Finance

January 2016

Briefing

Financial leasing
in Tanzania
In this months finance update, we provide an
overview of the Tanzanian financial leasing industry
from a legislative and regulatory perspective.
Financial leasing is a situation where one party, the lessor, buys an asset from
a supplier, usually under a supply agreement (Supply Agreement) and leases it
to another party, the lessee, under a financial lease agreement (the Agreement).
In practice, the lessee pays regular (usually monthly) instalments equivalent to
the full value of the asset over the term of the lease plus a return on capital to
the lessor.

Legislation in Tanzania
There are two main laws regulating financial leasing in Tanzania:
a. The Financial Leasing Act 2008 (the Act)
b. The Banking and Financial Institutions (Financial Leasing) Regulations 2011
(the 2011 Regulations)
The Act provides the legal framework for regulating financial leasing operations
in Tanzania. Although the principal legislation is the Act, the 2011 Regulations
were not made as subsidiary legislation to the main Act, they are however relied
upon by entities conducting financial leasing operations in Tanzania.

The Act
Application
The Act specifically states that it shall apply to any financial lease of an asset if:
a. the asset is within Tanzania;
b. the lessees centre of main business is within Tanzania; or
c. the Agreement provides that Tanzanian law governs the transaction.
The Act recognises that under the Agreement, the lessor leases an asset to the
lessee in exchange for money consideration (usually in the form of periodic
payments) for purposes of the lessees business operations. In practice, one will
find that not all financial leasing arrangements in Tanzania are entered into by
the lessee for purposes of the lessees business operations, in some situations, the
lessee leases the asset for personal reasons (eg leasing a power generation tool in
order to electrify a home).
Rights, obligations and duties
A lessor has the obligation to grant the lessee quiet enjoyment and possession
of the leased asset. The liability of the lessor for the defects in title to the leased
asset shall not be limited under the Agreement.
In circumstances where the leased asset is not delivered to the lessee, the lessees
obligations under the Agreement shall be suspended. Upon the occurrence of
such an event, the lessee may:

a. 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 damages; or

under the Registration of Documents Act RE 2002 which

is an optional registration but has a similar effect, ie the
public is put on notice regarding the Agreement entered into
between the lessor and the lessee and the existing interests.

c. give the lessor an extension of time.

The 2011 Regulations

The supplier of the asset owes the lessee a similar duty as

regards the quality and fitness of the asset as he would
owe the lessor under the Supply Agreement; which is why
the lessee may take action directly against the supplier in
respect of material defects. However, the supplier shall not
be liable to both the lessor and the lessee in respect of the
same damage.
In circumstances where the lessee is unable to enforce the
suppliers warranties as a result of the absence of privity
of contract, the lessor is obliged to take reasonable steps
(commercially) to assist the lessee with the enforcement of
the warranties.
At the expiration of the Agreement, the lessee is required
to return the asset to the lessor, unless the Agreement is
renewed or the lessor agrees for the lessee to purchase
the asset. In circumstances where the Supply Agreement
is terminated due to the lessees default, the lessor has
the right to demand payments due from the lessee under
the Agreement.
The lessee may lease the asset to a sub-lessee provided that
consent is obtained from the lessor. On the other hand,
the lessor is permitted to assign the asset without consent
of the lessee provided that it does not infringe the lessees
quiet enjoyment of the asset.
Third party claims and interests
The title of the lessor or his assignee under an Agreement
shall prevail at all times over claims by third parties except
as against a purchaser in good faith under a non-registered
financial lease.
The lessee is under the obligation to inform the lessor of
any impediment or disturbances by third parties against
the leased asset. Furthermore, the lessee is prohibited from
creating any charge or encumbrance over the leased asset
during the term of the lease. In the event that the lessee
creates a charge or encumbrance, it shall be void against
all creditors.
Registration of financial lease agreements and
leased assets
Parties to an Agreement are required to register assets
under the Agreement with the Registrar of Financial Lease
Agreements. The registration will serve as a notice to third
party purchasers of existing interests in the leased asset.
To date, the registry has not been established however
we understand that the Ministry of Finance is working on
establishing the same. In the absence of this formal registry
for financial leases and leased assets, parties may choose
to register the Agreement with the Registrar of Documents

Application
The 2011 Regulations apply to all financial leasing
operations (except micro leasing operations) made by
banks, financial institutions or their subsidiaries and
financial leasing companies (the Companies). Micro leasing
operations are classified under the 2011 Regulations as
all of the finance leasing operations with the following
characteristics:
a. where the average value of the asset in the portfolio is up
to Tshs 10 million; and
b. where the leasing term is short-term and not exceeding
24 months.
Eligibility
An entity may not engage in financial leasing operations
unless it has a licence issued by the Bank of Tanzania (BoT).
In practice, banks and financial institutions already licensed
by BoT under the Banking and Financial Institutions Act
2006 may engage in financial leasing.
Application process
Every applicant shall submit to BoT an application for a
licence in a manner prescribed in the schedule under the
2011 Regulations. There are several documents required
at a minimum to be accompanied by the application,
these include:
a. A copy of the memorandum and articles of association
and authenticated legal documents authorising the
signatory
b. Description of accounting system and communication
technology in use or to be used
c. Number of employees, job descriptions of senior
management positions and an organisation chart
d. Description of internal control procedures
e. Narrative description of shareholders, board members
and senior management
f. Business plan and financial projections in accordance
with the guidelines provided for under the 2011
Regulations
g. Policies and procedure manuals establishing that the
Company will operate in a manner consistent with
international best practice
An application for a licence shall be submitted together with
a bankers cheque of Tshs 3 million or any other amount as
may be determined by BoT from time to time. This is a nonrefundable application fee.

Organisation, ownership and minimum capital

The board of directors of the Company shall have a membership of not less
than five persons, two of whom shall have experience in financial leasing
operations and, majority of whom shall be non-executive. Furthermore, the
board of directors of the Company shall ensure that appropriate policies on
risk management are in place and shall be responsible and accountable for the
execution of such policies. These policies include:
a. a credit policy for financial leasing and investment decisions consistent with
best practice and guidelines issued by BoT; and
b. a system for measuring, monitoring, internal risk rating and provisioning
consistent with best practice and guidelines issued by BoT
The Company shall maintain a core capital of at least Tshs 1 billion or higher
amount as the BoT may prescribe from time to time.

Further information
If you would like further information
about carrying out a Security Review
or, if you have any other queries
about security relating to finance
transactions please feel free to contact:

Peter Kasanda
Partner, Dar es Salaam
E: peter.kasanda@clydeco.com
T: +255 767 850 056

Salim Bharwani
Associate, Dar es Salaam
E: salim.bharwani@clydeco.com
T: +255 767 850 007

Michaela Marandu
Associate, Dar es Salaam
E: michaela.marandu@clydeco.com
T: +255 767 850 094

Clyde & Co Tanzania

11th Floor, Golden Jubilee Towers
Ohio Street, PO Box 80512
Dar es Salaam, Tanzania
T: +255 768 983 000/022
F: +255 222 103 004
Further advice should be taken before relying on
the contents of this summary.
Clyde & Co Tanzania accepts no responsibility
for loss occasioned to any person acting or
refraining from acting as a result of material
contained in this summary.
No part of this summary may be used,
reproduced, stored in a retrieval system or
transmitted in any form or by any means,
electronic, mechanical, photocopying, reading
or otherwise without the prior permission of
Clyde & Co Tanzania.
Clyde & Co LLP is a limited liability partnership
registered in England and Wales. Authorised and
regulated by the Solicitors Regulation Authority.
Clyde & Co LLP 2016
CC009311 - January 2016

Companies are not permitted to invest in capital expenditure for the purpose
of opening a representative office, subsidiary, branch, agency or additional
office outside of Tanzania (Offices) without prior approval from BoT.
Additionally, Companies are required to notify BoT prior to any opening or
closing of their Offices.
Regulation by BoT under the 2011 Regulations
BoT may at times consider it necessary to:
a. carry out an inspection of the operations of financial leasing Companies; or
b. require Companies to provide information or comply with any order; or
c. require Companies to provide written reports periodically on their financial
leasing operations.
Entities engaged in micro leasing operations may rely on the Act for purposes of
regulation by the Registrar of Financial Lease Agreements under the Act (which
is yet to be established by the Ministry of Finance).
Clyde and Co Tanzania has extensive experience advising clients on all aspects
of financial leasing. We welcome the opportunity to discuss this with you in
more detail.