January 29, 2016

Financial leasing in Tanzania

In this month’s finance update, we provide an overview of the Tanzanian financial leasing industry from a legislative and regulatory perspective.

Financial leasing is a situation where one party, the lessor, buys an asset from a supplier, usually under a supply agreement (Supply Agreement) and leases it to another party, the lessee, under a financial lease agreement (the Agreement). In practice, the lessee pays regular (usually monthly) instalments equivalent to the full value of the asset over the term of the lease plus a return on capital to the lessor.

Legislation in Tanzania

There are two main laws regulating financial leasing in Tanzania:

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


The Act specifically states that it shall apply to any financial lease of an asset if:

a. the asset is within Tanzania;
b. the lessee’s centre of main business is within Tanzania; or
c. the Agreement provides that Tanzanian law governs the transaction.

The Act recognises that under the Agreement, the lessor leases an asset to the lessee in exchange for money consideration (usually in the form of periodic payments) for purposes of the lessee’s business operations. In practice, one will find that not all financial leasing arrangements in Tanzania  are entered into by the lessee for purposes of the lessee’s business operations, in some situations, the lessee leases the asset for personal reasons (eg leasing a power generation tool in order to electrify a home).

Rights, obligations and duties

A lessor has the obligation to grant the lessee quiet enjoyment and possession of the leased asset. The liability of the lessor for the defects in title to the leased asset shall not be limited under the Agreement.

In circumstances where the leased asset is not delivered to the lessee, the lessee’s obligations under the Agreement shall be suspended. Upon the occurrence of such an event, the lessee may:

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
c. give the lessor an extension of time.

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 supplier’s 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 lessee’s 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 lessee’s 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 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.

The 2011 Regulations


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.


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 banker’s 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.

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.