The total portfolio of European leasing companies accounts for around 5% of GDP, while in Georgia, the figure is less than 1%. This indicates that the leasing market in Georgia has enormous growth potential, which means it can significantly contribute to the growth of the country’s economy.
You know what motivates us the most? That we offer quick and easy alternative financing solution to our customers, plus we are a significant contributor to the development of the Georgian economy,” explains the CEO of TBC Leasing, Gaga Gogua.“ Leasing has enormous potential to foster economic growth in our country and the region and facilitate the formation and development of non-banking financial institutions on the market. As market leaders we have a vital role to play in this process.”
“In three years, our leasing portfolio is planned to be doubled in size. Such ambitious plans are made possible by market potential and customer interest towards our products and services, which we can offer continuously and for the long term,”
states Gaga Gogua
We record this interview at the end of the workday. A young operator takes a short break from answering calls to direct us towards the interview room on the second floor. On our way there, we encountered several employees enthusiastically discussing their day. Apparently, they are no in hurry to leave workplace. Plastic and paper collection boxes stand next to each other – signs pointing towards the company’s culture. As we walk into Gaga’s office, we realize why employees are in no hurry to leave: The company’s core values are listed on the drawing wall and staff satisfaction is in major position. We would hear about these values again during the interview.
“There are plans to open an almond processing plant, the first of its kind in Georgia. Our task is now to study this market and provide consultation,” TBC Leasing’s Commercial Director, Zurab Gugushvili, tells Gogua before our interview starts. Zurab had just come from a meeting with representatives of a Georgian-Ukrainian company that has put forward this proposal. He later told me that analyzing new opportunities forms the foundation of TBC Leasing’s continuous development. So this is where we start our conversation.
20 Years on the Market – Leasing With Consulting Opportunities
JSC TBC Leasing was founded in 2003. It now serves over four thousand clients, holds an 80% market share, and manages a portfolio worth 400 million GEL. Over the last five years, TBC Leasing attracted investment worth 1 billion GEL, with international financial institutions accounting for 70% of this sum.
“This money has been injected into the Georgian economy, and specifically the sectors that we fund,” Gogua explains and proceeds to list the industries that have profited from foreign investment. Among them are road construction and large infrastructure projects, manufacturing, HORECA, medicine, renewable energy, technology, and others. The list of international financial institutions cooperating with TBC Leasing for many years is impressive: FMO, EBRD, Proparco, Symbiotics, BSTDB, Blue Orchard, Microvest, Triple Jump and many others. “This reflects our international reputation for transparency and reliability,” adds the CFO, Nugzar Loladze. He highlights the financial benefits of having access to these funds, which has enabled TBC Leasing to establish itself as the market leader in terms of diversification of funding sources. “Such international financial support from abroad allows us to offer our customers affordable and diverse leasing services.”
Legal entities account for most of the company’s customers, while the share of individual customers in the portfolio is approximately 8-10%. “In three years, our leasing portfolio is planned to be doubled in size. Such ambitious plans are made possible by market potential and customer interest towards our products and services, which we can offer continuously and for the long term,” Gogua states regarding the company’s vision for development.
Before we turn to the company’s plans, legislative initiatives, and partnerships, we briefly talk about the concept of leasing itself, which is a flexible non-banking financing tool. “Not only do we offer an alternative to traditional credits and loans, but we also help customers with equity financing. We can therefore say that leasing is a hybrid financial instrument for equity and debt financing,” Loladze explains.
There are several ways for Georgians to obtain funding. Most people immediately think of banks and microfinance companies. It is often challenging, even for legal entities and larger firms, let alone individuals, to meet the requirements set by the banks. “The advantage of leasing lies in its unique structure, which enables simple and flexible financing. We are the asset’s legal owners, allowing us to quickly draw up an offer tailored to the customer.
“The unique structure of a lease means that we take additional asset-related risks for the client’s benefit. This is the competitive advantage of leasing, for which customers are willing to pay a premium. We are currently working on implementing this culture in Georgia, encouraging people to analyze the advantages of leasing when selecting a financing solution”
says Nugzar Loladze
Most importantly, the client must only contribute a co-payment for the asset without additional securities. Today you choose the product, and tomorrow it is already yours,” Gugushvili explains, using the “quick finance” product for illustration purposes. “We are talking about assets worth up to $500,000, which is a large amount. The company or individual must satisfy certain criteria, including the provision of copayments and a credit history check that proves their solvency and tells us about their reputation concerning debt servicing. If you provide this information to the leasing company at the start of the day, the leased asset can be yours by the end of the day.”
As a major procurer and seller of assets and services, TBC Leasing acts as a suitable intermediary between the asset supplier and the lessee, which allows the latter to benefit accordingly. The services offered by TBC Leasing include asset and supplier consulting, providing the customer with an affordable offer (as the largest procurers on the market), management and insurance of commercial and logistics processes, as well as customs and tax services. Gugushvili brings up the example of the company’s cooperation with a leading vehicle manufacturer for illustration purposes:
“Several months ago, we teamed up with a leading manufacturer of excavators to offer customers an opportunity to pay for the lease in interest-free installments. Behind every seller or supplier, there is an international parent company that sees TBC Leasing holds a 35% share in the sales of its subsidiary, concludes that we are a large firm, and is encouraged to offer us special terms such as a discount and buy-back possibility. In turn, this allows us to insure the supplier’s risks and create added value for customers through offers such as an interest-free installment plan.”
Why, then, are leasing services considered relatively expensive?
The lease structure and experience allow the leasing company to take on additional asset related risks for the customer’s benefit and offer fast and easy financing for the kind of assets seen as non-liquid by other financial institutions.
“The unique structure of a lease means that we take additional asset-related risks for the client’s benefit. This is the competitive advantage of leasing, for which customers are willing to pay a premium. We are currently working on implementing this culture in Georgia, encouraging people to analyze the advantages of leasing when selecting a financing Instrument.”
“Customers ought to ask themselves why they should invest additional collateral in obtaining financing when they can lease the asset by making a co-payment, share the risks with the leasing company and pay an insignificant risk premium for this service while keeping the additional collateral and using it to obtain core business financing,” says Loladze.
Possession Instead of Ownership
Part of the company’s three-year strategy, which we will return to later, is to increase customer awareness about leasing to make the following premise more understandable, acceptable and organic: “Wealth lies in usage, not necessarily in ownership.”
As of today, almost 90% of customers in Georgia prefer a finance lease, which grants the lessee ownership of the asset at the end of the contract. In contrast, an operating lease resembles a rental agreement insofar as the lessee uses the asset for a certain period before returning it to the lessor. In countries where leasing is much more common, operating leases are used as frequently as finance leases.
Support and the Driving Force for Startups
Who needs and uses leasing most effectively?
In this case, the answer is unambiguous: Startups. A highly competent team that knows the market well and makes accurate forecasts provides financing much more easily and encourages startups not to waste time looking for angel investors. TBC Leasing funds many startups in Georgia, and the company helps its partner startups with development and expansion.
“We are extremely popular among businesses operating in the field of renewable energy, such as small and medium-sized hydroelectric power plants and solar power plants, the development of which is in the strategic interest of all international organizations and countries. We are talking about power plants with simple geology, hydrology, or hydrography. Therefore, they do not harm the local ecosystem. The bulk of the investment goes into electro-mechanical equipment (turbines, penstocks, solar panels, and generators), allowing us to finance these long-term assets for 10-15 years. We also cooperate with the Ministry of Economy and Agriculture on projects initiated by existing agencies, whereby customers selected by the agencies have the financing interest fully or partially subsidized. This is a valuable service for customers. We also have a unique competitive advantage regarding taking residual value risks, as we legally own the asset and are well-represented in the secondary market. This means we can offer clients a customized leasing product with residual value that will compete with rentals and allow customers to use the asset at a lower cost than renting it. At the same time, clients can buy out or return the asset to the lessor and settle their dues,” Loladze explains.
Cooperation With the Government and the Legal Framework
According to the Director of Risk Management at TBC Leasing, Giorgi Maisuradze, all investors usually ask the same question: “What are the rules of the game regarding legislative, tax and regulatory frameworks? I have to tell them that the rules of the game are not yet set in stone.”
Currently, one of the company’s main goals is to establish a strategic development plan for leasing across the country and to create a legislative, tax and regulatory framework that will be based on international practice and, together with existing leasing companies, will create a favorable environment for the appearance of new leasing companies. Work on the initiative began in 2020, before the pandemic, and was prioritized in the country’s economic development plan. However, it was subsequently delayed due to the Coronavirus. At this stage, active work is being conducted with the Ministry of Economy, the Ministry of Finance, and the National Bank of Georgia. Ultimately, it will be in the form of a legislative initiative and approved by the Parliament of Georgia. The legislative framework will make the leasing market more attractive for new players and increase competition, which will ultimately positively impact the development of the leasing market,” says Loladze.
The Development of Leasing is a State-Level Priority
“As previously mentioned, unlike standard financial services, leasing is a flexible, client-tailored product that does not contribute to excess debt and has better subsidy mechanisms. All of this happens because we are our clients’ partners and do our best to facilitate their growth and development. It is, therefore, essential to have access to special levers, the main source of which are the government and regulatory agencies,” Gugushvili says.
“Our company is a member of the European Leasing Association. The total portfolio of European leasing companies accounts for around 5% of GDP, while in Georgia the figure is less than 1%. This indicates that the leasing market in Georgia has enormous growth potential, which means it can significantly contribute to the growth of the country’s economy,” says Gogua. “Leasing can become an important accelerator for the economy’s growth and GDP,” Loladze adds.
Social Responsibility and Employee Care
“We often emphasize that behind the success of TBC Leasing, there is a strong team united by the company’s values, culture and professionalism. That is why we always strive to be a good employer. If you look at this wall, you will see that we have a high Employee Net Promoter Score (eNPS), which reflects employee satisfaction,” Gogua says, pointing to the wall that displays the eNPS index – the percentage of staff who would recommend others to work at TBC Leasing. The company currently employs around 150 people.
“Without our team, we cannot accomplish anything. It is our priority to keep the team happy and inspire them. Teams rather than individuals create new products. Last year we launched four new products that accounted for 45% of the total funds we released in 2022 (H271 million). Our employees created these new products here,” Gogua states.
TBC Leasing employees no longer throw away paper waste. Instead, they collect it and exchange it for books, which they then donate to schools and libraries in mountainous regions of Georgia. The company recently introduced plastic collection bins in its office, meaning that it tries to reduce the harmful impact on the environment. It also helps its partner startups build an information network, enhance their reputation on social networks, and participate in fairs (with TBC Leasing paying the relevant fees). As an employer, TBC Leasing constantly tries to attract new staff and is keen to encourage young people to launch their professional careers and enhance their qualifications. Last year, nine new talents successfully completed the company’s internship programme and became full-time employees. Collecting customer feedback and earning goodwill are high on the list of the company’s values. To this end, customer requests and complaints are taken on board as a matter of priority.
“This is why I like leasing. It is a lively and dynamic financial instrument that does not rely on standard linear approaches to problem-solving,” Loladze remarks. “Now the challenge is to raise awareness about leasing and all the issues in our country. This is strategically important because it is a long-established business practice in all developed economies of the West, and now we can also make life easier for people.”
Photo Credits to Khatuna Khutsishvili / Forbes Georgia