing Act, 2013. Section 21(1) states that the lessor can transfer or assign its rights with the consent of the lessee, whereas section 21(3) states that the lessor has a unilateral right to assign such right. This creates ambiguity in the application as a lessor could therefore transfer the future lease payments of a lessee without the lessee's consent, for example.
It is therefore recommended that this be clarified as appropriate to avoid future ambiguity.
Ÿ Section 27(8) of the Finance Leasing Act, 2013 states that the lessor shall not be entitled to recover damages to the extent that the lessor has failed to take reasonable steps to mitigate the losses. However, the
basis used to determine reasonableness is not provided and this leaves much room for interpretation. This may create confusion and be detrimental to the interest of the lessor.
It is recommended to introduce more clarity to the above section to avoid confusion when embroiled in the litigation process.
Ÿ Finally, it is recommended that a policy be introduced whereby the lessor may claim capital allowances instead of the lessee.
The total lease payments would therefore be treated as income for the computation of taxes and the lessor would be able to charge the entitled capital allowance against the taxable income. This would motivate the lessor to grow his/her lease por tfolio c o n t i n u o u s l y i n o rd e r t o g a i n a t ax shelter/delay paying taxes. The lessee in turn would be able to charge the rentals paid as an expense against the taxable income, thereby creating a win-win situation.
58 59
THE CREDIT INFORMATION SYSTEM OF SEYCHELLES
is risk involved in allowing one sole party to serve as both supplier and lessor as it could lead to compromises on evaluation process quality in order to sell more assets, without the right to do so, the lessor is more likely to assume a loss. Lessors would be forced to sell all repossessed assets through outright sales, resulting in not only a slower resale process, but in fetching a lower price as well.
It is therefore recommended that the lessor be allowed to effectively act as supplier when dealing with repossessed assets.
Ÿ There appears to be a degree of disharmony between sections 21(1) and 21(3) of the Financial Leasing Act, 2013. Section 21(1) states that the lessor can transfer or assign its rights with the consent of the lessee, whereas section 21(3) states that the lessor has a unilateral right to assign such right. This creates ambiguity in the application as a lessor could therefore transfer the future lease payments of a lessee without the lessee's consent, for example.
It is therefore recommended that this be clarified as appropriate to avoid future ambiguity.
Ÿ Section 27(8) of the Finance Leasing Act, 2013 states that the lessor shall not be entitled to recover damages to the extent that the lessor has failed to take reasonable steps to mitigate the losses. However, the
basis used to determine reasonableness is not provided and this leaves much room for interpretation. This may create confusion and be detrimental to the interest of the lessor.
It is recommended to introduce more clarity to the above section to avoid confusion when embroiled in the litigation process.
Ÿ Finally, it is recommended that a policy be introduced whereby the lessor may claim capital allowances instead of the lessee.
The total lease payments would therefore be treated as income for the computation of taxes and the lessor would be able to charge the entitled capital allowance against the taxable income. This would motivate the lessor to grow his/her lease por tfolio c o n t i n u o u s l y i n o rd e r t o g a i n a t ax shelter/delay paying taxes. The lessee in turn would be able to charge the rentals paid as an expense against the taxable income, thereby creating a win-win situation.
58 59
The legislation on the Credit Information System (CIS) was gazetted in March 2012, and its provisions became effective from July in the same year. Amendments to the regulations were made in October 2014 to provide for the following:
Ÿ Change to CIS reporting, whereby updating of the CIS is done as and when a credit facility becomes a non-performing credit and when an outstanding amount is paid partly or fully;
Ÿ Change in the timeframe for retention of information in the CIS (both positive and negative) to 5 years;
Ÿ Change in regulatory framework to allow all customers of a participating institution, rather than just loan applicants and guarantors to make enquiries from the CIS; and
Ÿ Change to the method of invoicing, whereby invoices are prepared on an annual basis rather than a monthly basis.
These modifications have been done in an effort to support credit risk management and improve effectiveness of the system. Currently the participating financial institutions such as banks, credit unions, development banks and housing finance companies, which are regulated by the CBS have access to the CIS. However, with the issuing of licenses to FLIs, they too would have access to the CIS for the purpose of reporting and retrieving information in relation to an applicant's credit history.
The recent amendments imply that the system is capable of providing and recording same day updates and this creates the possibility for participating institutions to make decisions on real time information and in a timely manner.
COLLATERAL DATABASE REGISTRY (CDR)
The establishment of a Collateral Database Registry (CDR) is provided for under the Secured Transactions Act, 2015 (STA) which was enacted on September 22, 2015.The objective of the STA is to make provisions relating to certain transactions to enable lending secured by movable property. In support of the Act, work is underway to introduce a centralised, comprehensive, all-electronic, web-based registry for movable assets.
The FLA provides for the registration of assets under finance lease with a register of finance lease. Based on the interpretation of section 30 of the FLA in respect of registration of assets under finance lease, the CDR may also be designated as the registry for registration of assets under finance lease. Accordingly, a registered asset under a finance lease shall serve as a notice to third party purchasers of leased assets of existing interests in the leased asset.
The CDR will be housed at the Registration Division at the Department of Legal Affairs, and may also be linked to the Seychelles Licensing Authority Database should it materialize. The proposed registration charge is SCR 100 for each registration. The development and setting up of the CDR is ongoing.
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The legislation on the Credit Information System (CIS) was gazetted in March 2012, and its provisions became effective from July in the same year. Amendments to the regulations were made in October 2014 to provide for the following:
Ÿ Change to CIS reporting, whereby updating of the CIS is done as and when a credit facility becomes a non-performing credit and when an outstanding amount is paid partly or fully;
Ÿ Change in the timeframe for retention of information in the CIS (both positive and negative) to 5 years;
Ÿ Change in regulatory framework to allow all customers of a participating institution, rather than just loan applicants and guarantors to make enquiries from the CIS; and
Ÿ Change to the method of invoicing, whereby invoices are prepared on an annual basis rather than a monthly basis.
These modifications have been done in an effort to support credit risk management and improve effectiveness of the system. Currently the participating financial institutions such as banks, credit unions, development banks and housing finance companies, which are regulated by the CBS have access to the CIS. However, with the issuing of licenses to FLIs, they too would have access to the CIS for the purpose of reporting and retrieving information in relation to an applicant's credit history.
The recent amendments imply that the system is capable of providing and recording same day updates and this creates the possibility for participating institutions to make decisions on real time information and in a timely manner.
COLLATERAL DATABASE REGISTRY (CDR)
The establishment of a Collateral Database Registry (CDR) is provided for under the Secured Transactions Act, 2015 (STA) which was enacted on September 22, 2015.The objective of the STA is to make provisions relating to certain transactions to enable lending secured by movable property. In support of the Act, work is underway to introduce a centralised, comprehensive, all-electronic, web-based registry for movable assets.
The FLA provides for the registration of assets under finance lease with a register of finance lease. Based on the interpretation of section 30 of the FLA in respect of registration of assets under finance lease, the CDR may also be designated as the registry for registration of assets under finance lease. Accordingly, a registered asset under a finance lease shall serve as a notice to third party purchasers of leased assets of existing interests in the leased asset.
The CDR will be housed at the Registration Division at the Department of Legal Affairs, and may also be linked to the Seychelles Licensing Authority Database should it materialize. The proposed registration charge is SCR 100 for each registration. The development and setting up of the CDR is ongoing.
SEYCHELLES LEASING MARKET STUDY: 2017
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TRAINING AND DEVELOPMENTThe Seychelles financial sector does not have experience with financial leasing. The stakeholders thus need more awareness and training on the product in order for financial leasing to develop in Seychelles. More emphasis should be made on the following stakeholders:
Finance leasing institutions and banksThe financial services sector, including FLIs and banks, require additional technical support with regards to financial leasing. At present, the industry has no experienced leasing professionals to support and run finance leasing operations. It is therefore essential that professionals with leasing experience are brought in to pass on the technical know-how to employees of respective financial institutions. For example, FLIs and banks require support and advisory services to identify suitable software and foster its implementation.
Corporations, MSMEs and self-employed individualsAwareness about financial leasing should be created among corporations, MSMEs and self-employed individuals. In order to promote such activity in Seychelles, special awareness campaigns, advertising campaigns and promotions should be carried out emphasizing the product's benefits to the respective sectors including the rights and obligations of lessors and lessees.
Asset suppliersAsset suppliers would immensely benefit from the introduction of financial leasing in Seychelles. Its development would, in principle, lead to an increase in the sale of the suppliers' assets. However, they must be made aware of financial leasing implications, suppliers' rights and obligations, and their responsibilities towards other stakeholders in the finance leasing industry. Regulators and promoters of finance leasing in Seychelles must therefore work to create awareness among the suppliers, as such awareness is key to the development of leasing in Seychelles.
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TRAINING AND DEVELOPMENTThe Seychelles financial sector does not have experience with financial leasing. The stakeholders thus need more awareness and training on the product in order for financial leasing to develop in Seychelles. More emphasis should be made on the following stakeholders:
Finance leasing institutions and banksThe financial services sector, including FLIs and banks, require additional technical support with regards to financial leasing. At present, the industry has no experienced leasing professionals to support and run finance leasing operations. It is therefore essential that professionals with leasing experience are brought in to pass on the technical know-how to employees of respective financial institutions. For example, FLIs and banks require support and advisory services to identify suitable software and foster its implementation.
Corporations, MSMEs and self-employed individualsAwareness about financial leasing should be created among corporations, MSMEs and self-employed individuals. In order to promote such activity in Seychelles, special awareness campaigns, advertising campaigns and promotions should be carried out emphasizing the product's benefits to the respective sectors including the rights and obligations of lessors and lessees.
Asset suppliersAsset suppliers would immensely benefit from the introduction of financial leasing in Seychelles. Its development would, in principle, lead to an increase in the sale of the suppliers' assets. However, they must be made aware of financial leasing implications, suppliers' rights and obligations, and their responsibilities towards other stakeholders in the finance leasing industry. Regulators and promoters of finance leasing in Seychelles must therefore work to create awareness among the suppliers, as such awareness is key to the development of leasing in Seychelles.
SEYCHELLES LEASING MARKET STUDY: 2017
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Judiciary, revenue authority and the finance ministryIt is of utmost impor tance that key government officials understand the concept of financial leasing and it is also advisable they understand the constraints highlighted with regard to the FLA and the implementation process. Proper awareness about the product and current constraints will help relevant authorities make correct and conducive policy changes with regards to financial leasing moving forward. For example, in most cases, a lessor is required to obtain a court order to repossess an asset if a lessee defaults on payback terms and repossession cannot be achieved without a breach of peace.
At present, the legal processes take considerable time. A fast-track system should therefore be established in order to safeguard the interest of the lessor, thereby increasing the lessor's desire to engage in the finance leasing business. Based on discussions with the Judiciary, at this point in time the most practical approach to address this concern is to assign priority over the leasing cases under the Commercial List.
The Chief Justice has given her commitment to implement practice directions in regards to leasing cases such that leasing cases shall be treated as priority cases under the Commercial List in an attempt provide the required reassurance to potential lessors of their rights to repossess in a timely and efficient manner.
RegulatorsRegulators have sound knowledge of the product and have displayed commendable dedication and commitment to laying the necessary groundwork. As a result, 95 percent of the infrastructure, regulations and policies required to launch leasing operations in Seychelles have been finalized exceptionally we l l . M o v i n g fo r w a rd , i t i s i m p o r t a n t regulators remain up-to-date on the latest developments in the leasing world in order to create a robust leasing industry in Seychelles.
LEASING POTENTIAL PER SECTOR
SEYCHELLES LEASING MARKET STUDY: 2017
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Judiciary, revenue authority and the finance ministryIt is of utmost impor tance that key government officials understand the concept of financial leasing and it is also advisable they understand the constraints highlighted with regard to the FLA and the implementation process. Proper awareness about the product and current constraints will help relevant authorities make correct and conducive policy changes with regards to financial leasing moving forward. For example, in most cases, a lessor is required to obtain a court order to repossess an asset if a lessee defaults on payback terms and repossession cannot be achieved without a breach of peace.
At present, the legal processes take considerable time. A fast-track system should therefore be established in order to safeguard the interest of the lessor, thereby increasing the lessor's desire to engage in the finance leasing business. Based on discussions with the Judiciary, at this point in time the most practical approach to address this concern is to assign priority over the leasing cases under the Commercial List.
The Chief Justice has given her commitment to implement practice directions in regards to leasing cases such that leasing cases shall be treated as priority cases under the Commercial List in an attempt provide the required reassurance to potential lessors of their rights to repossess in a timely and efficient manner.
RegulatorsRegulators have sound knowledge of the product and have displayed commendable dedication and commitment to laying the necessary groundwork. As a result, 95 percent of the infrastructure, regulations and policies required to launch leasing operations in Seychelles have been finalized exceptionally we l l . M o v i n g fo r w a rd , i t i s i m p o r t a n t regulators remain up-to-date on the latest developments in the leasing world in order to create a robust leasing industry in Seychelles.
LEASING POTENTIAL PER SECTOR
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High percentage of foreign borrowing for the tourism sector The private sector foreign borrowings for the last three years are as per the following table, however a major portion of these loans went to the country's tourism sector. (Source – Central Bank of Seychelles)
The tourism sector consists mainly of the following subsectors:
Ÿ Large-scale hotels
Ÿ Medium-scale hotels
Ÿ Small-scale hotels (guesthouses)
Ÿ Restaurants and pubs
Ÿ Car rental agencies
Ÿ Self-catering
Ÿ Take-away (fast food outlets)
Ÿ Tour and travel companies
Ÿ Artisanal crafts
Large-scale hotelsLarge hotels are the greatest contributors to the sector. Approximately 90% of the subsectors' funding is raised from outside Seychelles. (Source – Ministry of Tourism) Their borrowings are through foreign banks, and funding for infrastructure development and refurbishments accounts for the major part of the funding requirements. As per the statistics available, there are 84 large-scale hotels in Seychelles (2015). (Source – Seychelles Hotel Owners Association) The introduction of leasing is expected to create a higher demand for finance leasing resulting in an increase in local financing for this subsector.
Medium-scale hotelsThere are 44 medium-scale hotels in Seychelles (2015), the majority of which will require upgrades, expansions and/or refurbishment during the next 3 years. (Source – Seychelles Hotel Owners Association). The current major constraint is the limited funding availability for such works. It is estimated that 50% of the funding requirements for this subsector are currently funded by foreign banks. (Source – Ministry of Tourism) However, there seems to be a disparity between the funding supply and the demand, with the majority of demand going unmet. The introduction of leasing is expected to help meet this demand through financing major infrastructure upgrades.
Source – National Bureau of Statistics
FIGURE 8 : VISITOR ARRIVALS 2005 - 2015
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
20
15
10
5
0
-5
300,000280,000260,000240,000220,000200,000180,000160,000140,000120,000100,000
Nu
mbe
r o
f Vis
ito
rs
Visitors Arrivals % Change
Per
cen
tag
e
Tourism sector
The tourism sector directly contributes 29% to the economy; however the indirect contribution is estimated to be as high as 62%. (Source - Ministry of Tourism) As a result, tourism in Seychelles is the highest contributor to the country's GDP. A steady increase in tourist arrivals over the last 5 years has led to a similar increase in tourism earnings in rupee terms over the same period (2011-2015).
Source – Central Bank of Seychelles
TABLE 7 : TOTAL PRIVATE SECTOR FOREIGN BORROWINGS
Description 2013
(USD) Millions
2014 (USD)
Millions
2015 (USD)
Millions Foreign
Loans 404.67 424.95 459.90
SEYCHELLES LEASING MARKET STUDY: 2017
Sources – National Bureau of Statistics, (except tourism for eign exchange earnings which ar e from Central Bank of Seychelles)
FIGURE 9 : TOURISM INDICATORS 2011 - 2015
2011 2012 2013 2014 2015
¹ YTD Hotel bed occupancy rate as at September 2015
Visitors r ls ar iva 194,476 208,034 230,272 232,667 276,233
Averag (nights) e length of stay 9.9 1010.0 .2 9.9 10.2
Tourism Earnings million) 291 310 430 398 393 (USD
MemorandumHote d occupancy rate (%) 59 58 64 54 59¹ l be
66 67
High percentage of foreign borrowing for the tourism sector The private sector foreign borrowings for the last three years are as per the following table, however a major portion of these loans went to the country's tourism sector. (Source – Central Bank of Seychelles)
The tourism sector consists mainly of the following subsectors:
Ÿ Large-scale hotels
Ÿ Medium-scale hotels
Ÿ Small-scale hotels (guesthouses)
Ÿ Restaurants and pubs
Ÿ Car rental agencies
Ÿ Self-catering
Ÿ Take-away (fast food outlets)
Ÿ Tour and travel companies
Ÿ Artisanal crafts
Large-scale hotelsLarge hotels are the greatest contributors to the sector. Approximately 90% of the subsectors' funding is raised from outside Seychelles. (Source – Ministry of Tourism) Their borrowings are through foreign banks, and funding for infrastructure development and refurbishments accounts for the major part of the funding requirements. As per the statistics available, there are 84 large-scale hotels in Seychelles (2015). (Source – Seychelles Hotel Owners Association) The introduction of leasing is expected to create a higher demand for finance leasing resulting in an increase in local financing for this subsector.
Medium-scale hotelsThere are 44 medium-scale hotels in Seychelles (2015), the majority of which will require upgrades, expansions and/or refurbishment during the next 3 years. (Source – Seychelles Hotel Owners Association). The current major constraint is the limited funding availability for such works. It is estimated that 50% of the funding requirements for this subsector are currently funded by foreign banks. (Source – Ministry of Tourism) However, there seems to be a disparity between the funding supply and the demand, with the majority of demand going unmet. The introduction of leasing is expected to help meet this demand through financing major infrastructure upgrades.
Source – National Bureau of Statistics
FIGURE 8 : VISITOR ARRIVALS 2005 - 2015
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
20
15
10
5
0
-5
300,000280,000260,000240,000220,000200,000180,000160,000140,000120,000100,000
Nu
mbe
r o
f Vis
ito
rs
Visitors Arrivals % Change
Per
cen
tag
e
Tourism sector
The tourism sector directly contributes 29% to the economy; however the indirect contribution is estimated to be as high as 62%. (Source - Ministry of Tourism) As a result, tourism in Seychelles is the highest contributor to the country's GDP. A steady increase in tourist arrivals over the last 5 years has led to a similar increase in tourism earnings in rupee terms over the same period (2011-2015).
Source – Central Bank of Seychelles
TABLE 7 : TOTAL PRIVATE SECTOR FOREIGN BORROWINGS
Description 2013
(USD) Millions
2014 (USD)
Millions
2015 (USD)
Millions Foreign
Loans 404.67 424.95 459.90
SEYCHELLES LEASING MARKET STUDY: 2017
Sources – National Bureau of Statistics, (except tourism for eign exchange earnings which ar e from Central Bank of Seychelles)
FIGURE 9 : TOURISM INDICATORS 2011 - 2015
2011 2012 2013 2014 2015
¹ YTD Hotel bed occupancy rate as at September 2015
Visitors r ls ar iva 194,476 208,034 230,272 232,667 276,233
Averag (nights) e length of stay 9.9 1010.0 .2 9.9 10.2
Tourism Earnings million) 291 310 430 398 393 (USD
MemorandumHote d occupancy rate (%) 59 58 64 54 59¹ l be
66 67
Fisheries sectorThe fisheries sector contribution to the Seychelles GDP is almost 1%. (Source – Seychelles Bureau of Statistics). As an island nation, many Seychellois depend on this industry. Although the country has over 1,000 different species of fish, most of these fish are protected and cannot be harvested. Tuna is the largest foreign revenue earner. The second and third largest foreign revenue earners in the sector are derived from the export of prawns, followed by licensing fees paid by foreign fishing vessels to fish in Seychelles' waters. (Source – Seychelles Fisheries Authority, Fisheries Statistics report 2015)
The government is promoting responsible and sustainable fisheries development while optimizing benefits for the sector and the citizens of Seychelles. The main objectives of the government are:
Ÿ conservation and management of marine resources;
Ÿ employment generation;
Ÿ maximizing revenue from fisheries-related activities;
Ÿ e n h a n c i n g fo o d s u p p l y a n d fo o d security; and
Ÿ promotion of safety at sea.
Funding for the development of the fisheries sector is currently limited and most people engaged in fisheries find it very difficult to raise funding for capital expenditure, especially to buy vessels and on-board equipment for such activities. This is partly due to the conservative approach adopted by the commercial banks in Seychelles. Additional funding is also required to upgrade existing boats and machinery. Finance leasing is therefore likely to increase access to funding tremendously in this sector, which will in turn, increase investment in capital expenditure, resulting in increased productivity and output through the development of the industry.
As the fisheries industry grows, the fish processing industry and entities operating dry docks for vessel repair and maintenance services are likely to further develop as well. Currently there are few fish processing companies and entities that are operating dry docks. These companies are fairly matured and established in the industry; however the biggest limitation they face with regard to raising funding is the requirement of collateral by commercial banks.
Small-scale hotels and guesthousesAccording to the Minister of Tourism, small hotel owners are hampered with limited funding availability to develop this sub-sector. There are 77 small-scale hotels and guesthouses registered in Seychelles (2015). (Source – Seychelles Hotel Owners Association) They are currently finding it difficult to raise funding to upgrade and develop their business entities.
Introduction of international rating standards for hotelsInternational rating standards for all hotels in Seychelles is set to be implemented in 2017. All hotels will therefore be required to upgrade in order to meet the requirements, which mean substantial investment in infrastructure development and refurbishments. As a result, the hotel sector will require additional funding to meet these standards. Finance leasing would be the best option available to finance movable assets required for the sector.
The following are some of the main movable equipment that could be financed through leasing for the tourism/hotel sector¹².
1. Vehicles (cars, vans, buses and lorries)
2. Furniture
3. Televisions and refrigerators
4. Air conditioners (large plants and standalone)
5. Pleasure boats
6. Kitchen equipment
7. Cookers and ovens
8. Backup generators
9. Recycling plants
10. Renewable energy systems (solar and wind power)
SuppliersOther than for specialized equipment required for this sector such as kitchen equipment and recycling plants, most other equipment listed above including cars and mini vans have suppliers/agents based in Seychelles. This is an encouraging factor for the development of leasing in Seychelles as there could be strategic tie ups for equipment financing with suppliers. Specialized equipment is sourced through accepted international equipment suppliers. It is vital for the industry and financial institutions to have a database of reputed international suppliers to ensure quality of equipment financed.
ConclusionThe demand for financing in the tourism, namely in the hotel sector, is substantial. Properly promoted finance leasing can therefore help meet this demand as an alternate financial tool.
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Fisheries sectorThe fisheries sector contribution to the Seychelles GDP is almost 1%. (Source – Seychelles Bureau of Statistics). As an island nation, many Seychellois depend on this industry. Although the country has over 1,000 different species of fish, most of these fish are protected and cannot be harvested. Tuna is the largest foreign revenue earner. The second and third largest foreign revenue earners in the sector are derived from the export of prawns, followed by licensing fees paid by foreign fishing vessels to fish in Seychelles' waters. (Source – Seychelles Fisheries Authority, Fisheries Statistics report 2015)
The government is promoting responsible and sustainable fisheries development while optimizing benefits for the sector and the citizens of Seychelles. The main objectives of the government are:
Ÿ conservation and management of marine resources;
Ÿ employment generation;
Ÿ maximizing revenue from fisheries-related activities;
Ÿ e n h a n c i n g fo o d s u p p l y a n d fo o d security; and
Ÿ promotion of safety at sea.
Funding for the development of the fisheries sector is currently limited and most people engaged in fisheries find it very difficult to raise funding for capital expenditure, especially to buy vessels and on-board equipment for such activities. This is partly due to the conservative approach adopted by the commercial banks in Seychelles. Additional funding is also required to upgrade existing boats and machinery. Finance leasing is therefore likely to increase access to funding tremendously in this sector, which will in turn, increase investment in capital expenditure, resulting in increased productivity and output through the development of the industry.
As the fisheries industry grows, the fish processing industry and entities operating dry docks for vessel repair and maintenance services are likely to further develop as well. Currently there are few fish processing companies and entities that are operating dry docks. These companies are fairly matured and established in the industry; however the biggest limitation they face with regard to raising funding is the requirement of collateral by commercial banks.
Small-scale hotels and guesthousesAccording to the Minister of Tourism, small hotel owners are hampered with limited funding availability to develop this sub-sector. There are 77 small-scale hotels and guesthouses registered in Seychelles (2015). (Source – Seychelles Hotel Owners Association) They are currently finding it difficult to raise funding to upgrade and develop their business entities.
Introduction of international rating standards for hotelsInternational rating standards for all hotels in Seychelles is set to be implemented in 2017. All hotels will therefore be required to upgrade in order to meet the requirements, which mean substantial investment in infrastructure development and refurbishments. As a result, the hotel sector will require additional funding to meet these standards. Finance leasing would be the best option available to finance movable assets required for the sector.
The following are some of the main movable equipment that could be financed through leasing for the tourism/hotel sector¹².
1. Vehicles (cars, vans, buses and lorries)
2. Furniture
3. Televisions and refrigerators
4. Air conditioners (large plants and standalone)
5. Pleasure boats
6. Kitchen equipment
7. Cookers and ovens
8. Backup generators
9. Recycling plants
10. Renewable energy systems (solar and wind power)
SuppliersOther than for specialized equipment required for this sector such as kitchen equipment and recycling plants, most other equipment listed above including cars and mini vans have suppliers/agents based in Seychelles. This is an encouraging factor for the development of leasing in Seychelles as there could be strategic tie ups for equipment financing with suppliers. Specialized equipment is sourced through accepted international equipment suppliers. It is vital for the industry and financial institutions to have a database of reputed international suppliers to ensure quality of equipment financed.
ConclusionThe demand for financing in the tourism, namely in the hotel sector, is substantial. Properly promoted finance leasing can therefore help meet this demand as an alternate financial tool.
SEYCHELLES LEASING MARKET STUDY: 2017
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Development in the Seychelles Fisheries IndustryThere has been a steady increase in fisheries product exports value over the last 9 years. The year 2006 accounted for 46,269.2 metric tons of fisheries product exports which were valued at SCR1,072,169,000, which has steadily grown for 9 years. In 2014, the total exports amounted to 40,406 metric tons, to the value of SCR4,248,710,000. The country needs individuals and business entities to invest in fisheries vessels of different capacity to increase the catch and increase fisheries exports. Finance leasing would be an alternate tool to finance such capital expenditure.
Source – National Bureau of Statistics
TABLE 8 : TOTAL FISH EXPORTS 2006 - 2014
Year Fish Export (M ) T
Fish E port x(SCR, 000)
2006 2007 2008 2009 2010 2011 2012 2013 2014
46,269.6 40,720.3 34,738.1 36,528.3 37,391.7
39,029.4 39,450.9 45,141.9
40,406.9
1,072,169 1,298,830 2,107,572 3,156,968 2,570,811 3,197,226 3,628,071
4,450,950 4,248,710
Source - National Bureau of Statistics
FIGURE 10 : TOTAL FISH EXPORTS 2006-2014
0
1, 000000,
2, 00000,0
3, 000000,
4,00 00,00
5, 000000,
2006 2007 2008 2009 2010 2011 2012 2013 2014
Fis
SCR
, 00
0)
h E
xpo
rt (
Year
Total Fish Exports 2006 - 2014
Fish Export (SCR, 000)
Registration of fisheries vessels means added security in leasing investmentIt is mandatory that all fisheries vessels are registered with the Seychelles Fishing Authority (SFA). This registration allows them their annual fisheries radio license as well. All vessels are tracked using GPS. Given the already established efficient registration and tracking system for fisheries vessels, FLIs offering leasing for such vessels would be in a position to easily track all vessels financed. Furthermore, the FLA provides for a penalty for the unauthorized removal of assets outside of Seychelles under Section 23 of the FLA.
Potential equipment and machinery that could be financed through leasing in the fisheries industry (including processing and dry docks) are given below.
1. Out boats (small boats)
Most of these boats are manufactured in Seychelles (locally known as “Mini-Mahes”) and would cost approximately SCR80,000 – SCR100,000. These boats are commonly used for fisheries active within Seychelles' waters and for daily fisheries activities. As at December 31, 2015, there were 300 out boats registered with the Seychelles Fisheries Authority.
2. Schooner boats/Long liner fishing boats
These are large boats which are used for fisheries activities over a continuous period of 2 to 3 weeks. These boats are equipped with cool rooms and storage facilities to store fresh catch. These are mainly manufactured in Sri Lanka and would cost approximately SCR800,000 - SCR1million-. As at December 31, 2015 there were 150 schooner/long liners registered with the Seychelles Fishing Authority.
3. Semi-industrial fishing vessels
These are mostly industrial level fishing vessels, which have the capacity of being out at sea for 30 to 45 days. The cost of these vessels would vary from SCR3million - SCR5million depending on the capacity and the size of the vessels. Currently there are 15 such vessels registered with the Seychelles Fishing Authority.
4. Generators
There is a large demand for generators in the fisheries industry, mainly from owners of schooner boats, long liner fishing boats, semi-industrial fishing vessels and fish processing companies to run their cool rooms. There are many entities and individuals awaiting to upgrade their existing obsolete generators, however the collateral requirement of banks have delayed such acquisition.
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Development in the Seychelles Fisheries IndustryThere has been a steady increase in fisheries product exports value over the last 9 years. The year 2006 accounted for 46,269.2 metric tons of fisheries product exports which were valued at SCR1,072,169,000, which has steadily grown for 9 years. In 2014, the total exports amounted to 40,406 metric tons, to the value of SCR4,248,710,000. The country needs individuals and business entities to invest in fisheries vessels of different capacity to increase the catch and increase fisheries exports. Finance leasing would be an alternate tool to finance such capital expenditure.
Source – National Bureau of Statistics
TABLE 8 : TOTAL FISH EXPORTS 2006 - 2014
Year Fish Export (M ) T
Fish E port x(SCR, 000)
2006 2007 2008 2009 2010 2011 2012 2013 2014
46,269.6 40,720.3 34,738.1 36,528.3 37,391.7
39,029.4 39,450.9 45,141.9
40,406.9
1,072,169 1,298,830 2,107,572 3,156,968 2,570,811 3,197,226 3,628,071
4,450,950 4,248,710
Source - National Bureau of Statistics
FIGURE 10 : TOTAL FISH EXPORTS 2006-2014
0
1, 000000,
2, 00000,0
3, 000000,
4,00 00,00
5, 000000,
2006 2007 2008 2009 2010 2011 2012 2013 2014
Fis
SCR
, 00
0)
h E
xpo
rt (
Year
Total Fish Exports 2006 - 2014
Fish Export (SCR, 000)
Registration of fisheries vessels means added security in leasing investmentIt is mandatory that all fisheries vessels are registered with the Seychelles Fishing Authority (SFA). This registration allows them their annual fisheries radio license as well. All vessels are tracked using GPS. Given the already established efficient registration and tracking system for fisheries vessels, FLIs offering leasing for such vessels would be in a position to easily track all vessels financed. Furthermore, the FLA provides for a penalty for the unauthorized removal of assets outside of Seychelles under Section 23 of the FLA.
Potential equipment and machinery that could be financed through leasing in the fisheries industry (including processing and dry docks) are given below.
1. Out boats (small boats)
Most of these boats are manufactured in Seychelles (locally known as “Mini-Mahes”) and would cost approximately SCR80,000 – SCR100,000. These boats are commonly used for fisheries active within Seychelles' waters and for daily fisheries activities. As at December 31, 2015, there were 300 out boats registered with the Seychelles Fisheries Authority.
2. Schooner boats/Long liner fishing boats
These are large boats which are used for fisheries activities over a continuous period of 2 to 3 weeks. These boats are equipped with cool rooms and storage facilities to store fresh catch. These are mainly manufactured in Sri Lanka and would cost approximately SCR800,000 - SCR1million-. As at December 31, 2015 there were 150 schooner/long liners registered with the Seychelles Fishing Authority.
3. Semi-industrial fishing vessels
These are mostly industrial level fishing vessels, which have the capacity of being out at sea for 30 to 45 days. The cost of these vessels would vary from SCR3million - SCR5million depending on the capacity and the size of the vessels. Currently there are 15 such vessels registered with the Seychelles Fishing Authority.
4. Generators
There is a large demand for generators in the fisheries industry, mainly from owners of schooner boats, long liner fishing boats, semi-industrial fishing vessels and fish processing companies to run their cool rooms. There are many entities and individuals awaiting to upgrade their existing obsolete generators, however the collateral requirement of banks have delayed such acquisition.
SEYCHELLES LEASING MARKET STUDY: 2017
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11. Boat maintenance equipment
Additional equipment required to operate a dry docking facility include items such as generators, pumping systems, spray systems for cleaning or painting, and other boat maintenance equipment.
SuppliersSuppliers for most equipment required for the fisheries sector are not available in Seychelles; however there are a few suppliers manufacturing small boats that fulfill the total demand for this segment. The majority of the schooner boats/long liner fishing boats are manufactured for orders and imported directly from Sri Lanka. However, there is an opportunity in Seychelles to develop this sector by commencing manufacturing of these boats locally. It should be noted that most equipment listed above, with the exception of generators are sourced from foreign countries, with l imited or no agents/distributors available in Seychelles. This could be directly attributable to the limited demand available for such equipment in Seychelles. However as emphasized, it would be prudent to maintain a database of reputable and acceptable foreign equipment suppliers to ensure the fisheries sector in Seychelles acquires quality equipment, which would benefit financial institutions offering finance leasing.
ConclusionThe fisheries sector in Seychelles has not achieved its expected growth over the last 10 years. Though the export income has increased over the years, the quantity of fish that has been exported has not increased. The slow growth has been partly a result of lack of access to funding, necessary to grow fisheries businesses, through the local banking system to target client segments. The introduction of leasing would increase the access to financing boats and other equipment, resulting in a growing fisheries sector. Further opportunities are available in the dry-docks and boat building segments, especially in the schooner and long liner fishing boats market. There is therefore ample prospect in the fisheries sector for leasing opportunities.
Renewable Energy Renewable energy is a rapidly growing sector in Seychelles as the government pushes for more entities and households to invest in generating electricity through the use of renewable energy. The biggest opportunity is with electricity generation through solar panels. (Source – Seychelles Energy Commission) There have been a few projects focused on wind power, however the potential for growth in the wind power sector is limited. Government investments in wind power projects have generated 7% of the energy requirement of Seychelles. (Source – Seychelles Energy Commission)
5. Cold storage trucks
Limited trucks with freezer cabins necessary to transport fish from the docks to processing centers and from processing centers to export are available. This has further challenged the development of the fisheries sector.
6. Freezers/cold storage
Large industrial-sized freezers for storage is a pre-requisite for companies working in the fisheries industry. Large quantities of fish must be stored properly both on board shipping vessels as well as at the processing centers. There is therefore a substantial demand for this type of equipment in Seychelles.
7. Processing equipment
Additional equipment and machinery used for processing fisheries products which could be financed through leasing are as follows:
Ÿ Vacuum packers
Ÿ Cold storage
Ÿ Engines for cold storage
Ÿ Blast-freezing equipment
Ÿ Sealing machines
Ÿ Carton machines
Ÿ Stainless steel conveyors
Ÿ Slicing machines
Ÿ Smoke rooms
8. Tug boats for small, medium and large-scale vessels
These are boats used for towing small, medium and large-scale vessels at sea. There is high demand for such boats given the number of vessels engaged in fishing and tourism related activities in need of servicing and therefore more likely to require towing. Hence there would be a higher demand for tug boats in Seychelles.
9. Boat lifts for dry docking small, medium and large-scale vessels
Proper dry docking facilities are an essential subsector within the fisheries and tourism industries as all vessels require monthly or annual maintenance or servicing. Hence, as the fisheries and tourism industries develop, more vessels will require fully equipped dry dock facilities. Existing facilities will require upgrades and new entities will need to acquire equipment. Hence there would be a higher demand for boat lifts of different capacity in Seychelles.
10. Boat trailers
Boat trailers are also commonly used at dry dock facilities to transport vessels to repair centers once they are raised out of the water. These trailers come in different capacity. Most entities currently operating dry dock facilities would seek to acquire and some to upgrade such equipment.
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11. Boat maintenance equipment
Additional equipment required to operate a dry docking facility include items such as generators, pumping systems, spray systems for cleaning or painting, and other boat maintenance equipment.
SuppliersSuppliers for most equipment required for the fisheries sector are not available in Seychelles; however there are a few suppliers manufacturing small boats that fulfill the total demand for this segment. The majority of the schooner boats/long liner fishing boats are manufactured for orders and imported directly from Sri Lanka. However, there is an opportunity in Seychelles to develop this sector by commencing manufacturing of these boats locally. It should be noted that most equipment listed above, with the exception of generators are sourced from foreign countries, with l imited or no agents/distributors available in Seychelles. This could be directly attributable to the limited demand available for such equipment in Seychelles. However as emphasized, it would be prudent to maintain a database of reputable and acceptable foreign equipment suppliers to ensure the fisheries sector in Seychelles acquires quality equipment, which would benefit financial institutions offering finance leasing.
ConclusionThe fisheries sector in Seychelles has not achieved its expected growth over the last 10 years. Though the export income has increased over the years, the quantity of fish that has been exported has not increased. The slow growth has been partly a result of lack of access to funding, necessary to grow fisheries businesses, through the local banking system to target client segments. The introduction of leasing would increase the access to financing boats and other equipment, resulting in a growing fisheries sector. Further opportunities are available in the dry-docks and boat building segments, especially in the schooner and long liner fishing boats market. There is therefore ample prospect in the fisheries sector for leasing opportunities.
Renewable Energy Renewable energy is a rapidly growing sector in Seychelles as the government pushes for more entities and households to invest in generating electricity through the use of renewable energy. The biggest opportunity is with electricity generation through solar panels. (Source – Seychelles Energy Commission) There have been a few projects focused on wind power, however the potential for growth in the wind power sector is limited. Government investments in wind power projects have generated 7% of the energy requirement of Seychelles. (Source – Seychelles Energy Commission)
5. Cold storage trucks
Limited trucks with freezer cabins necessary to transport fish from the docks to processing centers and from processing centers to export are available. This has further challenged the development of the fisheries sector.
6. Freezers/cold storage
Large industrial-sized freezers for storage is a pre-requisite for companies working in the fisheries industry. Large quantities of fish must be stored properly both on board shipping vessels as well as at the processing centers. There is therefore a substantial demand for this type of equipment in Seychelles.
7. Processing equipment
Additional equipment and machinery used for processing fisheries products which could be financed through leasing are as follows:
Ÿ Vacuum packers
Ÿ Cold storage
Ÿ Engines for cold storage
Ÿ Blast-freezing equipment
Ÿ Sealing machines
Ÿ Carton machines
Ÿ Stainless steel conveyors
Ÿ Slicing machines
Ÿ Smoke rooms
8. Tug boats for small, medium and large-scale vessels
These are boats used for towing small, medium and large-scale vessels at sea. There is high demand for such boats given the number of vessels engaged in fishing and tourism related activities in need of servicing and therefore more likely to require towing. Hence there would be a higher demand for tug boats in Seychelles.
9. Boat lifts for dry docking small, medium and large-scale vessels
Proper dry docking facilities are an essential subsector within the fisheries and tourism industries as all vessels require monthly or annual maintenance or servicing. Hence, as the fisheries and tourism industries develop, more vessels will require fully equipped dry dock facilities. Existing facilities will require upgrades and new entities will need to acquire equipment. Hence there would be a higher demand for boat lifts of different capacity in Seychelles.
10. Boat trailers
Boat trailers are also commonly used at dry dock facilities to transport vessels to repair centers once they are raised out of the water. These trailers come in different capacity. Most entities currently operating dry dock facilities would seek to acquire and some to upgrade such equipment.
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The Seychelles Energy Commission acts as the regulator for production of energy and has also been mandated to set the tariffs for selling extra units to the grid by independent power suppliers. They also carry out the task of e n s u r i n g t h a t t h e r e n e w a b l e e n e r g y equipment impor ted to Seychelles is of acceptable quality and specifications.
Added benefit of PV systems
Most PV systems have an expected life period of 15 – 20 years with a maximum 10% energy production drop over the specified period. However the payback period for households with a 3KW system would be less than 5 years. This means users can enjoy a savings for the following 10 – 15 years through generation of renewable energy.
Potential energy efficient equipment which could be financed through finance leasing include:
1. Solar generated hot water systems
2. Solar powered water pumps
3. Additional energy efficient electrical appliances
SuppliersUnlike other sectors in the economy, the renewable energy sector has many reputed and acceptable suppliers who are registered
with the Seychelles Energy Commission. The upkeep and after-sales service of such equipment and systems used for power generation could therefore be well managed. The option of reselling used equipment and buy backs with the suppliers could be arranged with regard to repossessed stock in the event of default.
Conclusion
Given that the government of Seychelles is f o c u s i n g o n t h e d e v e l o p m e n t o f t h e renewable energy sector over the next 5 years, with a special focus on domestic PV systems, there is ample opportunity for leasing to help develop the sector. In addition to the many reputed suppliers as mentioned above, government incentives provided to users acquiring such systems will create a positive push towards the growth of this sector. Renewable energy financing through financial leasing has proved successful in many countries throughout the world and has the potential to flourish in Seychelles as well.
Sri Lanka, for example, has experienced a high increase in renewable energy production with many households and business entities installing domestic and commercial PV systems. The 30 registered PV system suppliers have benefited immensely through
The government has introduced subsidy schemes to encourage household and business entities to promote the acquisition of net metering solar power systems. A special subsidized loan scheme is available under the SEEREP (Seychelles Energy Efficiency and Renewable Energy Programme) to encourage the adoption of energy efficient appliances and renewable technologies to households and SMEs. The scheme offers up to SCR150, 000 to be paid over 5 years. The interest rate applicable on the project is 5%.Loans above SRC 75,000 are subject to a personal contribution of 2.5%. Moreover, households and business entities are entitled for a 25% and 15% rebate respectively on the investment.
This is limited to a maximum of SCR100,000 and the system capacity of 3KWs. Furthermore, a 50% guarantee is available on default for financial partners of this program. Currently the scheme is offered through all commercial banks and the development bank in Seychelles, many of which place a hefty collateral requirement upon borrowers thereby narrowing the applicant pool. The emergence of financial leasing in Seychelles could greatly help increase access to this scheme and promote increased acquisition of home solar systems. Entities offering such leasing options would accept the equipment itself as col lateral, thereby increasing access to financing for renewable energy options for households and business entities otherwise not eligible for it under traditional banking requirements.
The SEEREP scheme is aimed at targeting 8,500 households by 2018 in two phases. The main objective is to encourage the adoption of energy-efficient home appliances, lighting consumables and solar water heaters in the domestic residential sector, made accessible to the public through an affordable financing scheme from the commercial banks.
The GOS-UNDP-GEF Grid Connected Rooftop PV Systems Project is a joint effort between the Government of Seychelles (GOS), the United Nations Development Programme (UNDP) and the Global Environment Facility (GEF). The project seeks to kick-start the PV market in Seychelles. One of the major activities being implemented under the GOS-UNDP-GEF PV project is the Financial Rebate Scheme.
The Financial Rebate Scheme is a mechanism designed to remove financial barriers that restrict adoption of PV by the two major markets being tackled by the project: households and SMEs. In 2015, the Financial Rebate Scheme offered a 25% rebate (based on the average cost of PV installed in Seychelles) to all homeowners for the first 3kW of a system installed onto the rooftops of their homes. A 15% Financial Rebate for commercial premises with installations up to 15kW was also introduced. In addition VAT exemption for energy efficient/renewable products are also available.
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The Seychelles Energy Commission acts as the regulator for production of energy and has also been mandated to set the tariffs for selling extra units to the grid by independent power suppliers. They also carry out the task of e n s u r i n g t h a t t h e r e n e w a b l e e n e r g y equipment impor ted to Seychelles is of acceptable quality and specifications.
Added benefit of PV systems
Most PV systems have an expected life period of 15 – 20 years with a maximum 10% energy production drop over the specified period. However the payback period for households with a 3KW system would be less than 5 years. This means users can enjoy a savings for the following 10 – 15 years through generation of renewable energy.
Potential energy efficient equipment which could be financed through finance leasing include:
1. Solar generated hot water systems
2. Solar powered water pumps
3. Additional energy efficient electrical appliances
SuppliersUnlike other sectors in the economy, the renewable energy sector has many reputed and acceptable suppliers who are registered
with the Seychelles Energy Commission. The upkeep and after-sales service of such equipment and systems used for power generation could therefore be well managed. The option of reselling used equipment and buy backs with the suppliers could be arranged with regard to repossessed stock in the event of default.
Conclusion
Given that the government of Seychelles is f o c u s i n g o n t h e d e v e l o p m e n t o f t h e renewable energy sector over the next 5 years, with a special focus on domestic PV systems, there is ample opportunity for leasing to help develop the sector. In addition to the many reputed suppliers as mentioned above, government incentives provided to users acquiring such systems will create a positive push towards the growth of this sector. Renewable energy financing through financial leasing has proved successful in many countries throughout the world and has the potential to flourish in Seychelles as well.
Sri Lanka, for example, has experienced a high increase in renewable energy production with many households and business entities installing domestic and commercial PV systems. The 30 registered PV system suppliers have benefited immensely through
The government has introduced subsidy schemes to encourage household and business entities to promote the acquisition of net metering solar power systems. A special subsidized loan scheme is available under the SEEREP (Seychelles Energy Efficiency and Renewable Energy Programme) to encourage the adoption of energy efficient appliances and renewable technologies to households and SMEs. The scheme offers up to SCR150, 000 to be paid over 5 years. The interest rate applicable on the project is 5%.Loans above SRC 75,000 are subject to a personal contribution of 2.5%. Moreover, households and business entities are entitled for a 25% and 15% rebate respectively on the investment.
This is limited to a maximum of SCR100,000 and the system capacity of 3KWs. Furthermore, a 50% guarantee is available on default for financial partners of this program. Currently the scheme is offered through all commercial banks and the development bank in Seychelles, many of which place a hefty collateral requirement upon borrowers thereby narrowing the applicant pool. The emergence of financial leasing in Seychelles could greatly help increase access to this scheme and promote increased acquisition of home solar systems. Entities offering such leasing options would accept the equipment itself as col lateral, thereby increasing access to financing for renewable energy options for households and business entities otherwise not eligible for it under traditional banking requirements.
The SEEREP scheme is aimed at targeting 8,500 households by 2018 in two phases. The main objective is to encourage the adoption of energy-efficient home appliances, lighting consumables and solar water heaters in the domestic residential sector, made accessible to the public through an affordable financing scheme from the commercial banks.
The GOS-UNDP-GEF Grid Connected Rooftop PV Systems Project is a joint effort between the Government of Seychelles (GOS), the United Nations Development Programme (UNDP) and the Global Environment Facility (GEF). The project seeks to kick-start the PV market in Seychelles. One of the major activities being implemented under the GOS-UNDP-GEF PV project is the Financial Rebate Scheme.
The Financial Rebate Scheme is a mechanism designed to remove financial barriers that restrict adoption of PV by the two major markets being tackled by the project: households and SMEs. In 2015, the Financial Rebate Scheme offered a 25% rebate (based on the average cost of PV installed in Seychelles) to all homeowners for the first 3kW of a system installed onto the rooftops of their homes. A 15% Financial Rebate for commercial premises with installations up to 15kW was also introduced. In addition VAT exemption for energy efficient/renewable products are also available.
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Rental carsThere are 65 rental car companies (in 2015) which form part of the Seychelles Car Hire Operators Association (SCHOA) in addition to many individuals offering rental car services operating in Seychelles.(Source – Seychelles Car Hire Operators Association) Approximately 2,100 cars are available for short to long term hire. The rental car business is regulated in Seychelles and the government has imposed a limit of 50 vehicles per car rental company. (Source – Seychelles Car Hire Operators Association) With finance leasing, car rental companies could increase their fleet of vehicles, upgrade and replace older vehicles.
The current major limitation faced by these companies is the access to financing for such motor vehicles. The second largest issue faced by the industry in the high cost of insurance, which must also be looked into. Some of these car rental companies are already offering operating leases to few large corporates in Seychelles. The target client segments of the rental car operators would be corporates, locals and tourists. Currently there is a very good demand for cars on rent mainly from the tourists, corporates followed by locals. With the increase in the tourism arrivals there would be additional opportunity for the car rental business.
Potential transport equipment which could be financed through leasing include:
1. Ferries
2. Airplanes
3. Helicopters
4. Private passengers buses and mini-vans
5. Compact lorries
6. Rental cars
SuppliersThe biggest drawback to developing the transport sector is the non-availability of local suppliers for most large commercial vehicles such as buses and lorries. This is mainly due to the lack of current demand for such equipment. However, given the number of suppliers for automobiles through dealerships such as Toyota, Hyundai, and Suzuki, once leasing is launched and demand for larger vehicles is proven, existing suppliers could fulfill the need.
ConclusionThe public transport system is managed by SPTC, which is a subsidized operation. Even if the government were to al low private operators to carry out public transportation, it would not make economic sense as there is a subsidized transport system in the country. The immediate opportunity for this sector is
the asset financing products available (finance leasing and hire-purchase). There have been over 50,000 units installed in 2014 and 2015, with 95% financed through leasing and hire-purchase. No incentives were offered for the acquisition of such systems. It is therefore likely that the growth could be purely attributed to the availability of products to finance movable assets.
Transport sector
Seychelles public transport systemThe greatest potential for finance leasing is in the transport sector. However the main public transport system is managed by the Seychelles Public Transport Commission (SPTC) which is a non-profit oriented government-owned entity. The purchase of vehicles is funded by the government. The private sector currently does not carry out public transport in Seychelles.
SPTC in 2015 had 267 buses on the main island and 33 busses on Praslin, the second largest island. These are the only main islands with significant public transport requirements as the third largest island relies mainly on bicycles as the main form of transport. The SPTC's fleet on average is around 10 years old and vehicles are replaced on a periodic basis. The outright purchase of such buses carry a high burden on the government's capital expenditure. An alternative financing tool, such as leasing, may reduce this burden and help finance new equipment.
Leveraging additional modes of transportation for inter-island transport
Transportation between the islands is overseen by government authorities, specifically the Seychelles Ports Authority for inter-island transportation by sea and the Seychelles Civil Aviation Authority for inter-island transportation by air. Although government also has an operational role through strategic partnerships there is p a r t i c i p a t i o n o f p r i v a t e o p e r a t o r s particularly in the transportation by sea. However the private sector is likely better placed to develop the transport sector between the islands given available resources. An opportunity to improve the transportation system between the islands through the increased use of ferries, airplanes and/or helicopters exists in Seychelles.
Private sector passenger buses and mini-vansFurther opportunity for finance leasing is a v a i l a b l e u n d e r t h e p r i v a t e s e c t o r passenger transport category for buses and m i n i v a n s . T h e m a i n f o c u s f o r s u c h operators would be to serve the tourism sector as well as those focusing on the transport of goods.
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Rental carsThere are 65 rental car companies (in 2015) which form part of the Seychelles Car Hire Operators Association (SCHOA) in addition to many individuals offering rental car services operating in Seychelles.(Source – Seychelles Car Hire Operators Association) Approximately 2,100 cars are available for short to long term hire. The rental car business is regulated in Seychelles and the government has imposed a limit of 50 vehicles per car rental company. (Source – Seychelles Car Hire Operators Association) With finance leasing, car rental companies could increase their fleet of vehicles, upgrade and replace older vehicles.
The current major limitation faced by these companies is the access to financing for such motor vehicles. The second largest issue faced by the industry in the high cost of insurance, which must also be looked into. Some of these car rental companies are already offering operating leases to few large corporates in Seychelles. The target client segments of the rental car operators would be corporates, locals and tourists. Currently there is a very good demand for cars on rent mainly from the tourists, corporates followed by locals. With the increase in the tourism arrivals there would be additional opportunity for the car rental business.
Potential transport equipment which could be financed through leasing include:
1. Ferries
2. Airplanes
3. Helicopters
4. Private passengers buses and mini-vans
5. Compact lorries
6. Rental cars
SuppliersThe biggest drawback to developing the transport sector is the non-availability of local suppliers for most large commercial vehicles such as buses and lorries. This is mainly due to the lack of current demand for such equipment. However, given the number of suppliers for automobiles through dealerships such as Toyota, Hyundai, and Suzuki, once leasing is launched and demand for larger vehicles is proven, existing suppliers could fulfill the need.
ConclusionThe public transport system is managed by SPTC, which is a subsidized operation. Even if the government were to al low private operators to carry out public transportation, it would not make economic sense as there is a subsidized transport system in the country. The immediate opportunity for this sector is
the asset financing products available (finance leasing and hire-purchase). There have been over 50,000 units installed in 2014 and 2015, with 95% financed through leasing and hire-purchase. No incentives were offered for the acquisition of such systems. It is therefore likely that the growth could be purely attributed to the availability of products to finance movable assets.
Transport sector
Seychelles public transport systemThe greatest potential for finance leasing is in the transport sector. However the main public transport system is managed by the Seychelles Public Transport Commission (SPTC) which is a non-profit oriented government-owned entity. The purchase of vehicles is funded by the government. The private sector currently does not carry out public transport in Seychelles.
SPTC in 2015 had 267 buses on the main island and 33 busses on Praslin, the second largest island. These are the only main islands with significant public transport requirements as the third largest island relies mainly on bicycles as the main form of transport. The SPTC's fleet on average is around 10 years old and vehicles are replaced on a periodic basis. The outright purchase of such buses carry a high burden on the government's capital expenditure. An alternative financing tool, such as leasing, may reduce this burden and help finance new equipment.
Leveraging additional modes of transportation for inter-island transport
Transportation between the islands is overseen by government authorities, specifically the Seychelles Ports Authority for inter-island transportation by sea and the Seychelles Civil Aviation Authority for inter-island transportation by air. Although government also has an operational role through strategic partnerships there is p a r t i c i p a t i o n o f p r i v a t e o p e r a t o r s particularly in the transportation by sea. However the private sector is likely better placed to develop the transport sector between the islands given available resources. An opportunity to improve the transportation system between the islands through the increased use of ferries, airplanes and/or helicopters exists in Seychelles.
Private sector passenger buses and mini-vansFurther opportunity for finance leasing is a v a i l a b l e u n d e r t h e p r i v a t e s e c t o r passenger transport category for buses and m i n i v a n s . T h e m a i n f o c u s f o r s u c h operators would be to serve the tourism sector as well as those focusing on the transport of goods.
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7. Bakery equipment
8. Tea packaging machines
9. Paper conversion tools and equipment
10. IT equipment
11. Dryers and color separators for tea factory
12. Water cooling system
13. Water purification equipment
14. Distilleries and brewing equipment
15. Air conditioners
16. Furniture and fittings
17. Molding machines
18. Bottle blowers
In addition to direct leasing to companies for the above-mentioned equipment, there is also sizeable potential to offer leasing facilities to the supply lines of these manufacturers and the distributors for equipment and vehicles.
SuppliersThe equipment used in the manufacturing sector is highly specialized and supplied based on user requirements and capacity. The demand for such specified equipment would therefore be low. As a result, it is not economically viable for suppliers/agents to be based in Seychelles. All specialized equipment requirements must be sourced from foreign countries and locally-based companies requiring such equipment acquire high-quality equipment through reputed suppliers in Europe. This is a healthy practice in the industry as aftersales is a vital element for the smooth operations for these entities.
ConclusionThe manufacturing sector contributes 6.5 % on average to the GDP. Most entities in this sector carry out production to cater for local market demand. There is tremendous potential for leasing business to finance specialized equipment to this segment and further opportunities are available in the supply chain and distributor channels, which would require vehicles to transport raw materials and finished goods between suppliers and retailers. Introduction of leasing would increase access to funding for this sector and support the development of local production in Seychelles, thereby, reducing the foreign currency out-flow and creating direct and indirect job opportunities.
therefore in the car rental business, with the increase in tourist arrivals in the country. Further opportunity for finance leasing is also available in acquiring vehicles for private use/transport for the self-employed and employed category. As other sectors develop and more goods require transportation, an increased number of lorries and specialized vehicles is likely to be required and a greater demand for finance leasing in this segment would arise. Transpor tation systems between islands are also likely to create future opportunities for leasing, however this would require further direction and support by the government of Seychelles.
ManufacturingThe manufacturing sector in Seychelles has a significant impact to the country's economy. In 2014 and 2015, manufacturing contributed 6.5 % and 6.4% respectively to the total GDP of Seychelles. In 2015, the sector is estimated to have grown at a rate of 3%. (Source – Central Bank of Seychelles Annual Report 2015)
Most manufacturers are small-scale and consist largely of food processing plants. The manufacturing of beverages, cigarettes, chemicals, concrete and furniture, among other items, also plays a significant role within the sector.
There are many business entities that are currently catering to the local needs of consumers in the manufacturing sector. These companies are from different industries; however the majority of their production is focused on the local market in Seychelles.
Many of these companies find it difficult to finance machinery and equipment through banks due to their lack of adequate collateral. Hence most companies have delayed the acquisition of equipment necessary to grow their businesses and/or upgrade equipment. As a result, the requirement of additional collateral to finance equipment through banks has become a considerable inconvenience for the sector's growth.
The following are some of the main manufacturing-related equipment that could be financed under different sub sectors:
1. Bottling plant equipment (manufacturing of bottles)
2. Production lines
3. Bottle filling lines (filling of bottles)
4. Generators
5. Renewable energy equipment
6. Vehicles (vehicles for staff and transportation of goods)
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7. Bakery equipment
8. Tea packaging machines
9. Paper conversion tools and equipment
10. IT equipment
11. Dryers and color separators for tea factory
12. Water cooling system
13. Water purification equipment
14. Distilleries and brewing equipment
15. Air conditioners
16. Furniture and fittings
17. Molding machines
18. Bottle blowers
In addition to direct leasing to companies for the above-mentioned equipment, there is also sizeable potential to offer leasing facilities to the supply lines of these manufacturers and the distributors for equipment and vehicles.
SuppliersThe equipment used in the manufacturing sector is highly specialized and supplied based on user requirements and capacity. The demand for such specified equipment would therefore be low. As a result, it is not economically viable for suppliers/agents to be based in Seychelles. All specialized equipment requirements must be sourced from foreign countries and locally-based companies requiring such equipment acquire high-quality equipment through reputed suppliers in Europe. This is a healthy practice in the industry as aftersales is a vital element for the smooth operations for these entities.
ConclusionThe manufacturing sector contributes 6.5 % on average to the GDP. Most entities in this sector carry out production to cater for local market demand. There is tremendous potential for leasing business to finance specialized equipment to this segment and further opportunities are available in the supply chain and distributor channels, which would require vehicles to transport raw materials and finished goods between suppliers and retailers. Introduction of leasing would increase access to funding for this sector and support the development of local production in Seychelles, thereby, reducing the foreign currency out-flow and creating direct and indirect job opportunities.
therefore in the car rental business, with the increase in tourist arrivals in the country. Further opportunity for finance leasing is also available in acquiring vehicles for private use/transport for the self-employed and employed category. As other sectors develop and more goods require transportation, an increased number of lorries and specialized vehicles is likely to be required and a greater demand for finance leasing in this segment would arise. Transpor tation systems between islands are also likely to create future opportunities for leasing, however this would require further direction and support by the government of Seychelles.
ManufacturingThe manufacturing sector in Seychelles has a significant impact to the country's economy. In 2014 and 2015, manufacturing contributed 6.5 % and 6.4% respectively to the total GDP of Seychelles. In 2015, the sector is estimated to have grown at a rate of 3%. (Source – Central Bank of Seychelles Annual Report 2015)
Most manufacturers are small-scale and consist largely of food processing plants. The manufacturing of beverages, cigarettes, chemicals, concrete and furniture, among other items, also plays a significant role within the sector.
There are many business entities that are currently catering to the local needs of consumers in the manufacturing sector. These companies are from different industries; however the majority of their production is focused on the local market in Seychelles.
Many of these companies find it difficult to finance machinery and equipment through banks due to their lack of adequate collateral. Hence most companies have delayed the acquisition of equipment necessary to grow their businesses and/or upgrade equipment. As a result, the requirement of additional collateral to finance equipment through banks has become a considerable inconvenience for the sector's growth.
The following are some of the main manufacturing-related equipment that could be financed under different sub sectors:
1. Bottling plant equipment (manufacturing of bottles)
2. Production lines
3. Bottle filling lines (filling of bottles)
4. Generators
5. Renewable energy equipment
6. Vehicles (vehicles for staff and transportation of goods)
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ConclusionThe construction industry contributes 3.1% to the GDP. With the development of tourism and the manufacturing sectors, the construction industry is expected to develop further and more opportunities for construction would arise over the next 5 years. However, the current limitations of financing construction equipment locally due to the requirement of additional collateral could be overcome with t h e i n t ro d u c t i o n o f fi n a n c e l e a s i n g i n Seychelles. However, it should be noted that construction equipment is highly specialized. As a result, there is a scarce second-hand market for such specialized equipment. Hence leasing providers must be careful in financing such equipment.
Agriculture and livestockSeychelles has a total of 30 square kilometers of agricultural land, which is 6.5 percent of the country's total land area. The agricultural sector employs around 8% of the total labor force and accounts for 0.9% of total exports. (Source – Ministry of Fisheries and Agriculture)The agriculture sector contributed 1.2% to the GDP in 2015. (Source – Central Bank of Seychelles Annual Report 2015)
Registered commercial farms and household gardens are the main agricultural producers.
The sector is characterized by rain-fed production and relatively low levels of productivity. Vegetables and bananas are the main crops produced in the country in terms of volume, while nuts and prepared fruits are the main export crops based on value. During the period for 1999 – 2015 the coconut and banana production decreased substantially, while vegetable production increased by over 25%. The fluctuations of production in different categories are directly linked to the area of land harvested during the period under consideration.
The Seychelles Farmers Association (SeyFA) was established with the main objectives of:
Ÿ empowering farmers to understand, sustain and influence markets of agricultural produce at the national level;
Ÿ support farmers to contribute more meaningfully to national food security through improved access to the necessary resources;
Ÿ promoting better government policies and sustainable agricultural practices; and
Ÿ to ensure that SeyFA's capacity to fulfill its mandate is developed and is adequate.
ConstructionF o r e i g n d i r e c t i n v e s t m e n t a n d p u b l i c investment in infrastructure have kept the construction industry in Seychelles booming; with construction contributing around 3% to the GDP in 2015. (Source –Central Bank of Seychelles Annual Report 2015) There are a r o u n d s i x t y r e g i s t e r e d c o n s t r u c t i o n companies working in the Seychelles. The main companies include Allied Builders (Seychelles) L i m i t e d , L a x m a n b h a i ( P t y ) L t d , V i j a y construction, Avalon Project Management, Benoiton Construction Co (Pty) Ltd and Civil Construction Company Limited (CCCL), most of these companies have foreign affiliations.
Currently, the majority of equipment used for construction is financed from foreign financial institutions.(Source – Ministry of Tourism) There is therefore an untapped market for locally financed construction equipment.
The following are examples of possible construction equipment that could be financed through leasing:
1. Earth moving equipment
2. Road making equipment
3. Hauling equipment
4. Piling equipment
5. Floating equipment for marine work
6. Concreting equipment
7. Lifting and handling equipment
8. Welding equipment
9. Shop fabrication and testing equipment
10. Drilling equipment
11. Other specialized equipment
12. Generators
13. Vehicles
SuppliersThere are no suppliers involved in supplying large and bulky construction equipment in Seychelles. Currently, the majority of the equipment is sourced from foreign countries, either through operating leases or outright purchase. According to the Ministry of Tourism and Culture, the major construction companies operating in Seychelles have financed their equipment through foreign banks as there is no product to support acquisition of equipment for construction. However, with the introduction of finance leasing, the access to finance such equipment locally would increase. This would be a substantial opportunity for future leasing business to finance such equipment locally, however it is beneficial for the stakeholders to continue to work with reputed/quality products and suppliers overseas.
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ConclusionThe construction industry contributes 3.1% to the GDP. With the development of tourism and the manufacturing sectors, the construction industry is expected to develop further and more opportunities for construction would arise over the next 5 years. However, the current limitations of financing construction equipment locally due to the requirement of additional collateral could be overcome with t h e i n t ro d u c t i o n o f fi n a n c e l e a s i n g i n Seychelles. However, it should be noted that construction equipment is highly specialized. As a result, there is a scarce second-hand market for such specialized equipment. Hence leasing providers must be careful in financing such equipment.
Agriculture and livestockSeychelles has a total of 30 square kilometers of agricultural land, which is 6.5 percent of the country's total land area. The agricultural sector employs around 8% of the total labor force and accounts for 0.9% of total exports. (Source – Ministry of Fisheries and Agriculture)The agriculture sector contributed 1.2% to the GDP in 2015. (Source – Central Bank of Seychelles Annual Report 2015)
Registered commercial farms and household gardens are the main agricultural producers.
The sector is characterized by rain-fed production and relatively low levels of productivity. Vegetables and bananas are the main crops produced in the country in terms of volume, while nuts and prepared fruits are the main export crops based on value. During the period for 1999 – 2015 the coconut and banana production decreased substantially, while vegetable production increased by over 25%. The fluctuations of production in different categories are directly linked to the area of land harvested during the period under consideration.
The Seychelles Farmers Association (SeyFA) was established with the main objectives of:
Ÿ empowering farmers to understand, sustain and influence markets of agricultural produce at the national level;
Ÿ support farmers to contribute more meaningfully to national food security through improved access to the necessary resources;
Ÿ promoting better government policies and sustainable agricultural practices; and
Ÿ to ensure that SeyFA's capacity to fulfill its mandate is developed and is adequate.
ConstructionF o r e i g n d i r e c t i n v e s t m e n t a n d p u b l i c investment in infrastructure have kept the construction industry in Seychelles booming; with construction contributing around 3% to the GDP in 2015. (Source –Central Bank of Seychelles Annual Report 2015) There are a r o u n d s i x t y r e g i s t e r e d c o n s t r u c t i o n companies working in the Seychelles. The main companies include Allied Builders (Seychelles) L i m i t e d , L a x m a n b h a i ( P t y ) L t d , V i j a y construction, Avalon Project Management, Benoiton Construction Co (Pty) Ltd and Civil Construction Company Limited (CCCL), most of these companies have foreign affiliations.
Currently, the majority of equipment used for construction is financed from foreign financial institutions.(Source – Ministry of Tourism) There is therefore an untapped market for locally financed construction equipment.
The following are examples of possible construction equipment that could be financed through leasing:
1. Earth moving equipment
2. Road making equipment
3. Hauling equipment
4. Piling equipment
5. Floating equipment for marine work
6. Concreting equipment
7. Lifting and handling equipment
8. Welding equipment
9. Shop fabrication and testing equipment
10. Drilling equipment
11. Other specialized equipment
12. Generators
13. Vehicles
SuppliersThere are no suppliers involved in supplying large and bulky construction equipment in Seychelles. Currently, the majority of the equipment is sourced from foreign countries, either through operating leases or outright purchase. According to the Ministry of Tourism and Culture, the major construction companies operating in Seychelles have financed their equipment through foreign banks as there is no product to support acquisition of equipment for construction. However, with the introduction of finance leasing, the access to finance such equipment locally would increase. This would be a substantial opportunity for future leasing business to finance such equipment locally, however it is beneficial for the stakeholders to continue to work with reputed/quality products and suppliers overseas.
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Conclusion
The introduction of finance leasing has the potential to contribute greatly to reduced production costs and increased productivity in the agricultural and livestock sectors. The resulting increased revenue stream would therefore encourage local producers to compete with importers. If effectively managed, the sector has the potential to greatly decrease the country's reliance on imported goods which could otherwise be produced locally.
Equipment suppliersThe biggest hurdle to the development of the finance leasing sector in Seychelles is the unavailability of local suppliers for the majority of specialized equipment and machinery required by most sectors. As a result, many entities would have to deal with foreign suppliers to source equipment. In addition to the challenge of financing such acquisitions abroad, offshore suppliers present the additional challenge of not being able to adequately provide aftersales services.
Moving forward, this need not be a deterrent for the development of the leasing sector provided equipment-seeking entities understand the importance of acquiring quality equipment with reputable offshore suppliers to minimize the risk of not having local suppliers available to provide aftersales services. It will therefore be necessary for equipment-seekers to be properly informed and connected to such reputable suppliers in order for the leasing sector to grow. It would be beneficial for leasing industry stakeholders to formulate a database of reputed specialized equipment providers based in different industries. This would certainly safeguard the interest of the lessor and help lessees acquire quality equipment from reputed suppliers.
There are approximately 400 commercial farmers in Seychelles.
According to the Ministry of Fisheries and Agriculture, 72% of the food consumed in Seychelles is imported. The dependency on imported food has a high impact on the impor t expenditure which negatively impacts the country's balance of payments. As a result, the government has prioritized the development of the agriculture and the livestock sector to minimize imports. However, the cost of production of agricultural goods is much higher than similar goods imported into the country. This has discouraged local producers from increasing their production and some have moved away from producing agricultural and livestock products altogether.
In order to reduce the cost of production, there needs to be substantial investment in capital goods, new technologies and systems. Finance leasing is therefore a viable alternative financing option for the a c q u i s i t i o n o f s u c h e q u i p m e n t a n d machinery for these sectors.
Although the country's dependency on these sectors is much lower compared to the aforementioned sectors, the additional potential demand for leasing should not be discounted.
Following are examples of relevant equipment that would be available for financing through finance leasing in the livestock and agricultural sectors:
1. Agro processing equipment
2. Livestock processing equipment
3. Packaging equipment
4. Automatic feeding systems
5. Cold storage facilities
6. Chillers
7. Power tillers
8. Biogas plants
9. Power sprayers
10. Hedge trimmers
11. Sheds and storage systems
12. Refrigerated trucks and lorries
SuppliersThere are suppliers engaged in supplying the most commonly used agricultural equipment in Seychelles. Such equipment is relatively lower in price compared to specialized machinery which must be sourced externally as is the case in other sectors. The government and financial institutions financing such equipment have a key role to play in supporting the end user with the required knowledge and know-how to select the most suitable equipment.
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Conclusion
The introduction of finance leasing has the potential to contribute greatly to reduced production costs and increased productivity in the agricultural and livestock sectors. The resulting increased revenue stream would therefore encourage local producers to compete with importers. If effectively managed, the sector has the potential to greatly decrease the country's reliance on imported goods which could otherwise be produced locally.
Equipment suppliersThe biggest hurdle to the development of the finance leasing sector in Seychelles is the unavailability of local suppliers for the majority of specialized equipment and machinery required by most sectors. As a result, many entities would have to deal with foreign suppliers to source equipment. In addition to the challenge of financing such acquisitions abroad, offshore suppliers present the additional challenge of not being able to adequately provide aftersales services.
Moving forward, this need not be a deterrent for the development of the leasing sector provided equipment-seeking entities understand the importance of acquiring quality equipment with reputable offshore suppliers to minimize the risk of not having local suppliers available to provide aftersales services. It will therefore be necessary for equipment-seekers to be properly informed and connected to such reputable suppliers in order for the leasing sector to grow. It would be beneficial for leasing industry stakeholders to formulate a database of reputed specialized equipment providers based in different industries. This would certainly safeguard the interest of the lessor and help lessees acquire quality equipment from reputed suppliers.
There are approximately 400 commercial farmers in Seychelles.
According to the Ministry of Fisheries and Agriculture, 72% of the food consumed in Seychelles is imported. The dependency on imported food has a high impact on the impor t expenditure which negatively impacts the country's balance of payments. As a result, the government has prioritized the development of the agriculture and the livestock sector to minimize imports. However, the cost of production of agricultural goods is much higher than similar goods imported into the country. This has discouraged local producers from increasing their production and some have moved away from producing agricultural and livestock products altogether.
In order to reduce the cost of production, there needs to be substantial investment in capital goods, new technologies and systems. Finance leasing is therefore a viable alternative financing option for the a c q u i s i t i o n o f s u c h e q u i p m e n t a n d machinery for these sectors.
Although the country's dependency on these sectors is much lower compared to the aforementioned sectors, the additional potential demand for leasing should not be discounted.
Following are examples of relevant equipment that would be available for financing through finance leasing in the livestock and agricultural sectors:
1. Agro processing equipment
2. Livestock processing equipment
3. Packaging equipment
4. Automatic feeding systems
5. Cold storage facilities
6. Chillers
7. Power tillers
8. Biogas plants
9. Power sprayers
10. Hedge trimmers
11. Sheds and storage systems
12. Refrigerated trucks and lorries
SuppliersThere are suppliers engaged in supplying the most commonly used agricultural equipment in Seychelles. Such equipment is relatively lower in price compared to specialized machinery which must be sourced externally as is the case in other sectors. The government and financial institutions financing such equipment have a key role to play in supporting the end user with the required knowledge and know-how to select the most suitable equipment.
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The role and the initiatives taken to develop financial leasing in Seychelles by the Central Bank of Seychelles is commendable. The passion to develop the product is unmatched by any standards.
Based on the aforementioned research, the country is properly prepared to offer leasing as a financial product, which would increase access to finance for the MSME and self-employed sectors. Large corporations would also be better placed to finance assets through finance leases.
CONCLUSION AND RECOMMENDATIONS
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IFC, MEMBER OF THE WORLD BANK GROUP
The role and the initiatives taken to develop financial leasing in Seychelles by the Central Bank of Seychelles is commendable. The passion to develop the product is unmatched by any standards.
Based on the aforementioned research, the country is properly prepared to offer leasing as a financial product, which would increase access to finance for the MSME and self-employed sectors. Large corporations would also be better placed to finance assets through finance leases.
CONCLUSION AND RECOMMENDATIONS
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IFC, MEMBER OF THE WORLD BANK GROUP
IFC, a member of the World Bank Group, is the largest global development institution focused exclusively on the private sector in developing countries.
IFC utilizes and leverages its products and services—as well as products and services of other institutions in the World Bank Group—to provide development solutions customized to meet clients' needs. IFC applies its financial resources, technical expertise, global experience, and innovative thinking to help its partners overcome financial, operational, and political challenges.
Clients view IFC as a provider and mobilizer of scarce capital, knowledge, and long-term partnerships that can help address critical employee skills, and the regulatory environment.
IFC is also a leading mobilizer of third-party resources for its projects. Its willingness to engage in difficult environments and its leadership in crowding-in private finance enables it to extend its footprint and have a development impact well beyond IFC's direct resources.
IFC's role and impact in leasing market development
IFC has supported leasing market development and institution building for 40 years through a unique combination of investment and advisory products, and in partnership with its technical and development partners. Since its first and successful engagement in Korea, IFC has invested over USD 1.6 billion in 60 countries and advised 96 developing countries on leasing regulations. IFC has strongly contributed to the development of the leasing industry in emerging markets and its knowledge and expertise is recognized by both private and public stakeholders. As a result, IFC increasingly emphasizes its knowledge management efforts to help synthesize and broadly disseminate best practices and lessons learned through publications, manuals, and toolkits.
Its record of accomplishments includes the following:
Ÿ financed 239 leasing projects for 135 clients in 60 countries worth USD 1.62 billion;
Ÿ participated in the setup of the first leasing company in 30 countries;
Ÿ established or improved leasing regulations in developing countries; and
Ÿ operated 60 leasing advisory services projects across the globe with more than USD
IFC's own financing and the donor funding it has mobilized—notably from the Swiss State Secretariat for Economic Affairs (SECO), the U.S. Agency for International Development (USAID), Japan, Dutch EVD, and the African Development Bank (ADB)—have been critical to the expansion of leasing industries in developing countries.
IFC Africa Leasing Facility II and Cooperation Agreement with the Central Bank of SeychellesIn 2013, IFC, a member of the World Bank Group, launched the Africa Leasing Facility II (ALF II), a follow-up to the five year multi-country Africa Leasing Facility, and individual IFC leasing programs in Ghana, Rwanda and Tanzania. The objective of the ALF II is to facilitate increased access to finance for micro, small and medium-sized enterprises (MSMEs) in select countries by developing a sustainable leasing infrastructure to promote the sector. Since 2008, the Africa Leasing Facility has trained more than 20,000 small business owners, assisted in the passage of 24 legal, regulatory and tax laws regarding leasing, and mobilized investment in Sub-Saharan Africa worth almost USD 57 million.
In April 2014, IFC signed a cooperation agreement with the Central Bank of Seychelles to help lay the foundation for leasing facilities to assist small-scale entrepreneurs in strengthening and expanding their businesses. Commissioned by IFC's ALF II at the request of the Central Bank of Seychelles, this is the first leasing market study done in Seychelles.
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IFC, a member of the World Bank Group, is the largest global development institution focused exclusively on the private sector in developing countries.
IFC utilizes and leverages its products and services—as well as products and services of other institutions in the World Bank Group—to provide development solutions customized to meet clients' needs. IFC applies its financial resources, technical expertise, global experience, and innovative thinking to help its partners overcome financial, operational, and political challenges.
Clients view IFC as a provider and mobilizer of scarce capital, knowledge, and long-term partnerships that can help address critical employee skills, and the regulatory environment.
IFC is also a leading mobilizer of third-party resources for its projects. Its willingness to engage in difficult environments and its leadership in crowding-in private finance enables it to extend its footprint and have a development impact well beyond IFC's direct resources.
IFC's role and impact in leasing market development
IFC has supported leasing market development and institution building for 40 years through a unique combination of investment and advisory products, and in partnership with its technical and development partners. Since its first and successful engagement in Korea, IFC has invested over USD 1.6 billion in 60 countries and advised 96 developing countries on leasing regulations. IFC has strongly contributed to the development of the leasing industry in emerging markets and its knowledge and expertise is recognized by both private and public stakeholders. As a result, IFC increasingly emphasizes its knowledge management efforts to help synthesize and broadly disseminate best practices and lessons learned through publications, manuals, and toolkits.
Its record of accomplishments includes the following:
Ÿ financed 239 leasing projects for 135 clients in 60 countries worth USD 1.62 billion;
Ÿ participated in the setup of the first leasing company in 30 countries;
Ÿ established or improved leasing regulations in developing countries; and
Ÿ operated 60 leasing advisory services projects across the globe with more than USD
IFC's own financing and the donor funding it has mobilized—notably from the Swiss State Secretariat for Economic Affairs (SECO), the U.S. Agency for International Development (USAID), Japan, Dutch EVD, and the African Development Bank (ADB)—have been critical to the expansion of leasing industries in developing countries.
IFC Africa Leasing Facility II and Cooperation Agreement with the Central Bank of SeychellesIn 2013, IFC, a member of the World Bank Group, launched the Africa Leasing Facility II (ALF II), a follow-up to the five year multi-country Africa Leasing Facility, and individual IFC leasing programs in Ghana, Rwanda and Tanzania. The objective of the ALF II is to facilitate increased access to finance for micro, small and medium-sized enterprises (MSMEs) in select countries by developing a sustainable leasing infrastructure to promote the sector. Since 2008, the Africa Leasing Facility has trained more than 20,000 small business owners, assisted in the passage of 24 legal, regulatory and tax laws regarding leasing, and mobilized investment in Sub-Saharan Africa worth almost USD 57 million.
In April 2014, IFC signed a cooperation agreement with the Central Bank of Seychelles to help lay the foundation for leasing facilities to assist small-scale entrepreneurs in strengthening and expanding their businesses. Commissioned by IFC's ALF II at the request of the Central Bank of Seychelles, this is the first leasing market study done in Seychelles.
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1. Financial Leasing Act, 2013 (FLA)
2. Central Bank of Seychelles, Financial Services Supervision Report 2014 & 2015
3. Central Bank of Seychelles, Annual Report 2010
4. Central Bank of Seychelles, Annual Report 2011
5. Central Bank of Seychelles, Annual Report 2012
6. Central Bank of Seychelles, Annual Report 2013
7. Central Bank of Seychelles, Annual Report 2014
8. Central Bank of Seychelles, Annual Report 2015
9. Central Bank of Seychelles Act, 2004, as amended
10. Financial Institutions Act 2004, as amended (FIA)
11. Credit Union Act, 2009, as amended
12. Delegation of Statutory Functions (DBS Decree) Order, 2009
13. Business Tax Act, 2010, as amended
14. Value Added Tax Act, 2013, as amended
15. Value Added Tax Act (Amendment), 2014
16. Value Added Tax Act (Amendment), 2015
17. Seychelles Tourism Value Chain Analysis (Common Wealth Secretariat)
18. Secured Transaction Act, 2015
19. Financial leasing (Licensing)Regulations,2014
20.Financial Leasing (Capital Adequacy and Reserve Fund) Regulations, 2014
21. Financial leasing (Lease Classification and Provisioning) Regulations, 2014
22. IFC Survey of Leasing market in Ghana 2013
23. Seychelles Fisheries Authority Statistical Report 2015
REFERENCES DATA SOURCESQuestionnaires
Published Statistical Information
IFC's Survey of the Leasing Market, Ghana 2013
IFC's Leasing in Development; Guidelines for Emerging Economies
Central Bank of Seychelles, Financial Services Supervision Report 2014 & 2015
Central Bank of Seychelles, Annual Reports 2010 - 2015
Interviews and Discussions (see Section 20.1)
19.1 List of interviews and discussions
*Please note. The below titles for the respective individuals were correct at the time of the interviews. On 29 October 2016, President Danny Faure, who was sworn into office on 16 October following the resignation of former President James Michel, announced a cabinet reshuffling. As a result, many of the below designations no longer reflect current cabinet realities.
Mr Minister of Fisheries and Agriculture . Wallace Cosgrow
Mr. Michael Nalletamby Principal Secr r Fisheries and Agriculture eta y, Ministry of
Mr. Michael Be strong n Minister of Investment, Entrepreneurship Development and Business innovation
Mr. A Minister of Tourism and Culture lain St. Ange
Ms. Caroline Abel Governor, Centr elles al Bank of Seych
Mr. Christophe Edmond rst ty Gove Seychelles Fi Depu rnor, Central Bank of
Ms. Jenifer Sullivan Second Deputy Governor, Centr elles al Bank of Seych
Mr. Patrick Pay t e Principal Secretary, Ministry of Finance and Trade
Ms. Benjamine Rose Principal Secretary, Department of Culture
Dr. Steve Fanny Special Adviser to the M nist , Entrepreneurship i er of InvestmentDevelopment and Business Innovation
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1. Financial Leasing Act, 2013 (FLA)
2. Central Bank of Seychelles, Financial Services Supervision Report 2014 & 2015
3. Central Bank of Seychelles, Annual Report 2010
4. Central Bank of Seychelles, Annual Report 2011
5. Central Bank of Seychelles, Annual Report 2012
6. Central Bank of Seychelles, Annual Report 2013
7. Central Bank of Seychelles, Annual Report 2014
8. Central Bank of Seychelles, Annual Report 2015
9. Central Bank of Seychelles Act, 2004, as amended
10. Financial Institutions Act 2004, as amended (FIA)
11. Credit Union Act, 2009, as amended
12. Delegation of Statutory Functions (DBS Decree) Order, 2009
13. Business Tax Act, 2010, as amended
14. Value Added Tax Act, 2013, as amended
15. Value Added Tax Act (Amendment), 2014
16. Value Added Tax Act (Amendment), 2015
17. Seychelles Tourism Value Chain Analysis (Common Wealth Secretariat)
18. Secured Transaction Act, 2015
19. Financial leasing (Licensing)Regulations,2014
20.Financial Leasing (Capital Adequacy and Reserve Fund) Regulations, 2014
21. Financial leasing (Lease Classification and Provisioning) Regulations, 2014
22. IFC Survey of Leasing market in Ghana 2013
23. Seychelles Fisheries Authority Statistical Report 2015
REFERENCES DATA SOURCESQuestionnaires
Published Statistical Information
IFC's Survey of the Leasing Market, Ghana 2013
IFC's Leasing in Development; Guidelines for Emerging Economies
Central Bank of Seychelles, Financial Services Supervision Report 2014 & 2015
Central Bank of Seychelles, Annual Reports 2010 - 2015
Interviews and Discussions (see Section 20.1)
19.1 List of interviews and discussions
*Please note. The below titles for the respective individuals were correct at the time of the interviews. On 29 October 2016, President Danny Faure, who was sworn into office on 16 October following the resignation of former President James Michel, announced a cabinet reshuffling. As a result, many of the below designations no longer reflect current cabinet realities.
Mr Minister of Fisheries and Agriculture . Wallace Cosgrow
Mr. Michael Nalletamby Principal Secr r Fisheries and Agriculture eta y, Ministry of
Mr. Michael Be strong n Minister of Investment, Entrepreneurship Development and Business innovation
Mr. A Minister of Tourism and Culture lain St. Ange
Ms. Caroline Abel Governor, Centr elles al Bank of Seych
Mr. Christophe Edmond rst ty Gove Seychelles Fi Depu rnor, Central Bank of
Ms. Jenifer Sullivan Second Deputy Governor, Centr elles al Bank of Seych
Mr. Patrick Pay t e Principal Secretary, Ministry of Finance and Trade
Ms. Benjamine Rose Principal Secretary, Department of Culture
Dr. Steve Fanny Special Adviser to the M nist , Entrepreneurship i er of InvestmentDevelopment and Business Innovation
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Mr. Ronny James Govinden Attorney General
Mr. Marcos Francis President Seychelles Ch amber of Commerce
Ms. P nny C Bele mont Chief Executive Officer (Small Enterprise Promotion Agency)
Mr y Chief Executive Officer (Seychelles Licensing Authority) . Daniel Gapp
Mr Chief Executive Officer, Seychelles Fisheries Authority . Vincent Lucas
Mr. Gamanson Elpitiya Chief Financial Officer, Seychelles Trading Company
Mr. Jayant Mayadas Comme l Dircia rector PMC Group
Ms. Mamy Principal Officer, N Razanajatovo Energy Policy and Planning, Seychelles Energy Commission
Mr. Tiago Queiroz Santos Te rtchnical Expe , Resource Effici e les Energy ency, Seych lCommission
Ms. Elaine Ernesta Project Ma e fficiency, GOS-UNDP-GEF Programme nager: R source ECoordination Unit
Mrs. Elke Talma r: PVProject Manage Project, GO Pro S-UNDP-GEF grammeCoordination Unit
Mr. Daniel Kilindo IT Director, Seychelles Fishing Authority
Mr. Michelle Margue e A rit Chief Econ omist y i uthority , Se chelles F shing A
Ms. Karine Rassool s ish thority Senior Economist, Seychelle F ing Au
Mr. Aubrey Lesperance Principal Aquaculture Officer, Seychelles Fishing Authority
Mr r Chief Executive Officer, . Geffy Zialo Seychell ort Corporation es Public Transp
Mr. Oliver Bastienne Young Seychelles) Country Manager (Ernst &
Mr. Raphael Demba Chief Executive Offi Group) cer (PMC
Ms. Nazrah Ramdin er (BDO Associates) Managing Partn
Mr. Clifford Mondon Business Develo ye Valabhji) pment Manager (Abha
Mr. Jean-Paul MBeeNuuk irector – Seychelles Breweries Ltd Finance and IS D
Mr. Kirti Meghjee Shah Director, Meghjee Kalyanji & Co (Pvt) Ltd
Mr. Stephen Banane Managing Director, SODEPAK Industries Ltd
Mr. Luc Banane Project Manage r, SODEPA ustries Ltd K Ind
Mr. Eddie d’OFFAY Deputy Managing Dire e l ctor, Hot l L’ Archipe
Mr. Vincent S Padayachy Chairman, Rent a Ca r Owners A sociation & Mans aging Director, Eden y) Ltd ’s Car (Pt
Accelerated Depreciation An accounting method that allows a company to write off an asset's cost at a faster rate than the traditional straight line method that, i.e. not spreading the cost evenly over the life of the asset. This includes any depreciation method that produces larger deductions for depreciation in the early years of a project's life. It often results in a larger tax deduction on a company's income statement.
Capital Allowances - Depreciation allowances on assets as allowed by income tax provisions of a country.
CapitalizeTo record expenditure that may benefit future periods as an asset rather than as an expense to be charged off in the period of its occurrence.
Collateral This refers to the security that is made available to secure finance. In leasing, collateral can be a pledge of property, bank guarantee etc., and usually refers to the leased asset.
DefaultA condition whereby the lessee does not make the payments required as per the agreement.
DepreciationA means for a firm to recover the cost of a purchased asset, over time, through periodic deductions or offsets to income. Depreciation is used in both a financial reporting and tax context, and is considered a tax benefit because the depreciation deductions cause a reduction in taxable income, thereby lowering a firm's tax liability.
Finance Lease A lease which transfers substantially all the risks and rewards incident to ownership to the lessee.
FundingThe process of paying the manufacturer of the asset for the asset being placed on lease.
Funding Source An entity that provides any part of the funds used to pay for the cost of the leased asset. Funds can come from either an equity funding source, such as the ultimate lessor in a lease transaction, or a debt funding source, such as a bank or other lending institution.
IAS-17 The International Accounting Standard (IAS) 17 on lease accounting was published by the IAS committee in London in September 1982 and has been updated regularly. IAS-17 prescribes, for lessees and lessors, the accounting policies and disclosure to apply to leases.
Independent Lessor/Non-bank LessorA type of leasing company that is independent of any one manufacturer, and as such purchases assets from various unrelated manufacturers. The asset is then leased to the end-user or lessee. This type of lessor also is referred to as a third-party lessor.
InterestThe difference between the total loan payments and original loan amount (principal). Interest is to a loan as earned income is to a lease.
GLOSSARY
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Mr. Ronny James Govinden Attorney General
Mr. Marcos Francis President Seychelles Ch amber of Commerce
Ms. P nny C Bele mont Chief Executive Officer (Small Enterprise Promotion Agency)
Mr y Chief Executive Officer (Seychelles Licensing Authority) . Daniel Gapp
Mr Chief Executive Officer, Seychelles Fisheries Authority . Vincent Lucas
Mr. Gamanson Elpitiya Chief Financial Officer, Seychelles Trading Company
Mr. Jayant Mayadas Comme l Dircia rector PMC Group
Ms. Mamy Principal Officer, N Razanajatovo Energy Policy and Planning, Seychelles Energy Commission
Mr. Tiago Queiroz Santos Te rtchnical Expe , Resource Effici e les Energy ency, Seych lCommission
Ms. Elaine Ernesta Project Ma e fficiency, GOS-UNDP-GEF Programme nager: R source ECoordination Unit
Mrs. Elke Talma r: PVProject Manage Project, GO Pro S-UNDP-GEF grammeCoordination Unit
Mr. Daniel Kilindo IT Director, Seychelles Fishing Authority
Mr. Michelle Margue e A rit Chief Econ omist y i uthority , Se chelles F shing A
Ms. Karine Rassool s ish thority Senior Economist, Seychelle F ing Au
Mr. Aubrey Lesperance Principal Aquaculture Officer, Seychelles Fishing Authority
Mr r Chief Executive Officer, . Geffy Zialo Seychell ort Corporation es Public Transp
Mr. Oliver Bastienne Young Seychelles) Country Manager (Ernst &
Mr. Raphael Demba Chief Executive Offi Group) cer (PMC
Ms. Nazrah Ramdin er (BDO Associates) Managing Partn
Mr. Clifford Mondon Business Develo ye Valabhji) pment Manager (Abha
Mr. Jean-Paul MBeeNuuk irector – Seychelles Breweries Ltd Finance and IS D
Mr. Kirti Meghjee Shah Director, Meghjee Kalyanji & Co (Pvt) Ltd
Mr. Stephen Banane Managing Director, SODEPAK Industries Ltd
Mr. Luc Banane Project Manage r, SODEPA ustries Ltd K Ind
Mr. Eddie d’OFFAY Deputy Managing Dire e l ctor, Hot l L’ Archipe
Mr. Vincent S Padayachy Chairman, Rent a Ca r Owners A sociation & Mans aging Director, Eden y) Ltd ’s Car (Pt
Accelerated Depreciation An accounting method that allows a company to write off an asset's cost at a faster rate than the traditional straight line method that, i.e. not spreading the cost evenly over the life of the asset. This includes any depreciation method that produces larger deductions for depreciation in the early years of a project's life. It often results in a larger tax deduction on a company's income statement.
Capital Allowances - Depreciation allowances on assets as allowed by income tax provisions of a country.
CapitalizeTo record expenditure that may benefit future periods as an asset rather than as an expense to be charged off in the period of its occurrence.
Collateral This refers to the security that is made available to secure finance. In leasing, collateral can be a pledge of property, bank guarantee etc., and usually refers to the leased asset.
DefaultA condition whereby the lessee does not make the payments required as per the agreement.
DepreciationA means for a firm to recover the cost of a purchased asset, over time, through periodic deductions or offsets to income. Depreciation is used in both a financial reporting and tax context, and is considered a tax benefit because the depreciation deductions cause a reduction in taxable income, thereby lowering a firm's tax liability.
Finance Lease A lease which transfers substantially all the risks and rewards incident to ownership to the lessee.
FundingThe process of paying the manufacturer of the asset for the asset being placed on lease.
Funding Source An entity that provides any part of the funds used to pay for the cost of the leased asset. Funds can come from either an equity funding source, such as the ultimate lessor in a lease transaction, or a debt funding source, such as a bank or other lending institution.
IAS-17 The International Accounting Standard (IAS) 17 on lease accounting was published by the IAS committee in London in September 1982 and has been updated regularly. IAS-17 prescribes, for lessees and lessors, the accounting policies and disclosure to apply to leases.
Independent Lessor/Non-bank LessorA type of leasing company that is independent of any one manufacturer, and as such purchases assets from various unrelated manufacturers. The asset is then leased to the end-user or lessee. This type of lessor also is referred to as a third-party lessor.
InterestThe difference between the total loan payments and original loan amount (principal). Interest is to a loan as earned income is to a lease.
GLOSSARY
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Lease A contract between the owner of an asset and its user for the hire of that asset. The ownership rests with the lessor, while the right to possess and use the asset is given to the lessee for an agreed period of time in return for a series of rentals paid by the lessee to the lessor.
Lease Agreement The contractual agreement between the lessor and the lessee that sets forth all the terms and conditions of the lease.
Lease Payments - (also known as rentals)The amount the lessee pays the lessor in return for using the leased equipment.
Lease Term The fixed, non-cancelable term of the lease. It includes, for accounting purposes, all periods covered by fixed-rate renewal options which for economic reasons appear likely to be exercised at the inception of the lease. For tax purposes, it includes all periods covered by fixed-rate renewal options.
Lessee The user of the asset being leased.
LessorThe owner of the asset which is being leased to the lessee.
Lien A security interest on property to protect the lender in the event of lessee default.
Operating LeaseA lease arrangement wherein the lessor seeks to recover his investment in a lease by leasing the asset to more than one lessee. For financial accounting purposes, an operating lease is a lease that does not meet the criteria for a capital lease or direct financing lease. Also, it is generally used to describe a short-term lease whereby a lessee can acquire use of an asset for a fraction of the useful life of the asset. The lessor may provide services in connection with the lease such as maintenance, insurance, and payment of personal property taxes.
RepossessionA situation in which a lessor reclaims and physically removes the leased asset from the possession and control of the lessee, usually because of payment default/breach of terms in the lease agreement.
Sale-LeasebackA transaction that involves the sale of an asset to a leasing company by the owner and a subsequent lease of the same asset back to the original (and same) owner, who continues to use the asset.
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Lease A contract between the owner of an asset and its user for the hire of that asset. The ownership rests with the lessor, while the right to possess and use the asset is given to the lessee for an agreed period of time in return for a series of rentals paid by the lessee to the lessor.
Lease Agreement The contractual agreement between the lessor and the lessee that sets forth all the terms and conditions of the lease.
Lease Payments - (also known as rentals)The amount the lessee pays the lessor in return for using the leased equipment.
Lease Term The fixed, non-cancelable term of the lease. It includes, for accounting purposes, all periods covered by fixed-rate renewal options which for economic reasons appear likely to be exercised at the inception of the lease. For tax purposes, it includes all periods covered by fixed-rate renewal options.
Lessee The user of the asset being leased.
LessorThe owner of the asset which is being leased to the lessee.
Lien A security interest on property to protect the lender in the event of lessee default.
Operating LeaseA lease arrangement wherein the lessor seeks to recover his investment in a lease by leasing the asset to more than one lessee. For financial accounting purposes, an operating lease is a lease that does not meet the criteria for a capital lease or direct financing lease. Also, it is generally used to describe a short-term lease whereby a lessee can acquire use of an asset for a fraction of the useful life of the asset. The lessor may provide services in connection with the lease such as maintenance, insurance, and payment of personal property taxes.
RepossessionA situation in which a lessor reclaims and physically removes the leased asset from the possession and control of the lessee, usually because of payment default/breach of terms in the lease agreement.
Sale-LeasebackA transaction that involves the sale of an asset to a leasing company by the owner and a subsequent lease of the same asset back to the original (and same) owner, who continues to use the asset.
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ifc.org/africaleasing
Pauline Delay Fatim Diop [email protected] [email protected]
IFC, SUB-SAHARAN AFRICA