Leasing firms, inspite of the clear benefits associated with equipment leasing are yet to exploit their potentials. However this is not farfetched from the problems arising from the economic, judicial framework and financed based issues. Leasing enables easy access to the much needed equipment required for productive speculations that would stimulate economic growth and development. The leasing industry has contributed immensely towards capital formation in the economy. In 2013, the outstanding lease volume according to ELAN was N780bn representing a growth rate of 16.3% as against year 2012 which was N671bn (ELAN 2013 annual report). What is a lease? A Finance lease is a type of lease where the risk and rewards related to the ownership of the leased asset are conveyed to the lessee but not the actual ownership. Therefore we can say that an estimated ownership is passed to the lessee. It is non-cancelable and the lessee bears all cost such as insurance, repairs, maintenance etc. and the lessee has a preference at the end of the period to buy the asset at a price which is always lower to the asset cost.
Aside from the tax issues, operators of equipment leasing in Nigeria are faced with enormous challenges that affects the growth and development of the leasing industry. Research has shown that the problems are in the areas of funding, high importation cost of equipment, default in payment in terms of fatigue, fraudulent practice and poor Credit bureau. Others are the newly introduced Auto tariff policy by the Federal Government which increases the importation tariff by 35% (Businessday, March 9, 2014), this has resulted into high increase in the value of used foreign (Tokunbo) vehicles. Though, the policy is a good development as that would increase employment in another form. The idea of the policy is to encourage Auto manufactures to have an assembly plants in the country. The declining value of the naira against the US dollars is contributing to the high cost of imported equipments. Most of the item for leasing are imported products and with the high exchange rate, factoring the withholding tax and VAT etc., the lease pricing becomes certainly high and this discourages potential clients.
Majority of our Commercial banks that are into equipment leasing sees leasing companies as their main competitors and exhibits unwillingly interest of extending cheap credit to the leasing companies to the impairment of the whole economy. The non-availability of long-term low cost borrowing has contributed majorly to the decline of equipment leasing in the country. It is a known fact that leasing business involves small to long-term financing and since the local financial players cannot offer the funding solution, therefore the only option for the leasing companies is to get foreign financial institution as financier or partner which is not imminent because of the socio-political considerations and the unbalance insecurity situation in the country that is not attractive to foreign investors. Fraudulent practices by the lessee is another unfavorable challenge to lease development such as tampering with mechanisms of the assets on lease, simultaneous multiple lease financing and default in the rental payment arising from payment fatigue and others. Payment fatigue according to Boniface Ochonogor, is when a leased asset is structured for longer period and the asset starts developing faults and repairs, the lessee will not or be reluctant in payment of the rental, as at when due as structured. This is one the reason why default rates on lease payment is on the increase.
The lack of leasing legislation is also a major negative factor. In Nigeria there is no law regulating the practice of leasing but interestingly some African countries like Liberia have a leasing legislation in place. Previous governments in Nigeria have attempted to introduce the law but yet unrealistic. Currently, there is a pending proposed leasing law before the National Assembly (Senate) which is stagnant due to lack of understanding of its benefits to the Nigerian economy and some kick back request as ‘PR’ for some members of the Committee whose oversights responsibility falls on the leasing industry. The bill did not pass the second reading following opposition by some Senators (ELAN, 19th Annual Report). In fact this corroborated the submission of some members of the ELAN board members at the last ELAN 19th Annual General Meeting (26/06/2014) in Lagos that some members of the National Assembly (Senate) were demanding for about 300 million naira in order for the leasing law to be passed. However the assertion was an unconfirmed report but one can tell by discretion. The bill if finally passed into law will lead to the expansion of leasing activities, as it will bring about an improved environment by addressing some major constraints affecting the industry, which include high default, clumsy repossession process, and fraudulent activities by some disreputable lessee. With the absence of leasing law in the country, the practice of leasing in the country has been governed by common law and certain tit bits of provisions and often influenced by some major decisions in other financial sectors of the country. The consequence of this is that foreign lessors will shy away from the country as they will consider Nigeria a risky investment society. The absence of the leasing law and proper judicial framework is really contributing to the default rate by some fraudulent enlightened lessee who plays around with the law. The judicial process is cumbersome, therefore gives crooked lessees the free day to frustrate lessors. This development is worsened by the difficulty of repossession of lease asset as some courts presided over by dishonest judicial officers do not help matters. In some established cases, lessees have gotten fraudulent court injunctions basically to frustrate repossession efforts by the lessor, hence making the financier to loose huge sums of money in the event of rental defaults. In addition to losing their investments as a result of default, coupled with the lack of legal structure for operation, the lessor repeatedly has to contend with vast administrative and legal costs to pursue defaulters in the event of repossession.
The leasing industry in the country should have more impact on the economy, given better acceptance of equipment leasing as a funding option. This however can only be achieved based on viable provision of enabling and regulatory environment by the authority in Nigeria. The government should make more funds available and accessible to the leasing companies through borrowing or injections as this will reduce the cost of lease funding and dependency on the capital market for long term loans for the acquisition of leasable assets. Efforts should be geared up put on the establishment of leasing law and addresses the poor or absence of legal frame work that covers leasing.
Olanrewaju Usman
