The revised guidelines for finance companies operating in the country was released recently by the Central Bank of
What is your reaction to the revised guidelines for finance companies which also affects your business?
There is need to bring sanity into the leasing industry, so that it will not be as if it is all comers affair. Sometimes, when the level of financial commitments in terms of leasing is used, then definitely the CBN will want to be involved in that kind of arrangement because they tend to pose a kind of systemic risk to the financial sector of the economy. There is nothing new that they are getting involved in it. I think what they are trying to do is to promote leasing invariably too, and strong institutions that will help to boost economic drive in the country which is good and ELAN has been supporting that process. We have been part of it in the reform process, trying to reform the finance companies sub-sector. As far as leasing is concerned, we tried to make some inputs on how we feel about the CBN's objectives and how they can be best achieved.
We made some submissions to them which were reflected in the draft of the guidelines. There is still more to ask for clarification for easy implementation of the guidelines which we are equally engaging the CBN on. After the meetings, we met severally with them, talking about implementation issues and they were willing to look at it as they go along. For instance, we feel that there is need to re-define the institutions that will be involved in this regulation, such as the real lessors (if I may use that word), the major lessors, the big lessors, they are already under the purview of the CBN. So, the CBN, practically speaking, may not have the strength or the muscle because the leasing industry is a multi-disciplinary industry. There are a lot of people involved in the leasing industry. It cuts across various sectors of the economy. So, it depends on the kind of institution you are that should inform regulation. It is not everybody that should be covered by regulation because there are some small leasing companies or small people who are doing some hiring which might not necessarily pose systemic risk to the system. So, why should the CBN be involved with that kind of regulation? There is no need to do that because they use their capital to finance leases. So, it does not mean that you are doing "finance leasing", you must be regulated. No. But our thinking is that, it depends on the level of involvement in the finance sector. If for instance, you are mobilizing borrowing as the finance houses do for the public, you are doing LPO financing, you are doing other forms of financial activities, yes, we will definitely support that you should be regulated. In that case, you can't call yourself a leasing company, as you are more or less a finance house. So, you must be regulated. But, if somebody is doing just leasing and you say it is finance lease, it is neither here nor there. The issue of finance operating lease is just a technical term, basic accounting and taxation terms and you can't use that as a criteria to really determine which institution or what ever should be regulated. To us, I think the key thing is: how involved are you in the financial system?. That will determine the level of regulation. So, it is not whether you are doing leasing only.
Can you throw more light on the difference between leasing and hire purchase?
Like I mentioned, the issue of hire purchase is part of the activities finance houses are allowed to do. But hire purchase itself, is similar to leasing. In practice, it is the same thing. It's just a matter of legal decision that there is difference between hire purchase and leasing. So, the question that is probably going to come up is: will CBN concern themselves with people doing hire purchase? I don't think so. It is not everybody that is doing hire purchase that the CBN will take care of. It doesn't mean that everybody doing hire purchase should be regulated. It doesn't follow. So, it is the same thing. It doesn't mean that because finance houses are allowed to do leasing, it does not mean that everybody that is doing leasing must be regulated. So, if you look at the guidelines, you will find out that even some activities mentioned there such as financial consultancy, for instance, I want to assure that accounting firms do financial consultancy. So, if accounting firms do financial consultancy, does it mean that CBN will go and regulate those accounting firms such as
Let's divert a little bit from the revised rules. What are the challenges facing the leasing industry?
The leasing industry has been contributing a lot to the economic base of this country. There is no sector in this country that you won't see the activities of leasing. Yes, the sensitisation is a bit still low. But that is why we want people like you in the media to help to spread information on leasing. They (leasing companies) have been doing a lot for the economy as I said, but again, challenges are still there. Basically, like every other business, we require appropriate environment to grow. Necessary environment has to be put in place for the lease to thrive like any other business venture. The issues we are facing now is in the area of taxation, inadequate regulatory framework. The existing regulation is not strong enough. We still rely on the old laws that we received from the British people in the 1900, so they are not strong enough to really measure with the certification level which leasing industry has attained in the recent past. Yes, there is supposed to be a contract, but there are some technicalities. The legal aspect of leasing which we have been talking about is not clear enough. So, these are things which are very timely and what has been happening is that there has been uncertainty in the industry which in most cases has cost a lot of losses for our members. There is also default in the industry. You find out that it is easier for somebody to come and take equipment from you, but when he wants to meet his obligation, you hear all kind of stories. So, default is still a major problem.
Is there no way of seeking redress?
Yes, you can seek redress. That is part of the challenges we have been talking about. You seek redress in normal court processes which in most cases are very cumbersome, and in most cases you see the lessee going to the court to get frivolous judgment against you. Sometimes, your asset would be kept in court premises for several years before the case is over. Unlike other climes which you can even possess a whole aircraft within 30 minutes once all those procedures are there. That's what we are canvassing for: appropriate regulatory framework. Like the leasing we are talking about, there are provisions there that has to do with the steps you need to take, in case you want to recover your assets. So, it is both protective for the lessee and the lessor. Apart from taxation and regulatory issues, there is also the problem with VAT which is paid at the time the asset is being purchased and is paid again when it is leased out.
To what extent have government and its agencies been addressing these challenges?
The regulatory authorities have been listening. But given the impact and the level of sophistication leasing has attained, we deserve more attention. They have been engaging the FIRS on tax issues to look at some of those issues, but more still needs to be done.
What is the future of leasing in
The future is good. You see, no matter the state of the economy, leasing thrives whether in good or bad time. You find out that the capital formation in the economy is not all that good to make any meaningful economic development. We need capital to really move. Every sector of the economy needs capital, especially the SMEs (small medium enterprises), now they call it MSMEs (micro, small, medium enterprise). That is why leasing has been regarded as the last resort for those kind of businesses because they do not involve collaterised form of asset financing. So, it is easier for the SMEs to have access to equipments for productive ventures. In an environment which the cost of assets is high, leasing easily comes to the rescue because you can acquire that asset, use and pay gradually. In good time when the economy is good, you still require leasing to expand your capacity. In building infrastructure for instance, leasing is key. Leasing has to do with the smallest items to the biggest items such as aircraft, oil rigs, exploiting equipments, ships e.t.c.
What target is the association setting for the industry?
We are targeting to make leasing a household word. The level of enlightenment is still average. That is what we are doing for now to promote awareness in leasing. There are great opportunities for leasing. For the lessee, as a major tool to build the economy. In US for instance, leasing attracts about 30 per cent of capital investment in the economy. in
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