EBRD loan boosts Croatian leasing market

By Claire Ricklefs

EBRD loan boosts Croatian leasing market

An EBRD loan that aims to expand the Croatian leasing market will help small businesses acquire vital equipment that is too expensive to pay in full up-front.

Starting or expanding your business can seem a daunting if not impossible task – not least in the current turbulent economic climate. But there is a solution: leasing. Leasing can be a vital life-line for companies which do not have the necessary cash to acquire all the equipment they need up-front. Through leasing, they can pay in more manageable monthly instalments. Moreover, as office equipment or machinery can depreciate rapidly in value, leasing can actually be more cost-efficient than ownership.

In Croatia, leasing to small and medium-sized enterprises (SMEs) has become a particularly important form of financing as availability of bank financing to micro companies is restricted.

EBRD boosts SME sector

To further strengthen and expand leasing to SMEs in Croatia the EBRD recently provided a €15 million loan to Raiffeisen Leasing Croatia under the EU/EBRD SME Finance Facility, which was set up exclusively for the financing of leases to micro and small enterprises. In addition, Raiffeisen Leasing will receive more than €875,000 from the European Commission for technical assistance.

Raiffeisen Leasing is the third largest leasing company in Croatia with a market share of 8 per cent. The company has been focusing on car and equipment leasing and will use the EBRD loan to broaden its activities by expanding into eastern Slavonia and the Croatian coast through branches outside the capital.

“The SME sector is growing steadily in Croatia,” says Miljenko Tumpa, Chairman of the Raiffeisen Leasing Management Board in Croatia. “But we need more government measures. For a start, we need lower taxes so that people can be entrepreneurs. There also needs to be more clarity in the law so that entrepreneurs know what is happening. With laws changing almost daily due to EU accession obligations, small companies find it difficult to understand and deal with all the bureaucracy.”

Mr Tumpa also warns that the financial crisis is already having an impact on the leasing market and general economic climate in Croatia. “We see that interest rates are rising and our competitors are becoming more expensive. It will be crucial for the government to introduce measures to calm down the situation and to give companies and individuals air to breath. Panic can cause disaster, the crisis in itself not.”

Raiffeisen’s clients are understandably wary. “Many of our clients are waiting to see what will happen,” says Mr Tumpa. “They are postponing investments and are reluctant to jump into a new venture. But we haven’t seen any clients defaulting on their repayments yet.”

Simply the best equipment

Selling is definitely not the name of the game at the moment, Mr Tumpa admits. Instead, Raiffeisen is focusing on controlling and monitoring the market and its clients. “We’re on a safe boat as we have always followed restrictive and conservative procedures. We are not just going for ‘good’ projects we are looking for the best – where we have a 99 per cent probability of recovering our money. Put simply: we’re not interested in re-financing a Porsche Cayenne. A good truck on the other hand, will always remain a good truck.”

The secret to Raiffeisen Leasing’s success is the quality of the assets it owns, agrees Head of Sales Vesna Smiljanic Mulabic. “Good equipment means lower service and maintenance costs and therefore good business and a happy client.”

Keeping good contacts with suppliers is crucial. “In case of default a good supplier knows the market well and may be able to source spare parts or a second-hand machine as a replacement,” Ms Smiljanic Mulabic explains. “If we don’t know the supplier we try to find out everything about them.”

Raiffeisen Leasing’s huge product scale and variety of assets also provides stability and security. They invest in over 100 different products from medical to wood processing to printing equipment.

Many of Raiffeisen’s clients are family-owned businesses in agriculture based mainly in the Virovitica region, the agricultural heart of Croatia, who need equipment to harvest cereal and corn. But it is also the newly emerging industries, especially those using the latest technology such as digital printing, which are looking for financing through leasing. “A new professional printer can cost up to €200,000 and in this industry the machinery becomes outdated very quickly,” says Ms Smiljanic Mulabic.

Investing in the future

Raiffeisen carefully assesses each investment. “You cannot collect the information you need about an asset overnight,” Ms Smiljanic Mulabic stresses. “Risks need to be addressed and we don’t invest in some sectors, such as real estate, simply because we cannot afford to finance long term with short-term measures. It’s about investing in the future.”

The company has already put the money allocated for technical assistance to good use and has used the first tranche of €100,000 to train its management and sales employees with the help of Croatian and British consultants. Raiffeisen expects to receive the remainder of the EU grant for technical assistance by the end of the year. In order to receive this so-called performance fee, a company has to comply with a complex and detailed set of criteria set by the EU/EBRD SME Finance Facility. These include the size of the company, its revenues and the number of employees. If those criteria are in compliance with the policy aimed at supporting the SME sector, the EU will pay to the company a performance fee, calculated on the basis of the company’s portfolio characteristics. Raiffeisen Leasing has proven to be a good example for other leading companies on how to gain and use the performance fee.

Despite a bleak economic outlook, the company maintains a positive and refreshing attitude towards the future. “Change management is now behind us,” says Mr Tumpa. “We need to be at the front of change otherwise we’re done. Historical data are not important to us – we look at the future of any investment not the past.”