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January 2016
Briefing
Financial leasing
in Tanzania
In this months finance update, we provide an
overview of the Tanzanian financial leasing industry
from a legislative and regulatory perspective.
Financial leasing is a situation where one party, the lessor, buys an asset from
a supplier, usually under a supply agreement (Supply Agreement) and leases it
to another party, the lessee, under a financial lease agreement (the Agreement).
In practice, the lessee pays regular (usually monthly) instalments equivalent to
the full value of the asset over the term of the lease plus a return on capital to
the lessor.
Legislation in Tanzania
There are two main laws regulating financial leasing in Tanzania:
a. The Financial Leasing Act 2008 (the Act)
b. The Banking and Financial Institutions (Financial Leasing) Regulations 2011
(the 2011 Regulations)
The Act provides the legal framework for regulating financial leasing operations
in Tanzania. Although the principal legislation is the Act, the 2011 Regulations
were not made as subsidiary legislation to the main Act, they are however relied
upon by entities conducting financial leasing operations in Tanzania.
The Act
Application
The Act specifically states that it shall apply to any financial lease of an asset if:
a. the asset is within Tanzania;
b. the lessees centre of main business is within Tanzania; or
c. the Agreement provides that Tanzanian law governs the transaction.
The Act recognises that under the Agreement, the lessor leases an asset to the
lessee in exchange for money consideration (usually in the form of periodic
payments) for purposes of the lessees business operations. In practice, one will
find that not all financial leasing arrangements in Tanzania are entered into by
the lessee for purposes of the lessees business operations, in some situations, the
lessee leases the asset for personal reasons (eg leasing a power generation tool in
order to electrify a home).
Rights, obligations and duties
A lessor has the obligation to grant the lessee quiet enjoyment and possession
of the leased asset. The liability of the lessor for the defects in title to the leased
asset shall not be limited under the Agreement.
In circumstances where the leased asset is not delivered to the lessee, the lessees
obligations under the Agreement shall be suspended. Upon the occurrence of
such an event, the lessee may:
Application
The 2011 Regulations apply to all financial leasing
operations (except micro leasing operations) made by
banks, financial institutions or their subsidiaries and
financial leasing companies (the Companies). Micro leasing
operations are classified under the 2011 Regulations as
all of the finance leasing operations with the following
characteristics:
a. where the average value of the asset in the portfolio is up
to Tshs 10 million; and
b. where the leasing term is short-term and not exceeding
24 months.
Eligibility
An entity may not engage in financial leasing operations
unless it has a licence issued by the Bank of Tanzania (BoT).
In practice, banks and financial institutions already licensed
by BoT under the Banking and Financial Institutions Act
2006 may engage in financial leasing.
Application process
Every applicant shall submit to BoT an application for a
licence in a manner prescribed in the schedule under the
2011 Regulations. There are several documents required
at a minimum to be accompanied by the application,
these include:
a. A copy of the memorandum and articles of association
and authenticated legal documents authorising the
signatory
b. Description of accounting system and communication
technology in use or to be used
c. Number of employees, job descriptions of senior
management positions and an organisation chart
d. Description of internal control procedures
e. Narrative description of shareholders, board members
and senior management
f. Business plan and financial projections in accordance
with the guidelines provided for under the 2011
Regulations
g. Policies and procedure manuals establishing that the
Company will operate in a manner consistent with
international best practice
An application for a licence shall be submitted together with
a bankers cheque of Tshs 3 million or any other amount as
may be determined by BoT from time to time. This is a nonrefundable application fee.
Further information
If you would like further information on any issue
raised in this update please contact:
Peter Kasanda
Partner, Dar es Salaam
T: +255 767 850 056
E: peter.kasanda@clydeco.com
Michaela Marandu
Associate, Dar es Salaam
T: +255 767 850 094
E: michaela.marandu@clydeco.com
Salim Bharwani
Associate, Dar es Salaam
T: +255 767 850 052
E: salim.bharwani@clydeco.com