‘A critical analysis of the leasing industry in the formal sector of Ghana” - a case study of some selected economic units in the Accra and Kumasi Metropolis
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Date
2001-12-12
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Abstract
Over the past years, little capital has been available to finance most investments in Ghana. As a result there was the need to find new sources of financing for local industries. Another concern was the growing many small and medium scale enterprises springing up in the country whose sustenance will depend on the availability of capital to acquire the necessary equipment for the activities.
One source of financing which have not been sufficiently explored was lease financing. Leasing is fundamentally a legally stronger form of equipment financing than a pledge of equipment purchased with loan proceeds.
The leasing business has been available in the country for a very long time. However, before the introduction of formal leasing by Merchant Bank (Gh) Limited, leasing in Ghana was basically limited to the informal sector through the acquisition of land. Even now, the interest one can acquire in land in Ghana is the leasehold interest. The English Common Law and the Customary Law still governs this informal type of leasing in the country. It was after 1993, when the Financial Institutions (Non-Banking) Law was passed that, formal leasing activity started to flourish in the country.
Although leasing, as compared to lending funds to purchase an asset and taking a pledge for the purchase asset, offers the legal advantage that the lessor will have a clear contractual right to repossess the leased equipment, an impediment to the growth of leasing has been the practical and perceived inadequacies of legal options available to lessors’ in the case of default and other inadequacies in the present law governing leasing.
Since leasing should proved to be a growing flexible and promising means of financing the acquisition of many types of equipment needed by Ghanaian industries and entrepreneurs, there is therefore the need to strengthen the industry in Ghana. It is believed that when the industry is well established, there will be a ripple effect of related development with each subsequent impact being more widespread and powerful than the previous. These ripple effects include:
• More SME’s can now access financing;
• The industry grows rapidly as lessors gain experience and potential borrowers come to undertake leasing;
• Increase competition will stimulate new product development (leasing to new sectors, cross-border leases and so on);
• Private investment in capital equipment will increase;
• The leasing companies will help develop the capital market. On the asset side, they introduce small and medium businesses that previously relied on informal financing, supply credit and internal cash generation to formal financial markets. They also increase financing options for larger companies. On the liability side, leasing companies’ efforts to mobilize client and equipment help deepen and broaden domestic capital markets since they mobilize debt by borrowing from banks and other financial houses, issuing bonds or other marketable instruments and also by securitizing their lease receivables.
It is our belief that leasing can help Ghana achieve its status of middle-income country by the year 2020. In view of this, it is the hope of the author that the suggestions of the study would be considered as tools for policy making and improvement of the leasing industry in Ghana.
Description
A thesis submitted to the School of Graduate Studies,
Kwame Nkrumah University of Science and Technology in partial
fulfilment of the requirements for the award of Master of Arts in Industrial Management, 2001