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.
- Nigerians are yet to appreciate the role which equipment leasing plays in industrial development.
- Nigerians are also yet to discover that leasing is also an alternative to bank loans
- Insufficient experts on leasing who can properly evaluate it towards growth of the industry.
- Nigerians have not been able to consider the cost/benefit analysis of leasing arrangements.
Ways of Prospect
– 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:
- To examine the volume of projects funded through lease financing by banks in Nigeria
- To assess the overall result of lease financing as a source of funding projects.
- To determine if banks in Nigeria should jettison or enhance lease financing in their service portfolio.
- To suggest ways of ameliorating the problem that has hitherto inhibited leasing financing as a source of funding.
- 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.
- Creating awareness of the nature of equipment leasing in Nigeria.
- It will also educate on the various ways by which equipment leasing is operated in Nigeria.
- 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:
Lease:
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
Lessee:
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.
Lessor:
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.
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