Public Disclosure Authorized - World Bankdocuments.worldbank.org/curated/en/592081468253463092/pdf/402550GH0... · Most of the analysis, focuses on all lessors, bank and non-bank

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MIFc I I"'""""""' Finance Corporation

LEASING IN GHANA

A survey of the leasing market in Ghana May 2006

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ABBREVIATIONS

BoG Bank of GhanaFINSSP Financial Sector Strategic PlanMTOs Money Transfer OrganisationsNBFIs Non-Bank Financial InstitutionsRCBs Rural and Community BanksPEP Africa Private Enterprise Partnership for AfricaGDP Gross Domestic ProductGCNet Ghana Community Network

LIST OF STATUTES, REGULATIONS & NOTICES REFERRED TO

Bank of Ghana Act of 2002, (Act 612)Banking Act, 2004 (Act 673)Bodies Corporate (Official Liquidations) Act, 1963 (Act 180)Companies Code, 1963 (Act 179)Financial Institutions (Non-Banking) Law, 1993 (PNDCL 328) as amendedFinance Lease Law, 1993 (PNDCL 331)Hire Purchase Decree, 1974 (NRCD 292)Home Mortgage Finance Law, 1993 (PNDCL329)Internal Revenue Act, 2000 (Act 592)Internal Revenue Regulations, 2001 (L.I. 1675)Mortgages Decree, 1972 (NRCD 96)Mortgages (Amendment) Decree, 1979 (AFRCD 37)

SUBSIDIARY LEGISLATION

Bank of Ghana Business Rules for Non-Deposit Taking Non-Bank FinancialInstitutions (NBFIs)

Ghana Leasing Survey International Finance Corporation

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TABLE OF CONTENTS

BACKGROUND TO THE GHANA LEASING SURVEY v

Data Sources vii

Other Products viiExclusion of Bank Lessors in Some Analysis vii

COUNTRY OVERVIEW viii

PART ONE: MARKET REVIEW 1

1.0 EXECUTIVE SUMMARY 1

2.0 INTRODUCTION 32.1 Types of Leasing Operators 3

2.2 Ownership Structure 4

3.0 GROWTH IN THE LEASING SECTOR 6

3.1 Growth in Volume and Value 6

4.0 FUNDING 8

4.1 Sources of Loans 9

5.0 POTENTIAL DEMAND FOR LEASING 10

6.0 OPERATIONS 12

6.1 Types of Assets Financed 126.2 Average Lease Duration 12

6.3 Average Lease Size 136.4 Sectoral Distribution of Leases:

(All Lessors except Ecobank Leasing) 136.5 Regional Distribution of Leases 13

6.6 Types of Products 14

7.0 OBSERVATIONS 15

8.0 RECOMMENDATIONS 17


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PART TWO: LEGISLATIVE REVIEW 19

1.0 LEGAL AND REGULATORY REGIMEAFFECTING LEASING 19

1.1 Legal and Regulatory Framework GoverningMarket Entry 20

1.2 Legal definition of a Lease 21

1.3 Legal and Regulatory Framework affectingLeasing Operations 24

1.3.1 Eligible Assets 241.3.2 Parties to a Lease 24

1.3.3 Scope of Finance Leasing 241.3.4 Restrictions on Operations 25

1.3.5 Financing of Operations 251.4 Review of Prudential Guidelines affecting

Leasing Companies 251.5 Rights and Obligations of Parties to a Lease 27

1.6 Insolvency/Bankruptcy of Lessee and theRights of the Lessor 29

1.7 Leased Asset Registry 30

2.0 ACCOUNTING AND TAX FRAMEWORKAFFECTING LEASING 31

2.1 Laws Governing Preparation of FinancialStatements for Leasing Companies 31

2.2 Accounting Principles and Treatment ofLease Transactions 31

2.2.1 International Accounting Standard 312.2.2 Ghana Accounting Standard 32

2.2.3 The Internal Revenue Service 322.2.4 The VAT Office 322.2.5 Accounting Treatment of Leases 332.2.6 Accounting for Leases in the Financial Statements of a Lessee 33

2.2.7 Accounting for Leases in the Lessor’s Books 342.2.8 Accounting for Sale and Leaseback Transactions 352.2.9 Applicable Taxes on Leasing Operations 35

2.3 Observations 38


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3.0 KEY RECOMMENDATIONS 40

APPENDIX: LESSOR PROFILES 43

Ecobank Leasing Limited 43

General Leasing and Finance Company 45Ghana Leasing Company Limited 47

Leasafric Ghana Limited 49

Merban Finance and Leasing 51


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BACKGROUND TO THE GHANA LEASING SURVEY

The International Finance Corporation (IFC) is a recognized leader in developingthe leasing industry worldwide through its investment and technical assistanceactivities. It has approved over $1 billion in more than 100 equipment leasingcompanies globally, and has advised on leasing legislation in over 50 countries.

Leasing in its simplest form is a means of delivering finance. It is a contractbetween two parties where one party (the lessor) provides an asset (purchasedfrom a supplier) for usage to another party (the lessee) for a specified period oftime, in return for specified payments. Leasing focuses on the lessee’s abilityto generate cash from the use of the leased assets to service the lease payments.

Leasing has been shown to contribute positively to capital formation andeconomic development, particularly for SMEs. Some of its many advantagesare:

• Security – the lessor already owns the assets and so may requirelittle or no additional collateral.

• Coverage – leasing can provide up to 100% of financing needs.

• Affordability - after adding collateral, processing time and fees,leasing can be cheaper than bank credit.

• Availability - leasing is often the only source of medium-to longterm financing for SMEs.

• Flexibility – the pattern and size of the lease payments can betailored to the lessee’s needs.

IFC is undertaking a leasing development program in Ghana with the aim ofpromoting the role of leasing as an alternative financing mechanism forbusinesses in the country. This survey, undertaken between February and May2006, was commissioned by the IFC with the aim of assessing the state of theleasing industry as the program begins. It includes a market review of thefinance leasing sector up to 2005, as well as a review of the legislative,regulatory, accounting, and tax environment affecting leasing in Ghana.


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The survey was undertaken by THCLR Ghana Limited in association withLawfields Ghana Limited and J. Mills-Lamptey & Co.

The Ghana Leasing Program is being implemented under IFC’s Private EnterprisePartnership for Africa (PEP Africa). PEP Africa partners with the private sector,governments and donors to improve the investment climate, develop selectedindustry sectors, mobilize investment, and enhance the competitiveness ofAfrica’s private sector. The program is funded by seco (www.seco-cooperation.ch), the State Secretariat for Economic Affairs of Switzerland.

The State Secretariat for Economic Affairs is responsible for the formulationof Swiss policy on cooperation with developing countries. Together with theSwiss Agency for Development and Cooperation (SDC) seco determines whatpath Switzerland’s multilateral policy is to follow, mainly in the form ofcontributions made to the development countries, channeled through suchinternational organizations as the World Bank, the regional development banks,and the specialized agencies of the the United Nationas.

Seco’s objectives in economic development cooperation program are:

• To help developing countries to reach the stage of developmentmost favorable to growth and investment;

• To mobilize private sector resources as a means of increasing theflow of finance to the developing countries, as well as technologytransfer;

• To improve the productive and social infrastructure;• To achieve greater integration of developing countries in

international trade.

The IFC is the private sector arm of the World Bank Group and is headquarteredin Washington, D.C. IFC coordinates its activities with the other institutions ofthe World Bank Group but is legally and financially independent. Its 178 membercountries provide its share capital and collectively determine its policies.

The mission of IFC is to promote sustainable private sector investment indeveloping and transition countries, helping to reduce poverty and improvepeople’s lives. IFC finances private sector investments in the developing world,mobilizes capital in the international financial markets, helps clients improvesocial and environmental sustainability, and provides technical assistance andadvice to governments and businesses. For more information, visit www.ifc.org.


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DATA:

Data Sources

The following data sources were used:

1. Responses to Questionnaires2. Audited and Un-audited Financial Statements of Leasing Companies

3. Published Statistical Information4. Un-published Statistical Information (Ghana Community Network

– GCNet)5. Interviews

For most of the analysis, 2001 as a based year is used giving a five- yeargrowth trend. This is because, on the macro-economic level, the last five yearsrecorded the most stable economic rates, and on the micro level, leasingcompanies were at a more mature stage in their operations, making resultsfrom these years more reliable and incisive.

Other Products

There are about four products that are offered by leasing companies. Theseare finance leases, operating leases, trade finance and hire purchase. This surveyhowever focuses mainly on finance lease transactions since these constitutemore than 90% of the operations of the leasing companies.

Exclusion of Bank Lessors in Some Analysis

Most of the analysis, focuses on all lessors, bank and non-bank alike. However,in certain areas, the analysis focuses mainly on non-bank lessors because non-bank lessors’ operations constitute 90% of the leasing portfolio.


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COUNTRY OVERVIEW

Ghana’s population was estimated at about 18.9 million in 2000 and grows at2.7% annually. The capital is Accra, in the Greater Accra Region. GreaterAccra Region has a population of about 2.9 million. The most populated regionis the Ashanti Region with a population of 3.6 million (Source: 2000 Populationand Housing Census).

The Economy of Ghana

Ghana’s annual Gross Domestic Product (GDP) has grown at about 5.5% perannum over the past three years. In 2004, real GDP grew at 5.8%, with theagricultural sector leading with a growth rate of 7.5%, contributing 46.7% tothe overall economic growth. Cocoa was the driving force in the sector’s growthwith a 29.9% increase. The industrial sector grew by 5.1% while the servicesector grew by 4.7%, both contributing 22.1% and 24.3% respectively, tothe overall economic growth. The residual of 7.8% is attributable to net indirecttaxes (source: The State of the Ghanaian Economy in 2004).

Table 1 below suggests that since 2001, the various sectors either maintainedor saw a steady increase in their growth rates. On the average, the servicesector has dominated GDP growth trends, averaging 4.9% over the past fiveyears.


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Table 1: Sectoral Growth Rates, 1998-2004

Year/Period SECTOR

Agriculture Services Industry All

1998 5.1 6.0 3.2 4.7

1999 3.9 5.0 4.9 4.4

2000 2.1 5.4 3.8 3.7

2001 4.0 5.1 2.9 4.2

2002 4.4 4.7 4.7 4.5

2003 6.1 4.7 5.1 5.2

2004 7.5 4.7 5.1 5.8

Average

1990/94 1.1 7.0 4.1 4.3

1995/99 4.4 5.3 4.7 4.4

2000/04 4.8 4.9 4.3 4.7

Source: The State of the Ghanaian Economy in 2004, Institute of Statistical,Social and Economic Research

Within the services sector, the finance and insurance sub-sector growth rateswere consistently higher than the average for the entire sector. (See table 2below)

Table 2: Percentage Growth in Services (2002-2005)

2002 2003 2004 2005

SERVICES 4.7 4.7 4.7 5.4

Transport, Storage and Communication 5.7 5.8 5.6 6.0

Wholesale, Trade and Retail 5.6 5.0 4.9 6.1

Finance and Insurance 5.5 5.2 4.8 5.6

Government Services 3.6 4.0 4.4 5.0

Community, Social and Personal Services 4.4 4.1 4.2 4.3

Private Non-Profit Services 3.1 3.3 3.3 3.8

Source: Ghana Statistical Service/MoFEP

Annual average inflation rates have declined from 32.9% in 2001 to 14.9% in2005. In March 2006, year-on-year inflation hit a single digit (9.9%) for thefirst time over ten years.


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Table 3: Inflationary Trends

2000 2001 2002 2003 2004 2005

Average Inflation 25.2 32.9 14.8 26.7 12.6 14.9Rate%

Year–On-Year % 40.5 21.3 15.2 23.6 11.8 14

Source: The State of the Ghanaian Economy in 2004

Interest Rates have been on the decline since 2001. The Bank of Ghana Primerate has reduced steadily from 21.3% in 2003, to 18.5% in 2004 and 15.5%as at the end of September 2005. The depreciation rate of the Cedi to theDollar has been slowing down steadily over the past five years.

Table 4: Exchange Rate History

Year 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

End 1,726 2,234 2,330 3,450 7,000 7,300 8,200 8,900 9,100 9,155of Year

Source: Bank of Ghana

GHANA’S FINANCIAL SECTOR

Ghana currently has 21 commercial banks; 121 rural banks, 7 finance leasecompanies; 15 finance houses, 2 discount houses and 18 insurance companies.

Banks are governed by the Banking Act (Act 673) and Non-Bank FinancialInstitutions (NBFIs) are governed by the NBFI Law 328. There were two mainamendments in the Banking Act in 2004.

These were i) the increase in the minimum stated capital from ¢10 billion to¢70 billion and ii) permitting banks to carry out all types of banking and non-banking financial activities. Effective March 2005, NBFIs were also requiredto increase their minimum capital from ¢500million to ¢10billion.


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PART ONE: MARKET REVIEW

1.0 EXECUTIVE SUMMARY

There are seven registered leasing companies in Ghana. These are Dalex Finance& Leasing Company Ltd, Ecobank Leasing Ltd, First National Leasing CompanyLtd, General Leasing & Finance Company, Ghana Leasing Company Limited,Leasafric Ghana Ltd and Merban Finance and Leasing Company.

Finance lease operations in Ghana are broken into two distinct operators: banklessors and non-bank lessors. Leasing in Ghana is dominated by three non-bankLessors: Ghana Leasing Company Ltd, Leasafric Ghana Limited and GeneralLeasing and Finance Company. Together, these three companies control about90% of the finance leasing market in Ghana.

Between 1996 and 2005, the leasing industry (as measured by gross leasereceivables) grew by 162%. The volume and value of new leases almost doubledfrom 166 to 311 and $13.7 million to $26 million respectively between 2004and 2005.

There are four types of products offered by leasing companies, namely, financeleases, operating leases, trade finance and hire purchase. Finance leasesconstitute more than 90% of the average total operations. There are norestrictions as to the type of industry and equipment that leasing companiescan finance. There is equally, no restriction as to the size of businesses servedby the leasing industry; however, the modal range of total leases financedbetween 2004 and 2005 was under $50,000. The average lease period forleasing in Ghana is 36 months.Vehicles (passenger, haulage, earth-moving &construction) constitute about 50% of total leased assets.

Funding is a critical factor for the operations of any leasing company. Theminimum stated capital of leasing companies is currently ¢10 billion. Up untilMarch 2005, the minimum stated capital was ¢500 million. The new higherequity base will inject more funds, make leasing companies more attractive to


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banks and improve their overall financial health. Between 2001 and 2005non-bank lessors borrowed far less than their borrowing limit.

Much as the leasing sector has grown in size, the fortunes of the leasingcompanies have not. The percentage of average total costs to interest incomefor non-bank lessors over the past five years has been high, (98%) leaving avery small margin for profits.

Leasing companies would need to source the right mix of funds, to operategood information and management systems and to adopt sound credit and riskmanagement policies in order to be more profitable.


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2.0 INTRODUCTION

The finance lease law was passed in 1993; so technically, finance leasing inGhana is thirteen (13) years old, even though some of the companies wereincorporated before this time. There are currently seven registered leasingcompanies Ghana.

Table 5: Leasing Companies in Ghana, by Year of Incorporation

Leasing Company Incorporation

Merban Finance and Leasing 1978

Ghana Leasing Company Limited 1992

Leasafric Ghana 1994

Ecobank Leasing Limited 1994

General Leasing & Finance Company Ltd. 1994

First National Leasing & Finance 1996

Dalex Finance & Leasing Company 2004

Source: THCLR Survey Results

2.1 TYPES OF LEASING OPERATORS

Finance leasing operations in Ghana are broken into two distinct operators:bank lessors and the non-bank lessors.

The bank lessors are Merban Finance and Leasing Company Limited and EcobankLeasing. They are respectively wholly-owned subsidiaries of Merchant BankGhana Ltd and Ecobank Ghana Ltd. Merban Leasing is the first registered leasingcompany in Ghana. It was registered in 1978, even before the leasing lawcame into effect in 1993. However, its impact was not felt till the financelease law was promulgated in 1993.

Leasing in Ghana is dominated by three non-bank Lessors: Ghana LeasingCompany Ltd, Leasafric Ghana Limited and General Leasing and FinanceCompany. Together, these three companies control about 90% (average forfive years) of the leasing portfolio in Ghana.


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Table 6: The market Share of Leasing: Bank Lessors and Non-Bank Lessors(¢ million)

Market Share in Value 2001 2002 2003 2004 2005

Non-Bank Lessors 96,504 134,998 218,024 235,774 217,979

Bank Lessors 7,781 9,120 14,719 16,560 55,574

Total Lessors 104,285 144,118 232,743 252,334 273,553

%of Non-Bank Lessors 93% 94% 94% 93% 80%

Source: Financial Statements of Leasing Companies (Gross Lease Receivables)

Despite the more mature operating systems and access to cheaper sources offunding of the bank lessors, leasing as a specialized financing activity is moreidentified with the non-bank leasing companies.

2.2 OWNERSHIP STRUCTURE

The ownership structure of the five non-bank leasing companies is presentedbelow. All the non-bank leasing companies (apart from the newest company,Dalex Leasing & Finance and First National Leasing & Finance) have financialinstitutions as majority shareholders.


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Table 7: Shareholders of Non-Bank Lessors

Leasing Company Shareholders Percent Holding

Ghana Leasing Financial Institutions 100.00%

100.00%

Leasafric Financial Institutions 74.14%Private Individuals 25.27%Employees 0.59%

100.00%

General Leasing Financial Institutions 83.87%

Private Individuals 16.13%

100.00%

First National Private Individuals 100.00%

Dalex Private Individuals 54.50%Private Companies 45.50%

100.00%


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3.0 GROWTH IN THE LEASING SECTOR

Between 1996 and 2005, the overall portfolio size (Gross Lease Receivables)grew by 162%. The percentage for non-bank lessors grew by 126% and thatfor bank lessors grew by 614%. The results for bank lessors for 2001 and2002 are only for Merban Leasing.

Fig. 1:Growth in the Portfolio Size of the Leasing Industry (Gross LeaseReceivables)


3.1 GROWTH IN VOLUME AND VALUE

Between 2004 and 2005, the volume and value of new leases almost doubled.This could be the result of a € 9.0 million loan which the European InvestmentBank (EIB) provided for the three non-bank lessors in 2003.


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Fig. 2 Number of New Lease Agreements Signed


Fig. 3 New Leases - Value



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4.0 FUNDING

Funding is a critical factor to the operations of any leasing company. Fundingfor leasing companies is either in loans and/or equity. The minimum requiredstated capital of leasing companies is currently ¢10 billion. Up until 2005, theminimum stated capital was ¢500 million. The income surpluses and otherreserves of leasing companies have added to or reduced this minimum capitalto give them their current net worth. Table 8 shows the borrowings of non-bank lessors and throws out the percentage of borrowing to their borrowingcapacity. The table suggests that non-bank lessors have generally borrowedbelow their full limit. In 2004, leasing companies technically exceeded thiscapacity by 41%, but this was more from the result of a fall in net worthrather than an excessive increase in the borrowing.

Table 8: Evolution of Unutilized Capacity in Borrowings by Non Bank Lessors

2001 2002 2003 2004 2005

Total Borrowings 61,361 99,843 166,741 189,096 165,704

Combined 23,184 24,539 24,350 13,369 51,133Net Worth

Combined 231,840 245,390 243,500 133,690 511,330BorrowingCapacity

% of Borrowing 26% 41% 68% 141% 32%to BorrowingCapacity


In 2003, EIB gave € 9.0 million to three non-bank lessors (ie Ghana Leasing,Leasafric and General Leasing). Apart from 2004 where the borrowing capacitywas exceeded, due to a fall in net worth of one of the leasing companies, therehas consistently been a gap in the total borrowings and the borrowing capacityof non-bank lessors.

¢’m ¢’m ¢’m ¢’m ¢’m


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4.1 SOURCES OF LOANS

Leasing companies typically have borrowed from a variety of sources for theirworking capital requirement.They borrow from multi-lateral, bi-lateral and localbanks. Multi-lateral and bi-lateral sources have in the past included the IFC,EIB, Proparco (the private sector financing arm of the French developmentassistance agency - Agence Française de Development), the Enterprise Fund (afund managed by the Ghana Venture Capital Fund), the Italian GovernmentFund, and the Canadian International Development Agency (CIDA) Fund. Todate, the largest single financier for the Ghanaian leasing companies has beenthe EIB. The EIB was introduced to one of the leasing companies by the thenAfrican Project Development Facility (APDF) with an initial loan of 1.0 millionecus in 1995. This was subsequently increased to € 3.0 million. Finally, EIB, in2003, gave a loan of € 9.0 million to the three non-bank lessors. So together,over a period of ten years, EIB has given about € 13.0 million to the leasingsector in Ghana. The leasing companies’ utilization of the EIB loan was highbecause the loans were flexible, cheaper and were not tied to buying ofequipment from any particular country.

It granted its first loan to one of the leasing companies in the nascent years ofits operations. EIB had hitherto, given loans to local banks but utilization ofthese funds were low. The leasing sector in Ghana has provided the EIB withoptimum utilization of their funds and a zero default record to date.


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5.0 POTENTIAL DEMAND FOR LEASING

Vehicles of all types imported into the country was estimated at about $1.4billion in 2004 and $1.1 billion in 2005 (Source: Ghana Community NetworkServices Limited -GCNet, established to develop and operate a customizedelectronic system for processing trade and customs documents). GCNetclassifies passenger/haulage vehicles and earth-moving equipment as Vehicles.

We estimate that passenger/haulage vehicles and earth-moving equipmentconstitute about 50% of the total equipment leased. See figure 4 on page 12.(We derived this estimate from the averages for Ghana Leasing Company Ltdand General Leasing and Finance Company for 2004 and 2005. See Appendix).

The table below suggests that in 2004, only 0.5% of vehicle imports wereleased and in 2005, only 1.1% were leased. The average for the two years is0.8%. We estimate therefore that leasing constitutes less than 1% of thetotal vehicle imports to Ghana. This indicates a very high potential for growthin the leasing industry in Ghana.

Table 9: Leasing Share of Total Vehicle Imports ($)

Potential for Leasing 2004 2005

Vehicle (Passenger , Haulage, 1,367,177,622 1,149,395,867Earth Moving ) Imports

Total Leasing for the Year 13,722,262 25,903,735

50% of total leased equipment 6,861,131 12,951,867

% of imports that were leased 0.50% 1.13%


Out of the major equipment (both vehicles and earth-moving equipment) vendorsthat we interviewed, only one offers some form of credit. Their credit periodis only up to 12 months. In addition, the sole agent for M.A.N Trucks being thelargest haulage vehicle dealer, controlling about 53% of the market do notoffer any kind of financing. Admittedly, some of their customers may approachleasing companies or other financial institutions for financing but if thesynergistic advantages between vendors, lessees and lessors are fully exploited,this could lead to a very fluid market for lease financing.


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Leasing companies could increase their market share by being the financialintermediary between these vendors and the buyers. Some vendors havealready seen the need to use leasing companies as their “financing affiliates”and are collaborating with leasing companies for this purpose, but there is stilltremendous potential for growth.


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6.0 OPERATIONS

6.1 TYPES OF ASSETS FINANCED

The types of assets leased by all the leasing companies are shown below.Vehicles (include passenger/goods transport, earth-moving and otherconstruction equipment) constitute the highest (about 53%) percentage ofassets leased. Lessors prefer these assets because of their higher re-salevalue. The other equipment have very specific usage and therefore tend tohave a limited secondary market.

Fig. 4: Concentration of Credit Risk per Equipment


6.2 AVERAGE LEASE DURATION

The average lease period for leasing in Ghana is 36 months. Finance leases arecapital-intensive equipment investments, with a longer recovery/ pay-backperiod than other forms of investments. The repayment structure for financeleases is only attractive to lessees if its repayment period suits the lessee’scash flow situation.


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6.3 AVERAGE LEASE SIZE

The tables below give an idea of the range of lease sizes frequently written.The modal range of total leases financed by most lessors between 2004 and2005 was under $50,000.

Table 10: Range of Lease Amounts ($’000)

2004 and 2005 <50 50 -100 100-250 >250

Bank & Non-bank 397 58 40 36lessors

Table 11: Largest and Smallest Lease Amounts

2002- 2005 Largest Lease Smallest Lease(¢’mmmmm) ( $’000) (¢’mmmmm) ($’000)

Bank & 10,000 1,100 4.540 7.5Non-bank


6.4 SECTORAL DISTRIBUTION OF LEASES: (ALL LESSORS EXCEPTECOBANK LEASING)

We observed that the definition for a sector was rather vague and notstandardized. For example, while some would consider agro-processing asmanufacturing, others did not.

The top ten identified sectors (in alphabetical order) are:

1. Agriculture 6. Manufacturing

2. Commerce 7. Mining

3. Construction 8. SME Sector

4. Education 9. Tourism

5. Financial Services 10. Transportation

6.5 REGIONAL DISTRIBUTION OF LEASES

About 98% of leases financed by all leasing companies (bank and non-bank)are in the Greater Accra Region. The remaining 2% are in the Ashanti, Westernand Central Regions. (Source: THCLR Survey Results). Typically, a lease isconsidered to be from a particular region if the lessee’s head office is situatedin that region, and not necessarily, its primary place of operation.


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6.6 TYPES OF PRODUCTS

Table 12: Composition of Products

Composition of Products – 2003 (%)Company Finance Operating Trade Hire

Lease (%) Lease (%) Finance (%) Purchase (%)

Bank and 87.5 4.3 0.3 7.9Non-BankLessors

Composition of Products – 2004 (%)Company Finance Operating Trade Hire

Lease (%) Lease (%) Finance (%) Purchase (%)

Bank and 86 3.4 0.9 9.6Non-BankLessors


Figure 5a: Figure 5b:Types of Products - 2003 Types of Products - 2004


Table12 and Figures 5a & 5b above show the various products that the leasingsector is engaged in. It also gives an indication of the diversification of products.Finance lease is the dominant activity for all the leasing companies. Next isoperating leases, hire purchase and trade finance.


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7.0 OBSERVATIONS

1. Financial Performance of Non-Bank Lessors

a. The Cost Structure for Leasing: The average total cost to leaseincome for the last five years of 98% is very high. The interestrates for loans are generally fixed, so there is very little that thelessors could do about interest expense once the loans arecontracted. Average operating expenses to lease income of 41%which is high relative to the portfolio size.

b. Unlike the banks, the financial model for leasing companies is notrobust. Leasing companies depend mainly on finance leaseincomes, while bank have a more diversified product and income-generating base.

2. Growth and Potential

The leasing market is still very under-exploited. There is an increasing trend inthe growth of leasing in Ghana and there is a tremendous potential for furthergrowth.

3. Legislation

Up until the repeal of the Banking Law 1989 (PNDCL 225), banks were typicallymerchant banks, development banks or commercial banks and were restrictedto these areas of operations. The Banking Act 2004 has removed all suchoperational barriers for banks. Banks may now choose to compete in anybanking and certain non-banking financial activities. The expectation is thatthis will lead to greater competition among the banks and ultimately bringbanking services to the under-served.

With specific regard to leasing, it can potentially contribute to the growth involume and value of leasing in Ghana, because where a bank chooses to setupa leasing activity as a department,

a. the bank lessors will no longer be restricted by the 15% of networth limit applicable under the NBFI legislation,

b. operational barriers of investing not more than 15% in subsidiarieswill no longer exists for bank lessors and,

c. more banks may now participate uninhibitedly in finance leasing.

However, these very reasons that are expected to enhance the growth of theleasing sector in general could adversely affect the operations of non-banklessors, because unlike bank leessors, non-bank lessors do not have access tocheaper funds. The playing field will favor the bank-lessors due to the different


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set of rules that will apply for them. Given their relative sizes, banks can writemuch larger leases than non-bank lessors and will no longer be limited by the15% exposure limit.


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8.0 RECOMMENDATIONS

1. Financial Model

• Leasing companies need to consider ways of increasing theirproduct and income-generating base. This will increase theirchances to be more profitable and also attract potential investors.

2. Funding

• Need to exploit more equity sources as well as cheaper and moreflexible loan sources to make them competitive.

3. Financial Performance

• Need to determine their optimum break-even points and developbenchmarks in relation to their costs, pricing, volumes of businessand be guided by these.

4. Legislation

• Measures to mitigate the likely effects of the Universal BankingAct on leasing companies should be taken.

5. Governance and Management

• Staff Development. Leasing companies need to invest insystematic and comprehensive staff development programs. Thereis a high correlation between performance and staff quality. Mosthigh performing institutions invest a lot in training.

• We recommend management by best practices and industrialbenchmarks. There are currently no such guiding benchmarks forthis industry.

• Risk Management. Calibrating the amount of risk an organizationcan take is a fundamental strategic issue that must be resolveddirectly by its Board and CEO and filtered down every step of theway.

• Effective monitoring is a necessary ingredient for a goodperforming portfolio. Organizational structures for effectivesupervision must suit the type of strategy chosen; whether a fewgood risk lessees with larger lease amounts or a smaller leaseamounts over a larger number of lessees.


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• Management Information Systems. Leasing companies need toinvest in good information systems to improve the provision ofservices to their customers, their own internal processes and theirdecision-making abilities.

• Harmonizing the Information Systems: It will be useful for theleasing companies to adopt a standard format in their informationsystems to enable them use common tools, benchmarks andstandards for their operations. For example, the presentation ofthe accounts for each of the companies is different even thoughthey all have one auditor. Also the classification of the sectors ofoperations is different.

6. The Ghana Association of Leasing Companies (GALCO)

• The Ghana Association of Leasing Companies (GALCO) couldconsider the followingi. Be a clearing house to monitor and check credit history on

behalf of lessors for a fee;ii. Create and Trade in Credit Derivatives for the leasing sector.

This will serve the purpose of modifying the credit risk profileof an underlying asset. A lessor, who does not wish to continueto assume the credit risk from a lessee, may go short on thecredit. This credit risk could be bought or sold or tailored as tothe amount, period and type of credit.

iii. GALCO needs to be rejuvenated to pursue issues on behalf ofthe leasing companies similar to the positive and vocal voiceof the Ghana Bankers Association.

7. Growth and Potential for Leasing

The synergistic advantages between vendors, lessees and lessorsshould be fully exploited, to bring about full market efficienciesand increased business for lessors, vendors and lessees.

8. Promotion and Advocacy

• Promote awareness in the business community that leasing is agood alternative for funding some capital expenditure.


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PART TWO: LEGISLATIVE REVIEW

1.0 LEGAL AND REGULATORY REGIME AFFECTINGLEASING

The regulatory framework for leasing generally seeks to balance the riskspresented by leasing operations against the positive contributions that theymake to economic growth. In some jurisdictions the leasing industry is notsubject to prescribed regulation. The leasing industry comes under a code ofconduct drawn by the Leasing Association which then serves as the self-regulatory body. In some cases the mode of funding of the leasing companyand the ownership, as for example being wholly-owned by a commercial bank,could bring it under supervision. International opinion seems to be divided onwhether or not to regulate leasing.

Benefits of regulation include the fact that the lessor is guaranteed clear anduniform operational guidelines and a level playing field. The lessee enjoys thebenefit of confidence in the industry with protection against potentiallyfraudulent players. Evidence exists however to show that regulation could stiflethe development of the leasing industry. While prudential regulation of leasingis used to prevent institutional failure, market conduct laws or guidelines canbe used to deal with human weakness such as fraud and other consumerprotection considerations.

Ghana’s leasing sector is subject to prudential and market conduct regulationthrough a number of laws. The Financial Institutions (Non-Banking) Law, 1993(PNDCL 328) as amended and the Non-Bank Financial Institutions Business(BoG) Rules as applicable to Non Deposit-Taking Institutions, provide a regimefor prudential regulation of leasing companies. PNDCL 328 governs theinstitutional set up of leasing companies and empowers the Bank of Ghana toregulate and supervise the establishment, operations, and closure of leasingcompanies. It is worthy of note that the BoG is planning a review of the PNDCL328 in support of recommendations of the Financial Sector Strategic Plan


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(FINSSP). The FINSSP recommended for a review of the legal and regulatoryframework for NBFIs. Recommendation 60 of FINSSP states:

Financial Institutions (Non-Banking) Law should be revised toremove ambiguities in the objectives of regulation and to liberalizethe regime for the development of NBFIs.

Among other things, FINSSP envisaged the progressive deregulation of non-deposit taking NBFIs. On the other hand, the Finance Lease Law, 1993 (PNDCL331) regulates the conduct of leasing transactions among parties to a lease.

In May 1988 Ghana signed the International Institute for the Unification ofPrivate Law (UNIDROIT)’s Convention on International Financial Leasing of1988 which governs cross-border finance leases but has yet to ratify theConvention to render it effective under Ghanaian law1.

1.1 Legal and Regulatory Framework Governing Market Entry

Companies engaged in leasing in Ghana are designated as Non-Bank FinancialInstitutions under the Financial Institutions (Non-Banking) Law, 1993 (PNDCL328)2. Only entities licensed as leasing companies under PNDCL 328 are eligibleto operate as such3. Under the new Banking Act of 2004 (Act 673) however,finance leasing is one of the permissible activities for banks as part of the newuniversal banking concept. Hitherto, banks were required to engage in leasingonly through subsidiaries licensed as leasing companies under PNDCL 328. Thenew universal banking concept therefore results in a situation where twodifferent regimes apply to leasing operations, one applicable to non-bank leasingoperations under PNDCL 328, and the other applicable to bank-operated leasingactivities under the Banking Act of 2004. Currently, seven companies arelicensed as leasing companies under PNDCL 328. The Bank of Ghana is mandatedto exercise overall supervision over the leasing industry.

To qualify for a non-bank leasing licence, an applicant must be a body corporateincorporated in Ghana2 and must have a minimum capital of 10 billion cedis4

compared with a minimum capital requirement of 70 billion cedis for universalbanks. In addition to minimum capital requirements, the shareholders anddirectors of a leasing company or a universal bank must satisfy the “fit andproper” test of the Bank of Ghana. The shareholders have to justify the sourceof funding for their equity stakes. A feasibility report showing three to five-year financial projections demonstrating the viability of the proposed ventureis required to be submitted by the applicant(s).

1 Nine out of nineteen signatory States have ratified the Convention.

2 Other non-bank financial institutions under PNDCL 328 as amended are discount houses, finance houses,acceptance houses, building societies, mortgage financing companies, savings and loans companies, and creditunions


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Some leasing companies are currently unable to meet the minimum capitalrequirement prescribed by the Bank of Ghana. Bank equity investments inleasing companies are limited to 15% of bank net-worth, under the BankingAct of 2004. Non-resident investors must seek prior exchange control approvalfrom the Minister of Finance under the Exchange Control Act (1961) (Act 71)as variously amended before investing in local companies.

1.2 Legal definition of a Lease

(a) Legal definition of Leasing in Ghana

While PNDCL 328 does not define leasing operations, it requires alicence for the “carrying on fully or partially the business of leasing,letting or delivering of goods to a hirer under a hire purchaseagreement”.

(b) Definition of Finance Leases as Distinct from other Forms of Leasesand Hire PurchasesThe Finance Lease Law, 1993 (PNDCL 331) does not provide anylegal definition of a “finance lease” or other forms of leases. Ithowever defines “Finance Lease Agreement” as follows (see TextBox 1 below).

Text Box 1

“Finance Lease Agreement” Defined under PNDCL 331

“A written agreement between two parties whereby one of theparties (known as the lessor) undertakes to lease to the lessee forthe latter’s use only and against payment of mutually agreed leaserentals over a specified non-cancelable period;

(a) either the lessor’s own already acquired assets; or

(b) an asset that the lessor agrees to acquire from a third party,known as the supplier, chosen and specified by the lessee so thatthe lessor shall retain full title to the asset during the period of thelease

And under which subject to agreement by the lessor, the lesseemay exercise an option to purchase the asset outright after theperiod of the lease at a price to be agreed upon by the parties”.


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A finance lease under this definition is therefore a transaction involving:

(a) two parties i.e. a lessor and lessee where the lessor already ownsthe asset or three parties, i.e. a lessor, lessee, and supplier wherethe lessor agrees to acquire the asset from a third party in whichcase the supplier should be chosen and specified by the lessee;

(b) ‘use only’ of the leased asset by the lessee;

(c) the lessor retaining full title to the asset during the period of thelease;

(d) payment of lease rentals over a specified non-cancelable period;(e) an option for the lessee to purchase the asset outright after the

period of the lease at a price to be agreed upon by the parties.

Furthermore, the above definition:

• Does not restrict the duration of the lease or the price at whichthe asset could be purchased by the lessee on expiration of thelease3;

• Is flexible enough so that a lessor might be able to lease assetsalready owned by it and not necessarily procure the assets from asupplier4. A lessor could therefore lease equipment repossessedfrom a first lessee to a second lessee.

Under Ghanaian law5, a Hire Purchase Agreement is defined as in Text Box 2below.

Text Box 2

Hire Purchase Agreement Defined

“An agreement for the bailment of goods under which the baileemay buy the goods or under which the property in the goods willor may pass to the bailee…”

3 A finance lease or open-end lease according to the International Accounting Standards is a lease under which:(i)

the lease life exceeds 75% of the life of the asset;(ii) there is a transfer of ownership to the lessee at the end of the lease term;

(iii) there is an option to purchase the asset at a “bargain price” at the end of the lease term;(iv) the present value of the lease payments, discounted at an appropriate discount rate, exceeds

90% of the fair market value of the asset.

4 The Convention on International Financial Leasing describes a financial leasing transaction as one in which oneparty (the lessor) on the specifications of another party (the lessee), enters into an agreement (the supplyagreement) with a third party (the supplier) under which the lessor acquires plant, capital goods or otherequipment (the equipment) on terms approved by the lessee so far as they concern its interests

5 Hire Purchase Decree of 1974 (NRCD 292)


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Hire purchase operations such as are defined above, require a licence underthe Financial Institutions (Non-Banking) Law, 1993 (PNDCL 328). Hire purchasetransactions are governed by the Hire Purchase Decree of 1974 (NRCD 292).Although NRCD 292 envisaged the enactment of Regulations by the Ministerof Trade to provide for the regulation and control of hire-purchase agreementsand in particular to provide for the form of such agreements, including a limiton the rate of interest and other charges, the minimum deposit to be paid by ahirer, the maximum period of payment, and the amount and frequency ofinstallments or rentals, among other things, this was never enacted.

Finance leases and hire purchase transactions may look similar. Operationaldifferences however include:

(i) title in a leased asset remains in the lessor unless the lesseeexercises an option to purchase at the end of the lease period. Ina high purchase transaction unless the hirer terminates thecontract, title automatically passes to the hirer upon final payment.

(ii) the lessee typically has an option to purchase the asset after theperiod of the lease at a price to be agreed upon by the parties. Thelessee may exercise this option or not. If the lessee elects not toexercise the option, it must return the asset to the lessor. Thehirer has no option to reject title to the assets upon full paymentof the hire purchase price;

(iii) a copy of a Finance Lease is required to be registered while thereis no such requirement for a Hire Purchase Agreement;

(iv) the owner cannot enforce any right to recover possession ofprotected goods from the hirer or buyer otherwise than by courtaction. Protected goods are goods in respect of which 50% of thehire-purchase price has been paid or tendered by or on behalf ofthe hirer.

Operational similarities include:

(i) both the lessor and the owner (in the case of a hire purchasetransaction) are required to be licensed as NBFIs by the Bank ofGhana;

(ii) both types of transactions must be in writing;(iii) the same types of assets may be subject to a lease or a hire

purchase transaction;(iv) both the lessor and the owner retain title to the asset during the

period of the lease or hire purchase transaction;

(v) payment of lease rentals or the hire purchase price is effectedover a specified period.


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1.3 Legal and Regulatory Framework affecting Leasing Operations

The Finance Lease Law, 1993 (PNDCL 331) regulates lease transactions inGhana and generally defines the elements of a Finance Lease Agreement, andprovides for the rights and obligations of the parties to a finance leasetransaction.

1.3.1 Eligible Assets

“Leasable asset” is defined under PNDCL 331 as “any moveable asset whichcan be legally sold in or imported into Ghana that becomes the subject matterof a finance lease agreement, whether or not the asset has become a fixtureto or incorporated in land.” The scope of this definition is restricted to movableassets. There is currently no legal restriction on the types of assets that maybe covered by operating leases.

1.3.2 Parties to a Lease

Parties to a lease may be the lessor and the lessee, and sometimes the supplierof the asset. While a lessor must be a company incorporated in Ghana andlicensed to carry on leasing6, a lessee or a supplier may be legal entities ornatural persons.

1.3.3 Scope of Finance Leasing

The scope of finance leases under PNDCL 331 relates to leasing of moveableassets Subleasing is also allowed under the law. Subleasing is a form of sub-contract over the leased asset under which:

(a) The lessee has the right, with written permission of the lessor, tosublease the leased asset, received through a lease agreement, toa third party for the temporary possession and usage on the basisof a sublease;

(b) The sublessor and the sublessee act in this relationship as thelessor and the lessee, and have the same rights and obligationsaccorded in the civil legislation for these parties to the lease;

(c) The period of the sublease cannot be longer than the original leaseagreement; and,

(d) The sublease agreement is typically automatically terminated, inthe event that the original lease agreement is terminated.

6 PNDCL 331, section 13, and PNDCL 328 section 1(1)


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1.3.4 Restrictions on Operations

Deposit-taking NBFI’s are permitted to invite deposits from the general publicfor fixed periods and the deposits are payable at the discretion of the institution7.Leasing companies are not deposit-taking NBFI’s per se and are therefore notallowed to take deposits. Leasing companies may however apply for and begranted separate deposit-taking licences.

Current prudential requirements (see 1.4 below), particularly those on capitalrequirements and limits on single and related exposures, restrict the value ofleasing transactions.

1.3.5 Financing of Operations

The development of the leasing sector in Ghana is inhibited by several factorsincluding the quality of clients, pricing, monitoring, demand for product(s) aswell as limited access to longterm financing, among other things. Leasingcompanies are not allowed to accept deposits from the public as a source offunding even though they could seek specific authorization under Section 11(2)of PNDCL 328.

While there are no peculiar legal restrictions, leasing companies have notexploited the opportunities presented by the capital market and securitizationschemes.

1.4 Review of Prudential Guidelines Affecting Leasing Companies

The prudential guidelines for non-bank financial institutions including leasingcompanies are contained in the Financial Institutions (Non-Banking) Law (PNDCL328) and the Non-Bank Financial Institutions Business (Bank of Ghana) Rulesas applicable to Non-Deposit Taking Institutions. Generally, these include rulesfor monitoring credit portfolios and risk assets, reporting requirements, corporategovernance requirements including composition of boards and the quality ofmanagement, requirements for maintenance of proper accounts/accountingsystems, and internal controls.

The applicable prudential requirements include:

• maintenance at all times of a gearing ratio (i.e. total debt to equity)of 10:1;

• holding minimum liquid assets to be prescribed by the Minister ofFinance on the recommendations of the BoG;

• observing single exposure limit of 15% of net worth for securedadvances and 10% in the case of unsecured advances;

7 section 11, of PNDCL 328


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• prohibition against granting credit to any firm or company in whichany of the lessor’s directors or managers are interested as majoror principal shareholders, partners, directors, or guarantor, anyloan or credit or other financial facility which in the aggregate andoutstanding at any time exceeds 10% of the institutions net worthif the exposure is secured and 5% of the institution’s net worth ifthe exposure is unsecured;

• corporate governance requirements including composition of boardsand the quality of management, requirements for maintenance ofproper accounts/accounting systems, and internal controls; and

• Central Bank annual on-site examination of licensed leasingcompanies.

Furthermore, PNDCL 328 imposes six reporting requirements on all NBFIsnamely:

• notification of the Bank of Ghana of the location of its principalplace of business, branch or agency and on changes in the locationof such places within 21 days of such change;8

• Bank of Ghana approval for change of name9;• filings of regulations or other rules for the conduct of its business

and every change of director of the business;10

• quarterly returns filed with the Bank of Ghana11;

• and submission of audited accounts to the Bank of Ghana12 and• submission to the Bank of Ghana for approval any arrangement

or agreement which it proposes to enter into for the sale ordisposal by amalgamation or otherwise of its business13.

Some leasing companies fail to comply with these prudential requirements.The PNDCL 328 does not prescribe sanctions for non-compliance with some ofthese prudential requirements although the Bank of Ghana has instituted certainadministrative penalties for non-compliance.

8 section 7 of PNDCL 3289 section 9 of PNDCL 32810 section 10 of PNDCL 32811 section 19 of PNDCL 32812 section 24 of PNDCL 32813 section 12 of PNDCL 328


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1.5 Rights and Obligations of Parties to a Lease

All potential parties to a finance lease transaction (lessor, lessee, and supplier)have rights and obligations to enjoy and perform respectively in their financelease relationship. The respective rights and obligations of the Parties underthe Ghanaian law, PNDCL 331 are as follows.

Rights of the Lessee

Rights of the lessee under Ghanaian law include:

(a) the right to enjoy quiet possession of the leased asset and use theassets according to the terms and conditions of the lease.

(b) protection against unilateral termination of lease agreement aslong as the lessee performs his obligations in accordance with theterms of the lease.

(c) the right to request that the lease agreement be fulfilled in itsentirety and that a penalty is paid, covering the actual lossesresulting from:

• the failure by the lessor to enter into a sales contract with theSupplier on time;

• failure by the lessor to make payment to the supplier on time;or

• for any other reason.(d) the right to demand that the lease agreement be terminated with

the lessor paying any damages or losses incurred by the Lessee asa result of the lessor’s failure to comply with his contractualobligations.

(e) the right to take direct action against the supplier in order to holdthe supplier to the satisfactory performance of the supplier’scontractual obligations and to obtain from the supplier,compensation for damages resulting from his default.

(f) the right to reject the asset where the lessor fails to deliver ordelays in delivery or delivers a non-conforming asset and it isdetermined that the delay of non-delivery was as a result of theact or omission of the lessor.

(g) the right to a reduction of the rent or a cancellation of the leaseagreement where as a result of legal proceedings initiated by athird party against the lessor, the value of the asset is decreased14.

(h) right to exemption from rental payments where the leased assetsare fully or partly destroyed or damaged by accident not of hismaking or force majeure, unless otherwise stipulated in the leaseagreement.

14 PNDCL 331 Section 10 (4)


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Obligations of the Lessee

Conversely, the lessee has obligations under the lease agreement includingobligations for:

(a) the proper maintenance and adequate insurance cover of the assetas mutually agreed to by parties to a lease agreement.

(b) taking proper care of the assets and to use them in a mannerconsistent with that of a normal user. The asset must also be keptby the Lessee in the condition in which it was delivered subject tofair wear and tear.

(c) making prompt rental payments as stipulated in the Leaseagreement.

(d) returning the leased assets to the lessor where the lease agreementis not renewed at the end of the period.

Rights of the Lessor

The rights of the lessor under a lease agreement include:

(a) the right to demand payment due from the lessee under the leaseagreement where owing to default on the part of the lessee thesales contract between the supplier and the lessor is terminated.The lessor is however required to act in good faith and to pay forthe purchase of the assets at the request of the Lessee.

(b) in the event of default by the lessee in the repayment of rentalunder the lease agreement, the lessor has the right to:(i) terminate the lease agreement, recover possession of leasedassets; and(ii) recover such damages as would place him in the position inwhich he would have been had the lessee performed the leaseagreement in accordance with its terms. (iii) initiate legal proceedings against the Lessee where he fails tosurrender the leased asset.

(c) the unilateral right to assign the lease agreement to third partieswith written notice to the lessee.

Obligations of the Lessor

The lessor is liable to a lessee under a lease agreement for:

(a) willful infringement or unlawful acts which result in

(i) damage to or defect in the leased asset(ii) curtailment of the Lessee’s rights in relation to a third party;and


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(iii) infringement of the Lessee’s peaceful and lawful use of theleased assets

(b) non-delivery of the leased assets as a result of(i) failure to enter into a sales contract with the Supplier on time

(ii) failure to make payment to the Supplier on time; and(iii) any other reason.

The lessor is however not liable:

(a) in respect of defects in or fitness of the leased assets for anyparticular purpose unless the lessee has suffered loss as a resultof his reliance on the lessor’s skill, judgment and intervention inthe selection of the supplier or the specification of the asset.

(c) to third parties for death personal injury or any damage to propertycaused by the use of the asset by the Lessee.

Obligations of the Supplier

The supplier of an asset to a lessor owes to the lessee the same duties as heowes to the lessor under the sale agreement. The supplier is however notliable both to the lessor or the lessee in respect of the same damage.

1.6 Insolvency/Bankruptcy of Lessee and the Rights of the Lessor

A lessor may file a petition for winding-up of the lessee with the Registrar ofCompanies15 or with the High Court16 on the grounds that the lessee is indebtedin a sum exceeding fifty pounds which has become due, a written demand ofwhich has been served on the lessee and for which the lessee has for twenty-one days thereafter neglected to pay, to secure or compound to the reasonablesatisfaction of the lessor.

Once an order for winding-up is made by the Court or the Registrar of Companiesupon the petition of the lessor (or any other creditor or shareholder), the lessormay lodge with the liquidator a statement showing the nature and details ofany outstanding debt owed it by the lessee17. No action or civil proceedingsagainst the lessee can be commenced or continued without court permission,except in the case of a secured creditor for the realization of their security18.

15 Bodies Corporate (Official Liquidations) Act, 1963 (Act 180) section 316 Bodies Corporate (Official Liquidations) Act, 1963 (Act 180) section 417 Bodies Corporate (Official Liquidations) Act, 1963 (Act 180) section 2218 Bodies Corporate (Official Liquidations) Act, 1963 (Act 180) Section 1719 Registrar of Companies


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The official liquidator19 is empowered to pay any classes of creditors in full, orto enter into any arrangements with creditors, after the sale of the property ofthe company20. The liquidator is entitled to take into his custody or under hiscontrol all the property to which the lessee is or appears to be entitled. For thispurpose, any property in the possession of the lessee at any time within sixmonths before the commencement of a winding up is presumed to be vested inthe lessee unless the contrary is shown21. A lessor is therefore entitled tosubmit proof to the liquidator to show that a leased asset that has been in thepossession of the lessee prior to the commencement of winding-up is subjectto a lease agreement.

PNDCL 331 also guarantees priority of the title of the lessor in a leased assetover claims by third parties including creditors of the lessee except as againsta purchaser in good faith for value of the asset under a non-registered lease22.In the event of bankruptcy, liquidation or dissolution of the lessee, the lessor(subject to the rules of repossession under PNDCL 331 outlined in 1.5 above)has the right to repossess the leased asset. Furthermore, such leased assetsshall not be included in the assets of any receivership or pool of assets to bedisposed of by the creditors of the lessee.

1.7 Leased Asset Registry

Section 6 of PNDCL 331 imposes a mandatory requirement for finance leasesmade in Ghana to be registered irrespective of the value of the underlyingasset. Bank of Ghana is required to appoint a registering authority whosefunction it will be to register finance lease agreements and to inform the Bankof Ghana of every application to register a finance lease agreement. The Bankof Ghana is also empowered to issue guidelines for the purpose of implementingcertain issues relating to the registration requirements including stamp dutypayable, registration and notarization fees and procedure for filing an applicationfor registration and cancellation of registration. This Registry has to date notbeen established as no entity has been designated by the BoG to act as such.

The registration of leases constitutes constructive notice to the public aboutthe legal status of the asset whereby no third party can acquire a valid interestin the leased asset arising out of any dealings with the lessee. This mechanismtherefore offers protection to the lessor. Without registration a third partypurchaser of a leased asset for value, who can prove good faith in thetransaction, can acquire a valid title to the asset. In the case of an operatinglease where the leased asset is land or landed property, there is an additionalrequirement for registration under the Land Title Registration Law, 1986(PNDCL152) as amended23.

20 Bodies Corporate (Official Liquidations) Act, 1963 (Act 180) section 921 Bodies Corporate (Official Liquidations) Act, 1963 (Act 180) section 1622 PNDCL 331 Section 9 (1)23 Section 6 of P.N.D.C.L. 331


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2.0 ACCOUNTING AND TAX FRAMEWORKAFFECTING LEASING

2.1 LAWS GOVERNING PREPARATION OF FINANCIALSTATEMENTS FOR LEASING COMPANIES

The various laws that affect the accounting and tax matters of leasingcompanies in Ghana are:

(i) The Companies Code, 1963 ACT 179

All registered companies must conform to this ACT. A companybecomes eligible to operate when it is issued with a certificate ofincorporation and one to commence business. A registeredcompany is governed by its regulations and is obliged to prepareannual audited financial statements and file an annual return withthe Registrar General’s office and tax authorities not later thansix (6) and four (4) months respectively after its financial yearend.

(ii) Ghana National Accounting Standards

These are the accounting standards the Ghana Institute ofChartered Accountants expects all registered companies to complywith in the preparation of their financial statements.

(iii) Internal Revenue Act 2000

This is the applicable tax law for all registered companies withsection 34 relating specifically to leases.

(iv) Value Added Tax ACT 1998

Section 5 deals with registration as a taxable person whilst section21 deals with taxable value.

2.2 ACCOUNTING PRINCIPLES AND TREATMENT OF LEASETRANSACTIONS

2.2.1 International Accounting Standard

Leasing is defined by the International Accounting Standards (IAS 17) as anagreement whereby the lessor conveys to the lessee in return for a paymentor series of payments the right to use an asset for an agreed period of time.The Standards define finance lease as a lease that transfers substantially allthe risks and rewards incident to ownership of an asset. An operating lease isdescribed as a lease other than a finance lease.


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2.2.2 Ghana Accounting Standard

The Ghana National Accounting Standards (GNAS 11) also provides the samedefinition of finance and operating leases as stated in IAS 17.

2.2.3 The Internal Revenue Service

The Ghanaian Internal Revenue Act, 2000 section 34(3) defines finance leaseas a lease agreement:

• that provides for transfer of ownership following the end of thelease term or the lessee has an option to purchase the asset afterexpiry of the lease term for a fixed or agreed price; or

• the lease term exceeds seventy-five per cent of the useful life ofthe leased asset; or

• the estimated residual value of the asset after expiry of the leaseterm is less than 25% of its market value at the commencementof the lease; or

• the present value of the minimum lease payments equals orexceeds 90% of the market value of the asset at thecommencement of the lease; or

• the lease asset is custom-made for the lessee and after expiry ofthe lease term it will not be usable by anyone other than the lessee.

The act is however silent on the definition of operating leases.

The subsequent amendments made to this Internal Revenue Act 2000, namely,Internal Revenue (Amendment ) ACT 2002 ACT 622, (Amendment ) ACT of2003 ACT 644 and (Amendment ) ACT 2004ACT 699 did not make any revisionto section 34 of ACT 2000.

2.2.4 The VAT Office

The VAT office adapts the definition of a lease as stipulated by GNAS 11. TheValue Added Tax Act exempts financial services from VAT. Since finance leaseis classified as a financial product in Ghana, finance lease transactions do notattract VAT. Although operating leases can be described in a way as a financialproduct, the VAT law especially excludes operating leases from the exemption.Operating lease rentals are therefore subject to VAT. Where the lessee usesthe leased asset to generate income, the lessee can offset the input tax incurredagainst the output tax that the lessee charges.

As stated in the VAT (Amendment Act 2001, ACT 595). One is expected to beVAT registered when the conditions as stipulated in section 5 of the ACT aresatisfied. One is required by law to register as a taxable person if he is a


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person who makes taxable supply of goods and services and in the case of aretailer of goods he is a person whose business turnover exceeds.

• ¢100 million over a 12 month period; or

• ¢75 million over a nine month period; or• ¢50 million over a six month period; or

• ¢25 million over a three month period.

Whichever is achieved earlier.

Section 21 (4a) of the Value Added Tax Act states that a taxable supply ofgoods under a hire purchase agreement or finance lease is the open marketvalue of the goods or services at the time the supply is made, excluding, in thecase of a hire purchase agreement or finance lease, any interest or financecharges.

2.2.5 Accounting Treatment of Leases

The accounting treatment of leases in Ghana is regulated by GNAS 11 which issimilar to that of the International Accounting Standards IAS 17. The standardrequires the following provisions (see below) for the treatment of leases in thebooks of both the lessor and the lessee.

2.2.6 Accounting for Leases in the Financial Statements of a Lessee

Finance Leases

A finance lease is recorded in the balance sheet of a lessee by recognising anasset and a liability of equal amounts at the inception of the lease to the fairvalue of the leased item net of grants and tax credits receivables by the lessoror, if lower at the present value of the minimum lease payments.

Rental payment should be apportioned between the finance charge and thereduction of the outstanding liability. The finance charge should be apportionedover the lease period so that a constant periodic rate of interest is appliedduring the lease period.

A finance lease gives rise to a depreciation charge for the assets as well as afinance charge for each accounting period. The depreciation policy for leasedassets should be consistent with that for depreciable assets which are owned.If there is no reasonable certainty that the lessee will obtain ownership at theend of the lease term, the asset should be fully depreciated over the shorter ofthe lease term or its useful life. The lessee is not entitled to any capital allowanceon the leased asset (s).


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Operating Leases

The charge to profit and loss account under an operating lease would be therental expense on the leased assets for the accounting period, recognised on asystematic basis that is representative of the time pattern of the user’s benefit.The lessee has no benefits of the capital allowance BUT is entitled to treat thecapital and interest thereon due on the rental payments as tax deductibleexpenses.

2.2.7 Accounting for Leases in the Lessor’s Books

Finance Leases

An asset classified as a finance lease should be recorded in the balance sheetnot as property, plant and/or equipment but as a receivable, at an amount equalto the net investment in the lease.

The recognition of finance income should be based on a pattern reflecting aconstant periodic rate of return on either the lessor’s net investment outstandingor the net cash investment outstanding in respect of the finance lease. Themethod used should be applied consistently to leases with a similar financialcharacter.

Manufacturer or dealer lessors should include selling profit or loss of income inaccordance with the policy normally followed by the lessor for outright sales.If artificially low rates of interest are quoted, selling profit should be restrictedto that which would apply if a commercial rate of interest were charged.Initial direct costs should be charged to income at the inception of the lease.The lessor does not have the benefit of capital allowances.

Operating Leases

Asset classified as operating leases should be recorded as property, plant and/or equipment in the balance sheet of lessor.

Rental income should be recognised on a straight line basis over the leaseterm, unless another systematic basis is more representative of the time patternor the earning process contained in the lease.

The depreciation of leased assets should be on a basis consistent with thelessor’s normal depreciation policy for similar assets. The lessor is entitled tooffset the capital allowance due on the leased asset(s) against his corporatetax liability.


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2.2.8 Accounting for Sale and Leaseback Transactions

If a sale and leaseback transaction results in a finance lease, any excess ofsales proceeds over the carrying amount should not be immediately recognisedin income in the financial statements of a seller that is the lessee. If such anexcess occurs, it should be deferred and amortized over the lease term.

If a sale and lease back transaction results in an operating lease, and it is clearthat the transaction was executed at a fair value, any profit or loss should berecognised immediately. If the sale price is below a fair value, any profit or lossshould be recognised immediately except that, if the loss is compensated byfuture rentals at below market price, it should be deferred and amortized inproportion to the rental payments over the period for which the asset is expectedto be used. If the sale price is above fair value, the excess over fair valueshould be deferred and amortized over the period for which the asset is expectedto be used.

For operating leases, if the fair value at the time of a sale and leasebacktransaction is less than the carrying amount of the asset, a loss equal to theamount of the difference between the carrying amount and fair value shouldbe recognised immediately.

Compliance

All the leasing companies are satisfied with the definition and accountingtreatment required for both finance and operating leases. It was observedthat they all complied with the accounting treatment of the various types oflease transactions in their financial statements as evidenced by the auditors’reports. From the auditors’ reports that were reviewed, it was noted that theaccounting systems of the leasing companies were generally capable ofgenerating accurate and reliable financial information.

2.2.9 Applicable Taxes on Leasing Operations

Corporate Income Tax

Corporate income tax is levied on every registered company and charged ontaxable income. Taxable income is the difference between gross income andallowable expenses as stated in the IRS Act, 2000. Effective January 2006,corporate income tax is levied at 25%.

Capital Gains Tax

This arises in the event of a sale and leaseback where the sale proceeds exceedthe original cost of the leased asset. The capital gains tax rate applicable is 5%.


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Import Duty

Leasing companies do not enjoy any tax exemptions for equipment importedfor lease transactions. All taxes, duties and handling charges are paid like anyother equipment unless the item is specifically exempted from these chargesby law.

Taxation of Finance leases

The tax law SMC Decree 5 of 1975 (SMCD5,) was the tax law applicable toleasing business between 1975 and 1999. The application of the relevantprovisions of SMCD5 generated serious disagreements between the leasingindustry and the Internal Revenue Service (IRS). Whilst the leasing companiesbelieved that the Decree entitled them to claim capital allowances for all leasedassets including those on finance leases, the IRS interpretation has been thatlessors are only entitled to claim capital allowances in respect of assets onoperating lease.

However, prior to 1999, the leasing companies had filed their tax returns basedon their interpretation of the law for periods ranging from four to eight yearswithout any queries from the IRS and thus had nil tax positions due to hugecapital allowances emanating from the leased assets. In December 2000, anew tax law was introduced, the Internal Revenue Service Act, Act 592 replacedSMCD5 which sought to clarify the tax position on all leasing transactions.

The new law clearly indicates that lessors would no longer benefit from capitalallowances on leased assets under a finance lease transaction. The lesseesare not made beneficiaries of the capital allowances either. The law providestwo compensatory incentives. The first incentive states that total lease rentalspayable by the lessee are tax-deductible expenses. The second incentiveprovided a tax rebate to banks and /or financial institutions for lending moneyto leasing companies.

The rebate relates to income earned on the funds lent to a leasing company.The income tax rate applicable to income derived by a financial institutionfrom a loan granted to a leasing company for the use by that company forfunding lease transactions is 20% as opposed to the corporate tax rate of32.5% (at 2000 and now 25% effective 2006).

This should have served as an incentive to financial institutions, who in turnwere expected to pass on the benefit of such rebates in the form of reducedinterest rates to the leasing companies. Regrettably, financial institutions appearnot to have taken advantage of this incentive. Probably because profits fromoffering such a product compared to other financial products are deemed to beinsignificant.


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In a related section that is not specifically directed at leasing companies, Act592 also changed the method of computing capital allowances from the straight-line method that prevailed under SMCD5 to the reducing balance method. Thetax-deductibility of lease rentals provides an opportunity for a shorter tax write-off of the cost of leased assets (that is over the lease term) than writing it offthrough a reducing balance method of capital allowances. Taking an asset onlease therefore makes it possible for lessees to gain a timing difference advantageover claiming capital allowances for assets acquired through other means offinancing.

Value Added Tax

The Value Added Tax Act exempts financial services from VAT. Since financelease is classified as a financial product in Ghana, finance lease rentals do notattract VAT. Operating lease rentals are however subject to VAT. This thereforemakes operating leases relatively more expensive in Ghana.

VAT on import is based upon the customs value of the goods or services multipliedby the VAT rate, currently 12.5%.

Taxation of Operating Leases

The Internal Revenue Act, 2000 (Act 592) made significant changes to thecomputation of capital allowances on fixed assets as indicated above. Thebasis of calculating the capital allowances was changed from the straight linemethod to the reducing balance method for all depreciable assets other thanbuildings. The tax rate for depreciation was also changed from 50% straightline to between 20% and 40% on reducing balance for all fixed assets (otherthan mining and petroleum operating assets and buildings):

The effect of the above policy change is that whereas under SMCD 5 structuresand building were depreciated over five (5) years this has been extended to ten(10) years under Act 592. All other depreciable assets other than those relatingto mining and petroleum operations have been extended from 2 years underSMCD 5 to periods of up to 40 years under Act 592.

Effect on Operating Leases

The implication of this on operating leases is that, the life-span of mostdepreciable assets financed under operating leases generally range betweentwo (2) and three (3) years; with exceptional circumstances extending to aboutfive years.

With the implementation of Act 592, leased assets which have been fullydepreciated will continue to have significant tax written down values. Thusleased assets which would have had their total gross rentals accounted for as


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income for tax purposes, would not equally have their full capital costs chargedagainst the total gross rentals as an expense in order to arrive at the lessor’staxable income and thus creating a mismatch. Consequently, lessors will haveto pay corporate taxes upfront in respect of which the tax relief will be grantedin future. The Act 592 is therefore inimical to the development of operatingleases in Ghana and makes it unattractive to the leasing companies.

2.3 Observations

(i) Some of the leasing companies are in breach of the lending limitsas stated in section 18 of the PNDCL 328 and rule 8 of the Bankof Ghana rule on non-bank financial institutions. The rule statesthat in respect of secured and non-secured facilities the value ofthe transaction should not respectively exceed 15% and 10% ofthe company’s net-worth.

Despite audit qualifications on the non compliance of this law, noleasing company has been sanctioned for this. As far back as1997, the regulator had indicated to the Ghana Association ofLeasing Companies that it would consider revising these limits butthat has not happened. Some of the leasing companies haveadvocated that the limits of unsecured facilities should be increasedfrom 10% of their net-worth to around 30% and for securedfacilities from 15% to 40% of their net worth. Others have alsosuggested that it be in line with the bank’s limit of (25%) forsecured facilities. They also make reference to the fact that witha finance lease the leasing company has the leased asset ascollateral whereas the banks are not in a similar position yet theyhave a higher threshold.

(ii) The stated capital for leasing companies is inadequate when thevalue of transactions underwritten is considered. An increase inthe stated capital would no doubt have a positive impact on thevolume and value of lease transactions. Some operators havesuggested that the stated capital be increased to ¢25billion, buthasten to add that shareholders appear to be cash strapped andalso noted that even with the new statutory minimum stated capitalrequirement of ¢10 billion this has been a problem for most ofthem to raise.

(iii) Access to competitively-priced funds is difficult for the non-banklessors, not to mention transaction costs especially when fundsraised are syndicated. Non-bank lessors borrow from thecommercial banks, and the banks of competitor bank lessors at


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market rates to supplement the relatively cheaper external sourcesof funding.

(iv) A tax incentive to financial institutions who lend to leasingcompanies would pay a 20% tax on interest income as opposedto the prevailing corporate tax rate of 25%.

(v) All the leasing companies take security deposits from the lesseesbut do not pay any interest on these deposits to the lessees at theend of the lease period.

(vi) All the leasing companies have their principal place of businessand operate in Accra, the capital city and all but two have someoperations in three of the other regions. The accounting recordsfor the lease transactions executed in the regions are in line withthat of respective head offices.

(vii) All the non-bank lessors have separate lease administrationsoftware but only one has the software interfaced with theaccounting package. The other two companies prepare regularmanual reconciliation of the output from the two programs. Indeed,one of the companies expressed preference for the stand-aloneprograms with the reason that, they serve as a check on eachother.

(viii) All the leasing companies conform to the Ghana NationalAccounting Standards and the International Accounting Standardsin accounting for all their lease transactions. They also considerthe provisions contained in these standards to be satisfactory.


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3.0 KEY RECOMMENDATIONS

(a) Ghana must ratify the UNIDROIT Convention on InternationalFinancial Leasing to encourage cross-border finance leasetransactions.

(b) to promote certainty, the definition of finance leases in the FinanceLease Law, 1993 (PNDCL 331) should be made to conform withthe Financial Accounting Standards Board criteria for differentiatingfinance leases from operating leases.

(c) A discussion on whether leasing institutions should continue to becategorized as non bank financial institutions under the FinancialInstitutions (Non-Banking) Law, 1993 (PNDCL 328) should takeplace. The capital and prudential requirements flowing from suchcategorization restricts available capital to carry out the activityof leasing. It is important to observe that the UNIDROIT Conventionon International Financial Leasing does not provide for theobservance of these prudential regulations by leasinginstitutions. Central Asian countries such as Kazakhstan andUzbekistan have phased out prudential requirements for leasingcompanies. Reforms of this nature have been credited with thegrowth in the leasing sector in Kazakhstan where volume of leasesincreased to become the largest by value in Central Asia (US$172.2 million worth of leases financed in 2004). However, thereare substantial benefits that leasing companies derive from beingregulated and some schools of thought believe that the costs ofnon-regulation far out-weigh its benefits. These costs and benefitsneed to be weighed carefully before a definite decision is made.

Options that could be considered for Ghana include removingleasing companies completely from the ambit of prudentialregulation on the one hand, or bringing them under a lower tierprudential regulatory regime. Option 1 would involve regulatingleasing companies only with respect to market conduct and theirbusiness activities without having to comply with minimum capitalrequirements, capital adequacy requirements, exposure limits, andreporting requirements, among others. Self-regulation of the leasingsector should be encouraged through a strengthened industryassociation to support this initiative. Option 2 would requiresubjecting leasing companies to lower prudential regulationrequirements in relation to deposit-taking NBFIs, less frequent andless stringent reporting requirements, and possibly no (or lowercapital requirements) and no exposure limits.


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(d) In the event that leasing companies should continue to be regulatedunder PNDCL 328 or any amendment or revision thereof, the singleparty exposure limit from15% of net worth should be increasedso as to give much room for the leasing companies to enter intoleasing transactions which adequately covers the clients’ needs.

(e) Review the Finance Lease Law, 1993 (PNDCL 331) such that:(i) its scope is extended to cover the rights and obligations ofoperating leases.(ii) rights and obligations of parties to a finance lease arestrengthened. Particularly, in the event of default by a lessee,non-judicial repossession of the leased asset by the lessor shouldbe enhanced through arbitration and other alternative disputeresolution methods. Lessors for example, would benefit from anautomatic right of possession if the terms of the lease are breachedby the lessee. With easy and clear repossession rights,leasing companies will be motivated to price leases with lowerrisk premium resulting in cheaper credit.(iii) Overlaps between the Finance Lease Law 1993 (PNDCL 331)and the Hire Purchase Decree dealing with operational mattersshould be removed to make for a clear distinction between leasingtransactions and hire purchase transactions.

(f) Section 6 of PNDCL 331 which requires all finance leases to beregistered with a registration authority to be designated by theBank of Ghana should be operationalised. A Finance Lease Registryshould be designated by the Bank of Ghana to promotetransparency in leasing transactions. The Registrar General’sDepartment or other body licensed to perform the function ofregistrars could be designated by BoG to register finance leases.

(g) Wider efforts at developing Ghana’s capital market should becontinued to promote more efficient allocation of capital to theleasing sector. Leasing companies can explore funding options fromthe issuance of medium-to-long-term notes or bond issues,securitization, and private equity funds.

(h) Provide incentives such as the Russian experience, where over alimited period concessionary tax rates were granted to leasingcompanies and/or particular assets financed under leasing

(i) The tax rate on income generated from funds lent by financialinstitutions to leasing companies should be a fixed difference, (forexample, 10%), between the concessionary tax rate and the


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corporate tax rate. What currently pertains whenever there is achange in the corporate tax rate, is that, the tax benefit alsochanges. For instance, in 2001, and 2005, the corporate tax rateswere respectively 32.5% and 28%, while the concessionary taxrate remained at 20%.

(j) To make lending to leasing companies an incentive to banks, werecommend that their loans to leasing companies are counted aspart of banks’ primary reserves. This would serve as an incentivefor banks to lend to leasing companies, since they could do so athigher rates than they currently receive from placing their reservesin T-Bills.

(k) For operating leases, a change in the basis of computing capitalallowance from the reducing method to a straight line basis couldbe considered. Furthermore, we recommend that the relief shouldbe written over the lease period. These changes would increasethe level of activity of operating leases since the lessor wouldhave an earlier and larger relief.


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APPENDIX : LESSOR PROFILES

ECOBANK LEASING LIMITED

Contact Information:19 Seventh Avenue, Ridge WestTel: 233 21 240448Fax: 233 217011856E-mail: [email protected]: www.ecobank.com

Chair of Board : Mr. Tei ManteHead, Investments: Mrs. Ronke Wilson

Legal Status/form: Established in: 1994No. of employees: 2Financial statementsin GhanaAccounting Standards

Founders (shareholders) Ecobank Ghana Limited: 100%at the end of 2005:

Sectoral Distributionof Leases, 2004: Not Available

Regional Distribution of Leasing:Regions: n/a

2004 2005

No. of New Lease 25 84Agreements:

Total value of leased assets, USD 700,000 4,244,444

Net Worth, USD 1,278,666 Not Available

Maximum Lease Limit in Compliance with Law:

- Maximum: 15% of 191,800 Not Availablenet worth, USD

Smallest Lease Size, USD (between 2001-2005) 7,466

Largest Lease Size, USD (between 2001-2005) 555,555


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Modal Lease Size, USD (between 2001-2005) >250,000

Average Lease Period 36months

Security Deposit, % 5%


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GENERAL LEASING AND FINANCE COMPANY

Contact Information:Mary Dee House, No. C/124/3,Subukwe Road, AccraTel: 233 21 231844, 231357, 226826Fax: 233 21 233636E-mail: [email protected]: www.glfcgh.com

Chair of Board: Mr. William Edem FugahCEO: Mr. William Yeboah

Legal Status/form: Established in: 1994No. of employees: 20Financial Statements in GhanaAccounting Standards

Shareholders at the Financial Institutions: 83.87%end of 2005: Private Individuals: 16.13%

Sectoral Distribution of Leases, 2004:



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Regional Distribution of Leasing:Regions: Greater Accra,

Ashanti, Western,Eastern, Central

2004 2005

No. of New LeaseAgreements: 28 38

Total value of leased assets, USD 2,133,686 3,922,502

Lease portfolio n/a n/a(# of outstanding lease agreements)

Net Worth, USD 553,666 1,469,666


- Maximum: 15% of net worth 83,050 220,450

Smallest Lease Size, USD(between 2001-2005) 1,210


Modal Lease Size, USD (between 2001-2005) <49,999

Average Lease Period: 24mnths

Security Deposit % 10%


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GHANA LEASING COMPANY LIMITED

Contact Information:Independence AvenueTel: 233 21 669408Fax: 233 21 668553E-mail: [email protected]: www.ghanaleasing.com

Chair of Board: VacantCEO: Mr. Ernest Mintah

Legal Status/form: Established in: 1992No. of employees: 10Financial Statements inGhana Accounting Standards

Founders (shareholders) Financial Institutions: 100%at the end of 2005:




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Ashanti, Western

2004 2005

No. of New LeaseAgreements: 19 16

Total value of leased assets, USD 5,817,777 4,911,111

Net Worth, USD 1,415,666 1,723,777


- Maximum: 15% of net worth USD 212,350 258,566

Smallest Lease Size, USD (between 2001-2005) 5,555


Modal Lease Size, USD (between 2001-2005) >250,000

Average Lease Period: 36months

Security Deposit, % 10%


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LEASAFRIC GHANA LIMITED

Contact Information:No 7 Main Street , Tesano, AccraTel: 233 21 251640-2, 228323, 240140-1, 230280Fax: 233 21 228375E-mail: [email protected]: www.leasfric.com

Chair of Board: Mr. Samuel Ashittey-AdjeiAg. CEO: Mr. Mathias Dorfe


Founders (shareholders) Financial Institutions: 74.14%at the end of 2005:

Private Individuals: 25.76%




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Ashanti, Western

2004 2005

No. New of LeaseAgreements: n/a 133

Total value of leased assets, USD n/a 3,524,767

Net Worth, USD (483,888) 2,488,000


- Maximum: 15% of net worth, USD (72,583) 373,200

Smallest Lease Size,USD (between 2001-2005) 1,111

Largest Lease Size, USD (between 2001-2005) 1,000,000

Modal Lease Size, USD (between 2001-2005) <50, 000

Average Lease Period 36months

Security Deposit % 5-10%


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MERBAN FINANCE AND LEASING

Contact Information:Merban House,44 Kwame Nkrumah Avenue, AccraTel: 233 21 251131-6Fax: 233 21 251138E-mail: [email protected]: www.merbankgh.com

Chair of Board: Mr. Blaise O. MankwaExecutive Director, Mr. Baah-SackeyInvestments:


Founders (shareholders) Merchant Bank 100%at the end of 2005:




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Regional Distribution of Leasing:Regions: Greater Accra, Ashanti

2004 2005

No. of New Lease Agreements: n/a 60

Total value of leased assets, USD 461,333 2,244,444

Net Worth, USD 236,777 276,777


- Maximum: 15% of net worth, USD 35,516 41,516

Smallest Lease Size, USD(between 2001-2005) 500


Modal Lease Size, USD <49,999

Average Lease Period: 36months

Security Deposit % 5%

Documents

Public Disclosure Authorized - World Bankdocuments.worldbank.org/curated/en/592081468253463092/pdf/402550GH0... · Most of the analysis, focuses on all lessors, bank and non-bank