Equipment Leasing In Nigeria; Problem And Prospects

Project and Seminar material for Banking and Finance

Project and Seminar material for Banking and Finance


This paper is written in anticipation of the enactment of a leasing law in Nigeria. It suggests that laws relating to easy repossession of assets in event of default, capital allowances, value added tax, withholding tax and other tax incentives, should be enacted or refocused if leasing is to be made more attractive. For such laws to have any meaningful impact, however, Government must also work towards putting in place a conducive social and economic environment for conducting the business of leasing. In this regard, Government should move to check inflation and corruption, and improve the workings of its legal system.

Chapter One

1.0 Introduction

In an economy, there are different type/sizes of industries, commercial and agricultural firms, their sizes can either be small, medium or large-scale business and when they are all put together they contribute to the economic growth. These firms rely on both internal and external finances to carry out their business decisions.

Internal financing can either be from retained earnings or sale of shares, or from security market etc. bank loan are not readily or easily available to small or medium scale enterprises and for this enterprise to carryout their investment plans, it is at this point that LEASING PHENOMENON comes in, the leasing companies offers these firms a flexible financing plans for their capital equipment.

According to Buge (1980) “Leasing is a rapidly growing financial tool that is providing financial administrators with a convenient, simple and highly successful answer to the pressing problem of raising enough capital to finance rapid growth plans by leasing everything including office equipment or by converting currently owned assets into cash through sale and lease back. The modern financial executives can unlock the long term funds invested in plant and create working capital that can be directed into more effective point generation at a longer rate of return.

Leasing is defined as “A contract between a lessor and lessee for the hire of a specific asset(s) selected from a manufacturer or vendor of such assets by the lessee”.

Leasing has been modernalised to movable goods and equipment. Leasing in Nigeria started in the 1960’s when British companies were doing cross border leading or off-shore leasing for their Nigerian subsidiaries – Baithworth Finance Limited (BFN), Nigeria Acceptance Limited (New Nal-Merchant Bank) and UDT Linuted (which later metamorphosised into Nigeria Merchant Bank) Pioneered the business.

1.1 Statement Of Problems

Unlike many developed nations, leasing as a means of finance in Nigeria is new. Leasing practice in the United States of America dates back to 1877. While in Nigeria it started during the pre-independence period when equipment was leased directly through gross border lease arrangement by British leasing companies. For the fact that the idea of finance by leasing has not been fully appreciated by Nigerians, the following problems are to be resolved.

  1. Nigerians are yet to appreciate the role which equipment leasing plays in industrial development.
  2. Nigerians are also yet to discover that leasing is also an alternative to bank loans
  3. Insufficient experts on leasing who can properly evaluate it towards growth of the industry.
  4. Nigerians have not been able to consider the cost/benefit analysis of leasing arrangements.
Ways Of Prospect
  1. Equipment leasing in Nigeria can be better off by employing more techniques on its evaluation.

1.2 Purpose Of Study

The aim of this study is to find out the efficacy of lease financing as a source of funding in Nigeria. The objectives include:

  1. To examine the volume of projects funded through lease financing by banks in Nigeria
  2. To assess the overall result of lease financing as a source of funding projects.
  3. To determine if banks in Nigeria should jettison or enhance lease financing in their service portfolio.
  4. To suggest ways of ameliorating the problem that has hitherto inhibited leasing financing as a source of funding.
  5. To make recommendation to financial authorities in Nigeria on ways of promoting and improving funding through lease financing.

1.3 Significant Of Study

From all intent and purpose, this research work is of great significance due to the following reasons.

  1. Creating awareness of the nature of equipment leasing in Nigeria.
  2. It will also educate on the various ways by which equipment leasing is operated in Nigeria.
  3. The problem and prospect of equipment leasing especially in John Holt.

1.4 Limitation Of Study

In the process of carrying out this research there were lots of constraints encountered both natural and man made, the research was a success after much stress.

Among this constraints were time factor, financial constraints, incomplete information given out by the management in fear that it will be used against them by their competitors. Uncompromising and biased information for fear by the out come of the disclosure.

At the time of this research, there were problems in the cost of transportation due to lack of money, this research was also restricted due to bad road caused by rainy season.

1.5 Research Hypothesis

  • Hi: Equipment leasing in Nigeria has no problem as an alternative finance option.
  • Hi: There are prospects for equipment leasing in Nigeria as a finance option.

1.6 Scope Of Study

This study covers the problem and prospects of equipment leasing in Nigeria. The study covers John Holt as the case study. Principally, emphasis will be placed on Equipment leasing in its wholistic perceptive.

1.7 Definition Of Terms

Leasing as a specialized area, has its own terminologies like other specialized areas, and here are some of the terms used:


A contact between the lessee (firm) and the lessor (owner) for the hire of a specific asset selected from a vendor or manufacturer by the


Ownership is retained by the lessor while the lessee enjoys quite possession and use of the asset on payment of a specific rental over a given period.


This is the owner of the leased equipment. He provides the equipment for use by the lessee who pays rental as specified in the lease agreement.

Lease Underwriter:

A leveraged lease in which a lease assumes the risk of underwriter commits firmly to enter and assume the risk of arranging the debt.

Leverage Lease:

A lease in which the lessor borrows a portion of the purchase price of the leased equipment from institutional investors.

Capital Lease:

A lease which is structured in form of a hire purchase agreement whereby the ownership of the asset is transferred from the lessor to the lessee at the end of the term.

Consortium Lease:

A lease package whereby a number of lessor usually pool resources together to purchase an equipment because of its high cost and potential risk.

Direct Lease:

A lease in which the lessor provides the whole of the purchase price for the leased asset from its own resources including any borrowing from which the lessor is principally liable.

Financial Lease:

A lease in which the lessor recovers the full cost of the equipment, other cost/charges and a margin profit during the basic period of the lease.

Inception Of Lease:

Date of the lease agreement or commitment or date of completion of construction or acquisition of lease property by the lessor which ever is later.

Basic Period:

This is the primary or initial period of the lease, which is usually less than the normal working life of the assets. It is at this period that the lessor expects to recover the capital cost of the equipment, either costs and interest.

Chapter Five

5.0 Summary, Conclusion And Recommendation

5.1 Summary

With the increasing effect of inflation and dearth of foreign exchange in Nigeria, acquisition of capital assets have become relatively difficult for companies and individuals, basically because of increasing cost of such capital assets, firms therefore have to find a unique alternative of obtaining the use of necessary equipment in order to continue their operations uninterruptedly. This is one area where equipment leasing has come to play a vital role as an alternative finance option in Nigeria. It has become very popular in recent times. Essentially, leasing like the researcher explained, involves the use of capital assets owned by someone else (the lessor) to conduct business in return for payment of periodic fee called rental.

In fact one will not be making a mistake by saying that the essence of leasing is the optimization of productivity and efficiency. It creates wealth, enhances growth, keeps the wheel of the economy in motion and stimulates the markets as more of the recently established merchant banks joined the fold.

Although leasing plays these roles especially towards the industrial development in Nigeria, one thing is sure all these could not be achieved on a platter of gold. Leasing in Nigeria is not without problem, some of the problems are:

  1. The general lack of awareness of leasing development in Nigeria as the merchant banks and other lessor are yet to device proper means of propagating their activities of the business.
  2. The range of equipment available for leasing is quite limited as most lessee complained during personal interview with them.
  3. It was also observed that the lease condition stipulated by the lessor are no better than borrowing terms. Some complained of very exorbitant lease premiums. Infact, one of the officials (name withheld) specifically told me that in any lease arrangement, it is the lessor that gains.

There are some findings and observations made in most business. Most admitted that leasing is very good but complained that the way it operates in Nigeria coupled with the dubious nature of some Nigerians has made this financing remain neglected.

5.2 Conclusion

The entire study has been appraising the problems, prospects and the entire role of equipment leasing as an alternative finance option in Nigeria. In the first instance, the problems that prompted the study were enumerated and following from these was the objective of the study.

Leasing as practiced in Nigeria was reviewed and business enterprises stated to ascertain their views. The researcher got first hand information from the administration of questionnaires to many respondents and also from the interviews held with some officials. They expressed their views both orally and on paper and with these, the researcher was able to carry out some analysis and draw inferences. Some of the respondents were against leasing since according to them, it is not profitable in the long run. However, many of them is extolled the virtues of acquiring assets through lease than outright purchase. Since many of these business favour leasing especially during these hard times, but for one reason or the other could not employ it, something need to be done to remedy the situation. And it was in the light of this that the researcher advanced his recommendations which he believes if adopted would go a long way in improving the present situation of things. Thus, the researcher points that leasing has very bright prospects in Nigeria if the government, the lessor and lessees themselves could join hands together to see that the recommendations see the light of the day. Failure to implement some or all of these recommendations leaves the future of leasing in Nigeria quite gloomy.

5.3 Recommendation

Since leasing could play such an important role as an alternative finance option in Nigeria but still faces these problems, the researcher thus advance the following recommendations.

  1. The lessor in the country should device more efficient means of advertising their activities including leasing to the business community. This is to create the much-needed awareness and possibly improve the patronage attached to leasing and not leaving everything to Equipment leasing association of Nigeria (ELAN) to do.
  2. The range of facilities offered for leasing should be further widened to accumulate the needs of most entrepreneurs especially those operating in the private sector of the economy. In essence, government should consider opening the ways for the entry of indispensable capital items needed for our rapid economic growth.
  3. The business houses should employ sound and properly educated financial managers who must be versatile and aggressive as to be able to explore the various sources of finance open to their organizations. In addition to knowing these various sources of finance, these managers should be able to evaluate these financing option with a view to making some near optional financing decisions.
  4. The lessor should soften considerably the lease conditions so that leasing would become quite attractive for the business entrepreneurs in the country.
  5. Government grants and capital allowances on leased facilities should be worked out in such a way that the present and potential lessees could see a lot of benefits derivable from employment of leasing.
  6. More finance houses and development companies like Heritage Finance Limited, Fezel Finance and Investment Limited should launch themselves into the leasing business in order to introduce some element of competition thereby generally improving the lease terms of lessor, current and potential investors.
  7. Finally, current and prospective lessees should reciprocate the kind gesture by handling the leased facilities quite carefully, paying the lease premium as and when due and returning the facilities at the expiration of the lease period. Anything short of this might make the lessor go tougher with their lease term in future.

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