Financial Leasing In Tanzania

In this month's 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:

1. 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:

1. the asset is within Tanzania; b. the lessee's 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 lessee's 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 lessee's 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 lessee's obligations under the Agreement shall be suspended. Upon the occurrence of such an event, the lessee may:

1. request that the Agreement be fulfilled and that a penalty be paid; or b. demand that the Agreement be terminated with the lessor paying any...