THE ROLE OF EQUIPMENT LEASING IN CAPITAL MOBILIZATION AND ACQUISITION TO LESSEES AS WELL AS TO LESSORS
1.1 Background of study
1.2 Statement of the problem
1.3 Objectives of study
1.4 Significance of the study
1.6 Scope and Limitation of the study
2.0 REVIEW OF RELATED LITERATURE
2.1 Nigeria leasing Industry
2.2i Banks as Lessors
2.2ii Merchant Banks
2.2iii Commercial Banks
2.2iv Other finance Companies
2.2v Other Lessors
2.3 Types of Lease Contracts
2.4 The leasing transaction
2.5 Management of Leasing
2.6 Tax implications of leasing
2.7 Evaluation of a leasing
2.8 Lease V.S Buy decision
2.9 Who lease and what can be leased
2.10 Advantages and disadvantages of equipment leasing
2.11 Insurance for leases contracts
CHAPTER THREE: RESEARCH DESING AND METHODOLOGY
3.1 Outline of chapter
3.2 Sources of data
3.3 Primary data
3.4 Secondary data
3.5 Population of study
3.6 Sample size
3.7 Data collection system
4.0 Presentations, Analysis and Interpretation of Dats
4.1 choice of capital Acquisition through equipment leasing
4.2 Degree of awareness
4.3 Interpretation of analysis
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMENDATIONS
1.1 BACKGROUND OF STUDY
Investment proposals and decisions by business entities and individuals could evolve due to certain reasons.
These include decisions concerning the following;
(a) New products or expansion of existing product
(b) Replacement of equipments or building
(c) Exploration and others
These decision involve huge capital expenditure on capital investments. Therefore, for any of them to be meaningful there must be decisions on the sources of such huge capital fund
In Nigeria apart from privately or personally financed investment projects, various other identifiable sources of finance exist. These include retained earnings (internal sources) Launding / donaton banking and non – bank financial institutions etc.
Funds obtained from financial and non – bank financial institutions could be in the form of loans and overdrafts. These be used for outright purchases of the needed capital investment, machineries and equipment or as working capital, where funds are not readily available for outright purchases, or where there is need to save the available funds for investments in more profitable assets / ventures, or for other reasons, other alternative means such as leasing could be employed.
According to the Advance Learners Dictionary of current English, leasing is:
A contract or agreement by which one person the lessor, aggress to allow another the lessees, the use of land and building for a certain period of time usually in return for money payment called rent.
This definition tends to infer that only Land and building are Leasable. This is untrue as many other things can be leased. In the words of Okeke, J.R. one gets the land building but recent events have proved in the business world at large the philosophy of leasing has been extended to other categories of fixed assets.
Equipment leasing can also be defined as a contract between a lessor and a lessee for the live of a specific asset select from a manufacturer or vendor such an asset by the lessee. The lessor retains ownership of the asset. The lessee has possession and use of the asset on payment of specific rentals over a period
Leasing there, occurs when a person or entity obtains the use of an asset without acquiring ownership. Ownership remains with the lessor, the lessee has a contractual relationship with the agreement to pay a specified rental fee for the use of the assets.
Many people see equipment leasing as being the same as other forms of installment payments including hire purchase. This is not correct. Hire purchase is:
A contract of hire paid by installments under which the hirer may become the owner of the goods if he completes payment of hire purchase.
In hire purchase therefore, ownership remains with hirer on use, while in equipment leasing, ownership is divorced from the user or lessee.
Leasing has a rich and Lengthy history. The earliest records are those of transactions occurring some time before 200 B.C in the ancient Sumerian city of our, and according to the lease documents as found in the clay tablets in 184 showed recorded transactions to have ranged from leases for agricultural tools. Land and water rights, to oxen and other animals
In Nigeria, the first recorded equipment leasing activity occurred during the early 1960’s when equipment leased to the Nigerian lessees by off – shore united kingdom leasing companies. Since the, the rate of growth of equipment leasing activities has been at a snail – slow speed until recently.
The reason for this unimpressive growth could be due to:
Lack of awareness
The exclusive preserve of the business to a particular group of financial institutions (merchant bankers) by the banking (amendment) Act. 1979 until recently,
The existing regulatory control on interest rates and the foreign exchange regime;
Ownership factor was being rated above the availability of use of assets;
Little or no interest shown in investment and manufacturing by our business man and other investors.
However, the economic reforms and programmes as pursued by federal military government are yielding some dividends.
Emphasis has shifted from the time hionoured import and / or backward integration. This, therefore, accounts for the increase in investments in the manufacturing sector of he economy, and the corresponding increase in the demand for machines and equipment through asset financing methods.
Unfortunately, there has been this problem of capital inadequacy.
This could be due to: the high interest rates associated with bank Loans in general, non – availability of foreign exchange for the importation of the required machineries and equipment and even when the foreign exchange is available, high exchange rate militates against its affordability by the investing public
To alleviate these problems, grater awareness in leasing as an alternative means of obtaining and suing the needed nearly equipments and machines for operations without outright purchase or cash outflow is being pursued for example on June 29th, 1983, six Nigeria Merchant bank formed the equipment leasing association of Nigeria (ELAND) which has its objectives.
The promotion and protection of interest of members of the association in the exercise of their business as equipment lessors membership of this Association of lessors was deregulated. For example, according to the central Bank of Nigeria (CBN) monetary, policy Guide line for 1990 fiscal year, commercial banks can now engage in the equipment leasing business.
1.2 STATEMENT OF THE PROBLEM
Nigeria as a developing nation has ample opportunities for investment in new project more than ever before. The deregulation of the economy brought in its wake a myriad of economics reforms such as the structural Adjustment programme (SAP) of 1986 and the establishment of such government agency like the natural economic reconstruction fund (NERFUND) in addition to equipment leasing in the 1990 National Budget, all in a bid to make fund available to investors.
However, there has been constraints towards the realization of the objectives for which equipment leasing was introduced in Nigeria as a means of asset financing. These constraints arose from the lack of awareness of what equipment leasing is all about and the impression given by government initially that the business is restricted to a particular segment of Nigerians. The merchant bankers by the banking (Amendment) Act. 1979. When in the 1990 National Budget the scope was widened to include the commercial banks, this later group was impeded by the credit ceiling constraint which was retained at its 1989 level of 13.2% although it was further expanded in the 1992 budget from 13.2% to 16.0 % and since then it has enjoyed considerable increase till data.
Also to be considered along with the above are such other military factors as death of sufficient lessors to make significant impact in the economy and the difficulty of denitrifying them. Every equipment for such leases was invariably imported with very foreign exchange content and high rate of exchange as very few of such equipment were locally fabricated. Also imported are the raw materials, spare parts and technical expertise. Other factors include the case with which the Nigerian businessmen could access other types of financial alternatives as well as the regulatory control on interest rates and the foreign exchange regine. This was also the acuts scarcity of Loan able finds in the economy and the high cost of available finds.
The big question now is – should we shun the present efforts of the federal Government to increase the tampo of investment and local manufacturing in favour of our times honoured distributive trade? If the answer is No, what should then be done.
In the researcher’s opinion, an alternative means of assets financing should no only be sought but also encouraged to grow. This is where equipment leasing comes to mind and very hardy as a means of asset financing.
Having identified this, other questions such as here under may naturally arise.
Has the Nigeria investor accepted equipment leasing as a way out in the face of the scarcity of loanable fund?
What are the advantages and disadvantages of Leasing to all parties concerned?
Has equipment leasing come of age an alternative/competitive source of capital saving / assets financing in Nigeria?
1.3 OBJECTIVES OF STUDY
This study is aimed at achieving the following:
Creating greater awareness in the role of equipment leasing in capital mobilization and acquisition to lessees as well as to lessors.
Making people to know that equipment leasing a more profitable means of assets financing them the other known traditional sources of capital formation.
Making investors to prefer equipment leasing as their choice for assets financing.
1.4 SIGNIFICANCE OF THE STUDY
Few studies have been carried out an equipment leasing and none has actually focuses its attention on whether or not it has taken its rightful place as a means of assets financing in the face of high cost and for scarcity of Loanable finds, scarcity of foreign exchange and the Unmitigated high exchange rate of the naira.
It is important, therefore, that the researcher appraises the role of equipment leasing as a means of debt financing which provides for the effective acquisition of assets. The appraisal will be Largely done by a careful study of the amount of volume of funds committed towards equipment leasing over the years by a sample of lessors as contained in the records of equipment leasing association of Nigeria (ELAND)
Furthermore, the appraisal will focus on and unfold all hither to dormant aspect, advantages of equipment leasing in asset financing.
This will go a long way in creating greater awareness on equipment leasing in asset financing.
The investing public most of whom are ignorant about equipment leasing its roles in asset or debt financing without outright commitment of cash.
The lessors who will now know how best to package and market their product on equipment leasing.
The lessees who will now know where and how to finance outlay on their required machines and equipment.
The scholars and other researcher who might want to conduct further researcher into other aspects of equipment leasing. In total, the general public will no doubt benefit immensely because the long – term effect of achieving the above enumerated will, be a chain reaction leading to industrial development, increase Locally manufactured goods and services, reduction in Unemployment and inflation and other advantages accruing to a development economy.
To achieve the objectives of the study, the following hypothesis are made:
- Equipment leasing is a means of asset financing in Nigeria
- The role of equipment leasing in asset financing is receiving encouragement as well as patronage from prospective Nigeria investors.
- Lack of highly trained personnel on equipment leasing does not affect the efficient management of equipment leasing in Nigeria.
- The foreign exchange regine by the central Bank of Nigeria did not affect adversely equipment leasing business in Nigeria.
- SCOPE AND LIMITATION OF THE STUDY
With the recent growing emphasis on the role of equipment leasing as tool for asset financing. It becomes pertinent that the extent to which this has been achieved can be appraised. Because of averseness of the topic equipment leasing as a tool for asset financing. The researcher will restrict herself or focused on creating awareness on equipment leasing asset financing with a case study of ministry of agriculture.
In the process of carrying out this research work on asset financing, concrete efforts were made to arrive at logical conclusion.
However, the work was subject to certain limitations
- TIME: The time for the study is so short and it is not really easy to combine class academic work and a fieldwork. It is carried under time constraints, which has minimized the extent to which this types of research work held has been carried to a more meaningful conclusion.
- Lack of availability of statistical data also pose it own problem, even when the data is available it will relate to out date information.
- Financial constraint is another limitation to this work, which is as a result of high cost of transportation fare to various library to gather data, cost of material to carry this work to a conclusive standard was equally exorbitant.
- Van Horue J.C. Financial management and policy prentice
Hall international Inc. Englewood Chiffs.
N.J U.S.A.1974 P.103
- Hor by A.S. Oxford Advanced Learner’s Dictionary Oxford
Unvisited press London 1972 P.487
- Upper J.K Asset financing Hawkers publishers Limited
28florence Road New cross England 1976 P. 43
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