LEASING AS A FORM OF FINANCING

CHAPTER   ONE

INTRODUCTION

1.6            BACKGROUND OF THE STUDY

Lease is defined as an agreement where by the lessor conveys to the lessee in return for rent the right to use an asset for an agreed period of time.

Most writers believe that equipment leasing started in 1977, the year that bell telephone first rented in the united state. It is however clear from history and decided cases in the British House of Lords that there were some form of leasing in the 1930’s and 1804’s in Great Britain.  There was however, no organized leasing business in Great Britain until 1960 when financial leasing was junded in the city of London as a new method of business finance.

In Nigeria, leasing is a little more 24years in existence.  In the early days of independence, prior to the incidence of exchange controls in 1967, some equipment were leased to Nigerian lessees directly by British leasing company, following the imposition of stringent exchange control measures period which were necessary for conserve the countries foreign exchange reserves, this type of off-shore leasing arrangement was no longer possible.

1.7            STATEMENT OF PROBLEMS

Despite the enviable prospects of equipment leasing, it is still faced with some problems, which are of great concern to me, and one of the reasons for embarking on this project.  The problems include:-

1.                 The absence of any legislation of specific codes of the operations of equipment leasing in Nigeria.  Because of this the ELAN is proposing in leasing decree to form an integral part of the industrial policy for the country.

2.                 The absence or lack of any specific pronouncements on the tax treatment and uniform accounting standard for lessees.

3.                 The astronomical cost of equipment being leased due to the devaluation of the Naira.

4.                 The current restrictions on the total capital allowance climbable and method of determination of such claims.

5.                 The “Thinking out” of trained and experienced personnel is the problem of instability of economy.  Equipment leasing is a risky business and so can only be Lucrative when the economy is buoyant and stable.

1.8            OBJECTIVES OF THE STUDY

(1)             The research work will aim at finding out if equipment leasing has sufficiently contributed to corporate finance.

(2)             The study will as well try to find out the benefits of equipment leasing.

(3)             Also the research work is aimed at finding out the problems and prospect of equipment leasing both now and in the near future.

(4)             Whether there is need to fix actual percentage of commercial bank fund to equipment leasing.

1.9            SIGNIFICANCE OF THE STUDY

We are aware of several suggestions about why a company should lease equipment rather than buy it.  So of the reasons are sensible while some are not, at the end of the day a company should take a financing decision that optimizes shareholders value.

Actually, a lot has not been known of equipment leasing in Nigeria thus it is not very popular and still in its infancy despite the fact that the merchant banks under ELAN have in their lease portfolio N1 billion.