Paul Errington urges lenders in Asia Pacific to “get real” about equipment leasing brokers – and heralds the need for a broker association

Our coverage is across all Asian countries and has given us a rather unique view not just of equipment finance in Asia but also how brokers are received by banks and finance companies alike.

The underlying question is more about growth of the industry and the approach that funders have taken, and are still taking, in their endeavors to gain more market share. In previous Asset Finance International articles I have mentioned that Asian growth for equipment leasing will be driven by new foreign banks opening, and by vendors with their leasing offers. This has proved to be mostly correct.

The advantage for brokers is therefore that foreign funders bring their overseas experience and acceptance of paying brokers their fees which are written into the lease. Those very words “fees written into the lease” are quite alien to local funders. Not only does the concept have to be explained but also the mechanism.

Some are more acceptable than others but we cannot say that banks accept them but finance companies do not – there is a mixture.

Likewise, we cannot say that the concept is accepted in Malaysia but not in Hong Kong or any other country, again there is a mixture.

The added complexity is that funders who will not pay fees still want us to bring them business, of course! They want to use our international sales and marketing skills to increase their market penetration but they want to apply their local policies of no fees as well.

These funders are therefore encouraging a potentially dangerous practice. To earn fees (which are commercial) we must either have the client pay fees from their own budgets OR the clients must increase invoice values to cover our fees.

The latter method is the dangerous area, which has been used over many years already.

Why, therefore, can funders not pay fees directly to brokers with these written into the lease and the client ultimately pays in any event?

Instead they are encouraging, in my opinion, a method of nearly illegal means for brokers to receive their fees. But they receive the new business and can claim immunity to anything being practiced in the shadows.

This comes back to funders’ approach to growth.

This sounds like a generalization but it is factual to say that local funders have not looked at how the equipment leasing industry has developed on the international stage. They instead maintain their existing local policies and regulations and ignore the manner in which leasing has grown in mature markets such as Europe, Australia and US.

Pro-active or re-active?

It is always far easier to turn away from change. I have heard many times “we have not done that before so we cannot do it now”. This is not just in relation to paying fees but also to leasing structures.

For example we were arranging a lease structure for a vendor in Indonesia, the client was an international bank with excellent credit. Repayments had to flow through the vendor (also of excellent credit) – declined “as we have not done that before”!!!

This inflexibility is entrenched in many funders. If a company is not listed on a local stock exchange and therefore classified as an SME, the funders insist on directors personal guarantees no matter how strong the trading position of the borrower may be.

Across China and Hong Kong many funders also insist on only funding 75% of the capital value of equipment.

Being a broker in Asia is frustrating to say the least.

Why are funders so afraid of change? Why can they not look at international leasing market development?

Why do they want our business but do not want to adopt a commercial view and pay us fees?

So in the meantime “we brokers” will give our business to the funders who understand the commercialism of the industry and we will ignore the many, many funders who are mired in Old Policies that ignore the “norm” in mature markets.

Do I hear calls for a brokers association?

Paul Errington is CEO of Connaught Finance Investments, Hong Kong