Lease Financing in Kenya: a Critique of the Adequacy of the Legal and Regulatory Framework

Abstract

Leasing as a business model continues to thrive and develop in the Kenyan market thus requiring banks to be innovative to cater for this emerging niche by offering lease financing. Lease financing is an emerging bank product that helps banks move away from the traditional financing models in the wake of competition amongst banks and from other players in the financial sector including capital market and mobile services. The development of lease financing is also occasioned by the emergence of and aggressive marketing by independent leasing companies. The main challenge facing banks in offering this product is the lack of a clear legal and policy framework. The Banking Act as the main statute regulating banking business and activities is unclear as to whether lease financing is permissible under the realm of banking business or whether some of the activities undertaken in the course of offering lease financing are prohibited under part III of the Banking Act. The Central Bank of Kenya as the regulator is yet to make any policy directive with regards to lease financing. Lease financing therefore is currently offered in a disharmonised manner. Some banks have continued to apply the existing statutes like Hire Purchase Act, Chattels Transfer Act and Companies Act especially when taking securities from the borrowers. This state of affairs inevitably leads to the arising of several legal issues that this study has highlighted and considered in relation to the adequacy of the existing legal framework. In its consideration, this study examines the legal framework in other relevant jurisdictions and considers a case study in respect of Tanzania and South Africa to put in perspective how these jurisdictions grapple with lease financing, and what aspects are worth emulating. The study concludes with making recommendations with the optimism that the policy makers may consider implementing.