By David Wanjala
He quit a top-level management job with a bank in 2006 to venture into motor vehicle leasing industry, then a virgin and fluid enterprise in the East African region. Today, Paul Njeru, 39, sits at the helm of a Sh9 billion leasing company, which has recently spread its tentacles beyond Kenyan borders, to Tanzania, Uganda, Rwanda and Zambia.
Vaell (Vehicle and Equipment Leasing Limited), which Njeru runs as regional managing director and head of strategy, is a local pioneer motor vehicle leasing company that is also a leading player in an industry that has since picked up in Kenya, especially with government having, since 2010, embraced the new model of acquiring vehicles for its departments, particularly the National Security organ.
Vaell is eyeing the Mozambican and Ethiopian markets.
“I will be in Mozambique in early June, when I hope to put final touches on setting up there,” he says. Even as he makes these plans, Njeru is fully aware that setting up shop in Ethiopia is a daunting task – it is a closed nation with regulations that only allow locals to do most of the businesses.
We caught up with the easygoing Njeru, an early riser, at Quipbank, the company’s new facility along Mombasa Road, between Athi River tunnel junction and Mlolongo. He had set up the meeting for 7 am and, indeed, it kicked off as scheduled. Ours was a fact-finding mission, more so the company’s journey and how he, barely forty, successfully runs the service industry empire.
VAELL will celebrate 10 years next year. Njeru’s family ran a car hire business in 2006 that was overwhelmed by leasing requests from clients. Even though they had attempted leasing they could not pull it off due to the complexities involved. “Arranging the lease was very difficult – the calculations and the contractual obligations of each client were overwhelming.” At around the same period, Stanbic Bank, which he worked for, also had numerous requests for car leasing services but which, as a bank, they could not do.
It was enough, however, to rattle the business conscience in the young banker. Motor vehicle leasing, nascent in the Kenyan economy as it was, was the new business frontier. It had been beckoning for a while and someone had answer to the need. He embraced the challenge.
In the same year, he handed in his resignation. He surprised his colleagues, he says, when he told them he wanted to leave to go help with the family car hire business and convert it into a leasing firm. The bank would have none of that, at least until six months later, in 2007, when they let him go. He left and joined the family business. To manage the leasing side of the business they had to set up the vehicle and equipment-leasing department.
Thus Vaell was born.
It was at a time when leasing as a business had not grown to be recognised as an industry and the little that was being done was by foreign companies.
Njeru knows only too well the importance of a brand in business. Vaell, coincidentally emerging from the acronym of “vehicle and equipment leasing limited”, has helped in the growth of the company, moulding it into a brand that one cannot ignore in the growing leasing industry. First, it gave the company a foreign aura. In a culture where a majority believes that foreign is superior, the name could not have been any more apt.
“We did not realise it but many companies would later say, after they had signed all the papers, they did not know we were a local company. That has helped a lot. We were actually lucky to find it does not mean anything vulgar in a different country or language. It sounds a bit French so we have quite a lot of French customers; it’s a good coincidence,” Njeru says.
The raw material in leasing is cash, and leasing is very capital intensive. Vaell, for instance, does not see over 90% of what they lease until it goes back at the end of the lease. Here is how it works: a customer defines what s/he needs to the company – afterwards the leasing company may help him choose the dealer best suited for his need. Thereafter, paperwork follows, which involves managing the finance partners. Once the dealers are paid, the vehicles are delivered to the customer. Banks, therefore, play a major role in the leasing business. To this end, Njeru is grateful to over ten banks with which he has partnerships, including Bank of Africa, ABC Bank, Chase Bank, Co-op Bank and Eco Bank.
The leasing industry has come a long way. It is an industry that was left to chart its own path, by trial and error, with hardly any defined principles to guide it. The consequences have more often than not been damning. As usual, unscrupulous businessmen have masqueraded as leasers, taking advantage of the near nonexistence of regulations, to flout industry best practices and fleece ignorant members of the public in the name of leasing. That has given the industry a bad name and slowed its growth in the country.
Njeru agrees that even as Vaell, they learnt a lot in their first two years of operation from their customers who had prior experience of leasing from other jurisdictions.
“Bamburi Cement, I think, are one of the first clients who took us through an important lesson. They told us what not to charge, and what to charge and why. Clients who had been exposed to leasing previously were very helpful; through them, we were able to structure different leases,” he narrates.
Many people confuse “leasing” with “rental”, and rogue leasing companies have exploited that ignorance. The difference is synthetic but, says Njeru, there is an accounting principle that has to be adhered to, if leasing transactions are to be above board. You cannot, in a lease, charge more than the value of the equipment for the entire period of the lease. “That is the first place where you will find the market breaching the industry’s common practice. A transport company will give their trucks to you as a lease; even a car hire company will call rental of six months or more a lease. Then we all get excited about leasing and put it out there.”
But, he goes on, there are a few companies in the market who for any lease quotation, have to abide by those principles for reputational purposes, especially where the bulk of their clients are multinationals. Multinationals or any reputable local businesses have auditors who must verify the leases they take. On top of that, Vaell, for instance, have their own, PKF, who must audit adherence to the best practices and principles of leasing.
Accordingly, “a Sh15 million bus, leased for three years, should not fetch more than Sh14 million. The mark is 90% of the buying price. When it exceeds that, it should not be called leasing. You would have actually bought the bus. An audit firm will have to advise the client to cancel the deal as that can only be reflected in the account books as an acquisition and not a lease.”
Leasing companies recoup from what is called volume obsolescence, when they sell off their fleets at the end of the contracts. The biggest challenge, however, lies in high value vehicles whose resale prices are much lower than their purchase price. Vaell, for instance, is stuck with more than four, three- to four-year old Jeeps that were returned at the end of their leases. They have covered under 10,000km and are going for between Sh3 million to Sh3.5million. They were each bought from the dealer for about Sh10 million. To beat this constraint, Vaell has set their long-term focus on yellow equipment and heavy commercial vehicles.
Leasing, Njeru says, tends to be a subtle and secretive market-penetration tool for businesses. As such, save for Bamburi and one or two others, he is guarded on the information of his clients. But he reveals that over 90% of industry leaders in every business sector are leasing, from airlines to cigarette and beverage companies. Vaell, he reveals, has worked with at least 90% of industry leaders. “I realised it actually in our third or fourth year. Companies that work with us first make it clear that they want it very confidential. Two, they actually come for huge amounts.
“In the cement industry, for instance, when one of them wants to start something brand new, they go leasing. They won’t use their money. So for a while, the competition is wondering who’s actually funding the project,” he says.
Yielding a little, he talks about how Bamburi, in partnership with Vaell, seven years ago introduced ready-mix cement at building sites in Nairobi. Vaell leased the trucks for Bamburi on a very confidential basis. When Vaell went to Tanzania in 2009, East Africa Breweries Limited (EABL) had just acquired Serengeti Breweries. They needed a quick visible presence across the country. EABL leased 100 vehicles with Vaell in a process that took hardly 90 days, from zero to 100 vehicles. The deal was confidential.
“There are companies that have approached us and kitted a whole factory, end to end and said they did not want the competition to hear they were doing it. Within two years they have locked in a lot of the market because most of the equipment was very expensive. It also helps their pricing,” Njeru says.
In 2009, Vaell ventured beyond the Kenyan borders. Traditionally, the first stops were in Uganda and Tanzania. Surprisingly, Njeru says those markets were already ahead of Kenya in the business of leasing. They were exposed to leasing earlier, just like in the mobile telephony industry, and so setting up and penetration was not a big deal.
“We found them better markets in that they are not actually too suspicious about leasing. They have been aware of the practice for longer,” the father of two says, adding, however, that, just like in the telecommunication sector, Kenya is bound to overtake the other East African Community member states, especially with the Government of Kenya reawakening to the reality of leasing as a better option.
Vaell has 80 employees across the group, 50 of whom are based in Kenya. They hope to list on the Nairobi Securities Exchange towards the end of the year to “have Kenyans own a piece of Vaell,” but more so to secure funds to facilitate the various expansion projects in the company’s pipeline.
It has not been all glitter though. “I remember a time when I told the team, about four years back, to start looking for other jobs because we were not sure we could be able to even make salary payments. Someone fainted on hearing that. But we were blessed we did not reach that level; but on and off it has been a very challenging period,” Njeru narrates, adding that they have over the years resisted take-over attempts by banks and foreign firms.
As the regional managing director and head of strategy, Njeru is focusing on partnerships the company is forming, specifically with dealers and other international parties as they edge closer to the shareholding venture.
The biggest challenge has been in the ignorance of the leasing principles and practice in the potential clients, on both levels of government, and corruption. County governments, either out of crook or ignorance, seem to be confident with unscrupulous leasing entities that, in the end, give the leasing industry a bad name.
“We have seen many new entrants who seem to be designed for just one deal, especially in the counties. You discover their existence only after their first lease and when you check them out, you realise they haven’t leased before. They also tend to disappear after their first lease. It is pretty strange. From a regulatory environment, it is really for the public to begin questioning some of these transactions. We feel a lot of pressure when we attempt to question, getting implications that we may not be included in the next round of tenders,” he says.
Njeru quips that it is because of such underhand dealings that counties have ended up getting into long-term leases for ambulances at the exorbitant expenses of Sh600, 000 per ambulance per month when they could get it at half that much if they got exposed to clean and reputable leasing companies.
Some of Vaell’s clients have also let them down big time sometimes, he points out. The MD says some of them have cancelled big contracts midstream without the option of compensation exposing them to high risks.
Moving forward, the MD is enthusiastic. The sky, it seems, is the limit. He has lined up three strategies, besides listing and regional expansion, which he believes will be the rainmaker for Vaell. First, within the Kenyan market, the company has grown fast beyond Nairobi. They have focused to tap in on the opportunities availed by Devolution.
But, the real future strategy for Vaell is triple-pronged; individual leasing, medical equipment and airplane leasing. Individual leasing is complicated by the tax regime in that while a company can reclaim VAT on a lease, an individual cannot, making leasing an expensive and unrealistic affair for an individual. However, the company is working on how to beat it and, several years from now, terms will become better.
Making a rather bold prediction, he offers that medical equipment is the next big thing in the leasing industry. “Looking at dialysis machines, for instance, people queue for hours on end and one shot of dialysis of between one to two hours costs Sh10, 000. One machine will therefore cover about five to ten patients a day. We can lease a machine for slightly less than Sh100, 000 per month. Considering how much hospitals make every month, if it adds another 10 machines and the cost of dialysis is brought down by 50%, it could still cover its costs comfortably. People will stop flying to India; lives will be saved. We simply need to demystify how simple it is to acquire some of this equipment.”
As for the plane-leasing concept, the inspiration comes from the West African market. Here, Njeru says, every CEO of a middle class business going forward has a plane at his/her disposal. He gives an example of a CEO of a West African Bank with presence in Kenya, who has up to four planes at his disposal, paid for by the bank.
“It should make a lot of sense for our KCB MD to be able to travel across the region in his own plane without having to queue for a ticket in an airport. It should be acceptable. We just haven’t gotten there yet. It is simply a matter of the market beginning to accept to take it to that level,” Njeru says.
Over 80% of leases of planes in the market are foreign. Most planes are leased but they have to be leased from Mauritius or Europe – there is very little local capacity to manage plane leasing. To this end, Vaell has formed a plane leasing division to guide Kenyans through.
“You may be surprised some planes are less than Sh10m, which means you could actually have a plane at your disposal for Sh200, 000 per month. That is cheaper than most of the top business MD’s cars with some going for as much as Sh20m,” he says.
Besides, Vaell, Njeru says, is reengineering the DNA of leasing, which is structured such that it is the client who seeks out and presents himself and his needs to the leasing company. That formation, in the eyes of Njeru, has been outlived. At Vaell, the company now goes out to actively seek clients, demystifying the leasing concept and exposing businesses to why they are best off leasing than acquiring assets.
The secret behind Vaell’s success story is in the company’s employment philosophy, which focuses on the youth. “Our average age is still below 30 years and we are proud of it,” Njeru says. The company gets its workforce straight from college and trains them into senior management. As such, it has built an ingenious, enthusiastic and committed workforce to which the managing director attributes the firm’s success story.
However, Njeru’s own training, background and experience in the banking sector have often come in handy. Having joined Barclays Bank as a clerk after completing his Bachelor of Commerce studies from Daystar University, he rose through the ranks to middle level management before he Joined Stanbic Bank, leaving in 2007 as a senior level manager. Besides, his country-managing director is a former director with Stanchart Bank for 15 years, who boasts 19 years banking experience. The combined banking experience of the two has immensely contributed to their remarkable growth. Under their watch, Vaell has featured in the top 100 best SMEs from when it was six years old in the market. “Last year we were number 1 in transport and number 2 overall, and I say a big ‘thank you’ to the team,” he says.
Born in Maseno in mid 1970s, Njeru was christened Onyango by his parents’ local social circles and to date, he goes by that name. His passport has ‘Onyango’ as his middle name.
“Right now as we expect (US President) Obama, I am very confident when you only refer to me as Onyango,” he jokes. He grew up in Kitale where they moved two years after his birth, which is where he spent most of his childhood before moving to Nairobi. That exposure has had a positive impact on his leadership skills.
Njeru is the third born in a family of five. He was brought up in very strict family values to which he still adheres. “It is not a story we can ever conclude without appreciating the grace of God. There are many times we wondered whether we would survive the year,” he says.
He spends his free time with his seven and four year old daughters in his livestock farms in Namanga and Narok.
