Leases for Small Businesses to Spur Growth

Challenges for Small Businesses

In the PRC, the Maxwealth Financial Leasing Co., Ltd. (Maxwealth) has provided a big boost to micro, small, and medium-sized enterprises (MSMEs) in the form of lease financing to help them recover from the impact of the COVID-19 pandemic.

MSMEs are crucial to the People’s Republic of China (PRC)’s economy, contributing significantly to inclusive growth by creating jobs and driving exports. Despite their important role, MSMEs have limited access to finance. Banks consider them a higher risk and tend to favor state-owned enterprises and larger corporates. Since 2011, the government has worked to improve the business environment for MSMEs and facilitate financial accessibility.

However, the COVID-19 pandemic in 2020 has further set back the growth of MSMEs, exposing their vulnerability arising from limited access to finance, smaller size, and lower business diversification. Multiple lockdowns, including extended ones in 2022, pushed many small enterprises to the brink of closure. While the government introduced fiscal and monetary policies to aid these small businesses during the pandemic, challenges persisted on their road to recovery.

Maxwealth’s extension of lease financing provides opportunities for MSMEs, especially for financing the purchase of equipment, which is not generally accepted as collateral by local commercial banks. Supported by ADB and private sector partners, Maxwealth presents a hopeful avenue for MSMEs, offering potential relief from recent challenges and fostering inclusive economic growth.

Lease Financing Solution

In 2022, ADB and Maxwealth signed a $140 million financing package to support lease financing for MSMEs. This financial injection was designed to address the challenges posed by the COVID-19 pandemic, particularly focusing on providing long-tenor lease finance to the PRC’s underserved MSME sector.

The financing package comprises $70 million from ADB, and a $70 million syndicated Complementary loan or C loan mobilized by ADB and funded by local private sector participants OCBC Bank Limited, Fubon Bank, CTBC Bank Shanghai Branch, and Bank Sinopac.

ADB uses the C loan product to mobilize local currency cofinancing. The agreement with Maxwealth is ADB’s first C loan since 2020. ADB is the only multilateral development bank that offers the local currency complementary loan product especially suited for private sector clients. ADB’s C loan to Maxwealth has brought in new private sector partners for ADB in the PRC.

Maxwealth, a leasing company and wholly owned subsidiary of Bank of Ningbo Co. Ltd., leases assets to public utilities, corporates engaged in high-tech manufacturing, and MSMEs. The company’s mission is to promote regional economic development and industrial upgrading by covering the “last mile” of financial services and effectively solving the financing difficulties MSMEs face.

While the government introduced fiscal and monetary policies to aid these small businesses during the pandemic, challenges persist on their road to recovery.

“Micro, small, and medium-sized businesses in the People’s Republic of China need more financing options as they recover from the effects of COVID-19 pandemic and other challenges. By partnering with leasing company Maxwealth, ADB is helping small businesses access more financing to power their growth,” said Asif Cheema, director for private sector financial institutions at ADB.

Inclusive Financial Growth

ADB’s collaboration with Maxwealth also supports businesses owned or run by women, who face higher barriers to finance. Women entrepreneurs are on the rise in the People‘s Republic of China, but deep-rooted cultural and social norms act against women, affecting their access to certain jobs and equal remuneration. Gender disparities extend to finance, with lower account ownership and access to financial services for women compared to men.

ADB’s project with Maxwealth includes a gender action plan to promote financial inclusion and women’s empowerment in the leasing sector. The plan also highlights Maxwealth’s commitment to gender inclusiveness in its work environment.

By June 2023, Maxwealth had more than 40,000 micro, small, and medium-sized enterprise clients, more than 30% of them owned by women.

“Working with Maxwealth, ADB is proud to not only help micro, small, and medium-sized businesses in the People’s Republic of China but also support women’s financial inclusion in the leasing sector,” Cheema said.