Lease
Financing in Bangladesh
Abstract:
Lease financing is the
most important issue that determines the direction of financial behavior in an
organization, a financial level of effort, and the organization’s level of
persistence in the face of obstacles of other types of financing. Now-a-days
lease financing is the most emphasized topic to any challenging institution or
organization to develop their financial resources as well as profit
maximization or maximization of owner’s equity. Lease financing is so central
to management because it explains why it is better for the organization to
gather financially solvency by lease financing. By lease financing an
organization can reach its specific destination. If an organization has
effective lease financing efficiency it can survive & develop quickly than
others. At first an organization considers lease financing and other financing
cooperatively with one another than it takes decision to apply lease financing
or other financing whichever is best. If other financing is the best than the
lease financing then it will be selected, not lease financing. So from this
comment it will be clear that lease financing must be selected it is not
necessary. So which is the best is considerable matter.
Introduction:
A lease is a contract
whereby the owner of an asset (the lessor) grants to another party (the lessee)
the exclusive right to use the asset in return for the payment of rent. Lease
financing in Bangladesh means financing according to the methods of lease in Bangladesh. Sometimes it is more
acceptable than others financing. Actually it is more profitable in some
special sectors where other financing will bless profitable than lease
financing. Most of us are familiar with lease of apartments, cars, and
telephones. Bangladesh is a developing country, so lease financing is not very
easy to apply here. In spite of these problems there are many sectors where
lease financing is strictly applied.
Methodology:
We have used secondary
sources of information in preparing our report on lease financing of
Bangladesh. To prepare this term paper we have taken the help of numerous
books, computer lab of business faculty of university of Dhaka. We have ferret
out the gist from different descriptive publication and analysis done by
different companies and individual authority on lease financing of Bangladesh.
Website of different leasing companies highly helped us by providing important
information. We also have incorporated important information from different
national daily and periodic newspapers like the financial express, The daily
star etc. in our report.
Lease Financing:
Lease is a contract between the owner and the
user of assets for a certain time period during which the second party uses an
asset in exchange of making periodic rental payments to the first party without
purchasing it. Under lease financing, the lessee regularly pays the fixed lease
rent over a period of time at the beginning or at the end of a month, 3 months,
6 months or a year. At the end of the lease contract the asset reverts to the
real owner.
However, in case of
long-term lease contracts, the lessee is generally given the option to buy the
leased asset or renew the lease contract. The three major types of leases are
the operating lease, financial/capital lease and the direct financing lease.
The operating lease is a short-term lease contract where the lesser bears all
operating and repairing costs of the asset and the lessee pays periodic rental
payments to the lesser, and where the lease is cancelable, and there is no
bargain purchase option. Financial/capital lease is a long-term lease contract
where the lessee bears all operating, repairing and maintenance costs, and
makes periodic rental payments to the lesser. The lease is not cancelable and
the lessee has the option for bargain purchase or renewal of lease contract at
the end of the original lease period. In a direct financing lease, the lessor
leases the asset by manufacturing or by purchasing from the manufacturer to the
lessee directly and the lessee makes regular rental payments to the lessor. The
lessor holds the ownership of the asset until the end of the lease period and
the lessee holds the possession of the asset. In addition to these major types,
there are some other types of lease such as sale and lease and leveraged lease.
Legally, a leasing
company is defined as one having the business of hiring plants or equipment or
of financing their hire by others. The International Finance Corporation
promotes leasing as a method of financing industrial development in the
developing countries as a part of its capital market development strategies.
Lease Financing in Bangladesh:
Bangladesh is a
developing country, but the national calamity and political unrest sluggish the
industrial growth as well as economic growth of the country. In spites of all
these hindrance the growth of leasing companies is a significant indication of
our bright prospects.
Lease financing was
first introduced in Bangladesh in the early 1980s. Industrial Development
Leasing Company of Bangladesh Ltd. (IDLC), the first leasing company of the
country, was established in 1986 under the regulatory framework of BANGLADESH
BANK. It was a joint venture of the Industrial Promotion and Development
Company of Bangladesh Ltd. (IPDC), International Finance Corporation, and Korea
Development Leasing Corporation. Another leasing firm, the UNITED LEASING
COMPANY Ltd. started its operations in 1989. The number of leasing companies
grew quickly after 1994 and by the year 2000, rose to16. At present there are
22 leasing companies operating their business.
The leasing business became competitive with
the increase in the number of companies and wider distribution of their market
share. There are, however, 6 other companies conducting leasing business in the
country, although they do not use the word leasing in their names. In terms of
money value, the leasing business in Bangladesh increased from Tk 41.44 million
in 1988 to Tk. 3.16 billion in 2000.The leasing companies now operating in the
country are Industrial Development Leasing Company of Bangladesh, United
Leasing Company, GSP Finance Company (Bangladesh), Uttara Finance and
Investments, Bay Leasing and Investment, Phoenix Leasing Company, Prime Finance
and Investment, International Leasing and Financial Services, Union Capital,
Vanik Bangladesh, Peoples Leasing and Financial Services, Bangladesh Industrial
Finance Company, UAE-Bangladesh Investment Company, Bangladesh Finance and
Investment Company, and First Lease International.
Lease financing, as
organized in Bangladesh, operates with the following objectives: (a) to assist
the development and promotion of productive enterprises by providing equipment
lease financing and related services; (b) to assist in balancing,
modernization, replacement and expansion of existing enterprises; (c) to extend
financial support to small and medium scale enterprises; (d) to provide finance
for various agriculture equipment; and (e) to activate the capital market by operating
as managers to the issue, underwriters, or portfolio managers.
The functions of a
lease business include lease financing, short-term financing, house building
financing, and merchant banking and corporate financing. In this last group of
functions, the leasing business in Bangladesh moved away from regular leasing
activities and is now involved in stock-market related activities such as issue
management, underwriting, trust management, private placement, portfolio
management, and mutual fund operation. Broad capital market operations of the
lease financing institutions include bridge financing, corporate counseling, mergers
and acquisition, capital restructuring, financial engineering, and lease syndication.
Prominent among the sectors of the economy that now receive lease financing services
are textiles, apparels and accessories, transport, construction and engineering,
paper and printing, pharmaceuticals, food and beverage, chemicals, agro-based
industries, telecommunications, and leather and leather products.
Commercial banks and development
finance institutions (DFIs) have been the traditional lending institutions in
Bangladesh. In fact, the concept of lease financing is a relatively new one in
the country. Initially, leasing companies had to adopt the role of educators to
make Bangladeshi entrepreneurs aware of the benefits of leasing. However, as
DFIs demonstrated poor recovery and fund recycling performances, leasing got
the opportunity to develop as an alternative source of funding. A few other
factors also contributed to development of the leasing business in the country.
For example, the commercial banks have been keener in providing trade financing
and FOREIGN EXCHANGE dealings rather than long-term loans because of the risks
involved and their longer gestation period. The selection of lease proposals is
relatively free from extraneous pressure and is subject to a quality level
appraisal. Under lease agreements in the private sector, projects are
sanctioned and implemented expeditiously, resulting in benefits in time and
cost savings. Private leasing companies also attract clients by providing
relatively better services. The down payments in leasing are not high and in
case of lease financing, incidental costs incurred in the process of import
clearing, installation, and commercial production recapitalized, which
substantially reduce the initial investment.
Leasing companies, however, face some problems
in conducting their business in the country. The relatively slow growth of the
demand side compared to the fast growth of the lease business is one such
problem. This leads many leasing companies to operate in partial capacity. The
culture of loan default that prevails in the country is also a deterrent.
Leasing companies often find it difficult to raise funds through short- or long-term
borrowing from money and capital markets. They are hard pressed to deal with
the financial assets because of the present laws of the country, which are also
not fully enforceable.
Leasing business is
gaining increased importance in the economy of Bangladesh with its gradual
transformation from an agrarian to industrial one. The government periodically
revises the trade and industrial policy to create a liberal business environment
both for domestic and foreign investment. Increased investment in the energy
sector as well as in power, transport, telecommunications, water and sanitation,
and safe disposal of wastes is expected to bring further opportunities for
leasing industries.
The traditional
sources of funds of our country in the financial market are – the Commercial
Banks, DFIs and the stock exchange. But these sources are not enough to
effectively meet the growing demand of capital investments for
industrialization of the country. And the backdrop of such scenario, leasing companies
came forward in the 80s to serving as an alternative source of financing. At
present there are 22 leasing companies operating their business.
The name of the
leasing companies:
1. Industrial
Development Leasing Company of Bangladesh Ltd. IDLC
2. United Leasing Company
3. Uttara Finance
& Investment company Ltd.
4. Phonenix Leasing
company Ltd
5. Bay leasing &
Investment Ltd.
6. International
Leasing & Finance Company Ltd.
7. GSP Finance company
(BD) Ltd.
8. Prime Finance & Investment Ltd.
9. Vanik Bangladesh Ltd.
10. Prime Bank Ltd.
11. AIMS of Bangladesh Limited
12. National
Housing Finance And Investments Ltd
13. Oru Private Ltd.
14. Abeeco Industries Ltd.
15. Anudip Hire Purchase Co. Ltd
16. Industrial Finance Ltd.
17. MIDAS (Micro Industrial Deviopment Assistance
Security)
18. PROYOJONI
19. Islamic Trade and Commerce Ltd.
20. Pioneer Credit Co-operative Society Ltd.
21. Arco
Industries Ltd.
22. Medipower
Company
COMPANIES AT A GLANCE:
Industrial Development
Leasing Company of Bangladesh limited is established in1985 as a joint venture
public Limited Company with the multinational collaboration of International
Development Finance Institution ,Commercial Banks, Insurance Company and
Foreign Leasing Corporation. During the past fourteen years of its operation,
IDLC has played a catalytic role in providing alternative source of term and
capital asset financing to the private sector. IDLC’s primary focus has been in
the area of 3-5 year term financial leasing with particular emphasis on
balancing, modernization, replacement and expansion (BMRE) of existing units.
With its pioneering vision IDLC has not only established lease financing as an
efficient and quality financial service but also laid the foundation for the
creation of ten other leasing companies. Today lease financing has grown to be
an industry of Taka 3.5 billion per annum.
IDLC and its
institutional shareholders have upheld their commitment towards the development
of the financial service sector by offering high quality service to local entrepreneurs.
To ensure steady and long term growth as well as to sharpen its competitive
edge in a changing and challenging business environment. Short-term Finance
which have broadened its customer base and are expected to contribute significantly
to IDLC’s growth and profitability.
IDLC established its
first branch office in Chittagong in 1990. In January 1993, the company
offered its shares to
the public. In terms of market capitalization, it is ranked among the top 20listed
companies in both Dhaka and Chittagong Stock Exchange.
Services provided by IDLC
Lease Financing:
DLC provides lease
financing for all types of manufacturing and service equipment including
vehicle, computer and medical equipment to all the major industrial and service
sector.
Short Term Finance:
With an objective to
provide solution to working capital problems, STF Unit provides different financial
services to clients. Emphasis is given to identifyingclients’ actual need and
in providing customized service to cater them.
House Financing:
IDLC extends loan
facilities to Individuals for purchase of apartments, Businesshouses
professionals for purchase of commercial spaces (office space chamber display
centre etc.)
Shareholding
Structures:
Portfolio Management
IDLC offers Portfolio Management
services to both individual and institutional investors through our subsidiary,
IDLC Investments Limited. Investors can avail our services through our major
discretionary investment accounts
Supplier Finance
Supplier Finance is a revolving financing
facility offered against receivables created due to supply of goods or delivery
of services on credit
Women Entrepreneur Loan
Women Entrepreneur Loan is a loan
facility offered to small and medium business enterprises operated by women
entrepreneurs.
Investment Banking
With a rich experience in Investment
Banking, we assist our clients to our best throughout the IPO process, along
with sustained market support.
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Industrial
development Leasing Company of Bangladesh limited (IDLC)
Shareholding
Structure
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SHAREHOLDING
COMPOSITION OF IDLC FINANCE LIMITED
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Equity
Statistics
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2008
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2009
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2010
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2011
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2012
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Growth
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Number
of shares (No.)
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2,500,000
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3,000,000
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6,000,000
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99,000,000
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123,750,000
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25.00%
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Year
end market price per share (Taka)
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2,289.00
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3,703.00
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4,648.00
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138.50
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91.90
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-33.65%
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Net
asset value per share (Taka)
|
16.28
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24.17
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37.27
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40.21
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47.41
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17.91%
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Market
capitalization
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5,723
|
11,109
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27,888
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13,712
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11,373
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-17.06%
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Market
value addition
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212.62
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346.13
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427.53
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98.29
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44.49
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-54.73%
|
Incorporation of the Company April 27, 1989
Shareholding Structure
the shareholding structure of ULC given bellow:
.Authorized Capital
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3,000 million..
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..Paid-up-capital
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1,108 million..
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.Name of Shareholders
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No
of Shares
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Shareholding
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..United Insurance Co. Ltd.
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26,316,006
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20.64%
.
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..Lawrie Group Plc, U.K.
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25,502,400
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20.00%
.
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..Surmah Valley Tea Co. Ltd.
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10,549,920
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8.27%
.
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..Duncan Brothers (Bangladesh) Ltd.
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1,275,120
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1.00%
.
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..Macalms Bangladesh Trust
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1,229,373
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0.96%
.
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..Octavius Steel & Co. of BD Ltd.
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910,786
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0.71%
.
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..The Lungla (Sylhet) Tea Co. Ltd.
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739,611
|
0.58%
.
|
..Camellia Duncan Foundation
|
145,810
|
0.11%
.
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..The Chandpore Tea Co. Ltd.
|
89,161
|
0.07%
.
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..Amo Tea Co. Ltd.
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78,246
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0.06%
.
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. Chittagong Warehouses Ltd.
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75,927
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0.06%
.
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..The Allynugger Tea Co. Ltd.
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75,831
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0.06%
.
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..The Mazdehee Tea Co. Ltd.
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75,775
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0.06%
.
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..Duncan Products Ltd.
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75,734
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0.06%
.
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Services by (ULC)
Analyzing
Profitability & company performance
Net Working Capital is
a measure of liquidity of a firm. It is not a ratio, it measure a minimum level
of net working capital that the firm should maintain.
The net working capital
of both the companies (IDLC, ULC) in both the years is negative. That means,
they are suffering from liquid asset (cash) to meet the current liabilities.
The net working capital has been decreased in 2012, 2011 than in both the
companies, IDLC and ULC. The reason is that the increased of current liabilities
much than increased of current assets.
In comparison, ULC is
better position of net working capital than IDLC in both the years.
Total asset turnover
indicates the efficiency with which the firm uses its assets to generate sales.
The total asset turnover of IDLC indicates average efficiently of its assets
have been used because the higher a firm’s total asset turnover the more efficiently
its assets have been used.
The total asset
turnover of United Leasing Company is efficient. Because it indicates the ULC
has been efficiently using its assets.
Even
under these challenging environment; ULC’srevenue registered a
25.20% growth over last year. Net Profit after Tax
achieved a 7.35% growth over last year.
Earnings per Share (EPS) on the basis of current number
of share, increased by 7.81% (from Taka 1.92 in 2011 to Taka
2.07). Net Asset Value (NAV), on the basis of current
number of share, increased by 8.89% (from Taka 16.19 in 2011
to Taka 17.63).
In compared with the
IDLC the total asset turnover of ULC is much better because the higher a firm’s
total asset turnover the more efficiently its assets have been used.
The growth of IDLC was
not satisfactory only 5.1% in 2011 and (2.1%) in 20 12.In 2012 the growth was negative i.e. lease contract
growth has decreased.
On the other hand, ULC
lease contract growth was satisfactory in the year of 2012 &2011. The lease
contract growth of 2012 has increased than 2011.
Total asset turnover
indicates the efficiency with which the firm uses its assets to generate sales.
The total asset turnover of IDLC indicates average efficiently of its assets
have been used because the higher a firm’s total asset turnover the more efficiently
its assets have been used.
The total asset
turnover of United Leasing Company is efficient. Because it indicates the ULC
has been efficiently using its assets.
IDLC Revenue (Rental)
760,225,167 801,268,786
Total Assets
2,050,904,961 2,075,899,918 Total
assets turnover 0.37 times 0.39 times
ULC Revenue (Rental)
509,314,689 672,263,098
Total assets
1,324,002,652 1,563,348,607Total assets turnover 0.38 times 0.43 times In
compared with the IDLC the total asset turnover of ULC is much better because the
higher a firm’s total asset turnover the more efficiently its assets have been used.
Lease Operation:
IDLC Lease contract 900,700,000 947,000,000 927,100,000
Growth (%) 5.1 (2.1)
ULC Lease contract 591,000,000
708,000,000 880,000,000
Growth (%) 20 24
The growth of IDLC was
not satisfactory only 5.1% in 2011and (2.1%) in 2012.In 2012 the growth was
negative i.e. lease contract growth has decreased. On the other hand, ULC lease
contract growth was satisfactory in the year of 2011& 2012. The lease
contract growth of 2012 has increased than 2011.Per above calculation, ULC”s
lease contract growth 292% & 1243% more than IDLC for the year 2011 &
2012 respectively.
Bangladesh Finance and Investment Company Limited
(BFICL)
A non-banking finance
company incorporated in Bangladesh on 10 May 1999 as a public limited company.
It began business on 15 February 2000. It’s authorized and paid up capital are
Tk. 500 million and Tk. 23 million respectively. The capital is divided into
ordinary shares of Tk. 100 each.
Major business objectives of the company are
carrying out direct trade, term and working capital financing, equity
participation, housing finance, fund management, financial and industrial
counseling and merchant banking activities of all types.Main sectors in which
the company has targeted to lease and invest are transport, electric and
electronic goods (including computers), leather, textile, printing, marine
vehicles and equipment, steel and engineering, fishing boats and trawlers, medical
equipment and small scale industries.
BFICL purchases
property in its own name and pays 60% to 70% of the total price of a particular
property to its supplier. After accumulating and adding all other relevant/
incidental costs with the original purchase price such as transportation, insurance
premium, and costs related to letter of credit, and the rent or profit/income
margin, the company determines the lease price of the property. Then it signs
lease contracts with the lessee, generally for two to four years, and hands
over the properties to him for use. The lease contracts require security or
collateral from the lessee in various forms. Lease installments, payable generally
on a monthly basis, are determined on the basis of the lease price of
properties and the relevant factors. Lease contracts are renewed each year. On
the expiry of the lease periods/contracts, the lessee can gain the ownership of
the leased property/equipment upon payment of 5% of the transfer value of the
equipment as salvage value of the property. Alternatively, the ownership and
physical possession of the property goes back to the lessor.
BFICL provides lease
facilities against one or more of the following securities: (a) bank
guarantee/insurance guarantee; (b) easily
Leasing Law in Bangladesh
Leasing is an asset
renting activity, and is therefore, governed by common law. The Contracts Act
1872 applies to contracts of leases. Sections 148 to 171 of the Contracts Act
cover provisions relating to bailment.
As these provisions
are identical to those applicable under English law, the chapter devoted to
general law of leasing adequately covers the law in Bangladesh as well.
It may be noted that
the general law of contracts is limited to bailments of
"goods"."Goods" include movable property only - immovable
property is not covered by common law. As it the common feature of all
Anglo-Saxon legal systems, transactions in immovable properties are covered by
a separate system of laws.
Taxation of Leases in
Bangladesh:
The taxation system in
Bangladesh has been a subject matter of criticism over a last few years. The
system is characterized by a large number of incentives, tax holidays and
concessions as a result of which the share of corporate taxation to total tax
collection by the Govt. has come down drastically over the past few years.
Taxes on corporate
profits, of both domestically and foreign owned companies amounts insignificant
as a 0.95% of GDP in Bangladesh, compared with more than 6% in developed
nations. The main reason cited for this low contribution is the tax incentives
granted by the Govt. which are very liberal as compared to its counterpart
countries.
It is probably with
tax reform in view that the Govt. carried out certain reforms in depreciation
laws in Budget 1998-99. Among other provisions, the important change that would
have a far reaching effect on leasing companies is the change in depreciation
system by scrapping of initial year depreciation allowance, extra shift allowance
and normal depreciation, replaced by a single rate of normal depreciation.
The
following are the important features of taxation of leasing in Bangladesh:
No true lease
guidelines:
There are apparently
no rules to distinguish genuine lease transactions from plain financing
transactions. This is one of the most important rules to have in a developing
market and an important lesson can be learnt in this regard from India.
A lease, in order to
qualify for tax deduction, has to be different from a plain financial
transaction. Evidently, no depreciation benefit can be claimed in case of a transaction
of simple financing of an asset. In addition, one must also appreciate that if
an agreement has the color of a lease transaction but in essence is nothing but
a financial transaction, the outer form of the transaction will be ignored, and
based on its intrinsic substance, it would be reckoned as a financial
transaction.
The meaning of the
above is that if a lessor in Bangladesh writes a lease transaction which has
the legal form of a lease, but is in substance nothing but a financing
transaction on the security of an asset, such lease will not be regarded as a
lease but as a secured financing. Obviously, it is not enough to call an
agreement a lease agreement: in taxation, nomenclatures are ignored and the
reality is looked into.
To guide parties as to
what are the important attributes of a lease transaction that would distinguish
it from a financial transaction, one would find, in advanced leasing markets,
detailed rules or standards that define a true lease. In absence of such
guidelines, it is quite common, particularly in nascent stages of development of
an industry, for players to make mistakes which turn out to be costly both for
the revenue and for the players themselves.
India, like
Bangladesh, does not have true lease guidelines. As a result, around1987-1989,
when leasing grew very rapidly in the country, a number of lessors wrote leases
for assets that never existed. There was obviously no intent to cheat the
revenue, but such practices were founded on a premature belief that all agreements
which look like lease agreements will be acceptable for tax purposes.
Even today, in spite
of the fact that India today is a mature market compared tomany others, a
number of Indian lessors make mistakes which would only prove to be fatal over
time.
The trouble with a
no-rule regime is that it encourages unintentional mal practices. Of course,
tax avoidance and evasion can exist even where there are elaborate rules, but
the trouble with absence of rules is that it breeds innocent non-compliance.
Bangladesh must notify
true lease guidelines, and sooner the better. It must, most importantly,
educate tax payers on what is the elementary distinction between a lease and a
hire-purchase transaction, since in the latter case, depreciation cannot be
claimed by the lessor.
No clear distinction between lease and hire-purchase
The difference between
lease and hire-purchase transactions is a crucial difference for all countries
which allow depreciation based on ownership of an asset. It is a basic rule of
law that "ownership" for tax purposes is not merely legal ownership
-it must be backed by beneficial ownership. Beneficial ownership implies the
right to attain benefits of ownership at some point of time. In a hire-purchase
transaction, the legal owner (finance company) cannot be treated as beneficial owner,
since, having provided the user with a right of purchase; the owner has diverted
himself of beneficial interest completely.
Currently in
Bangladesh many of the lease transactions are in fact hire-purchase transactions,
as the sale of the asset to the lessee, even if not incorporated in the contract
of lease, is mostly inherent and pre-agreed.
This practice, which
in opinion of the author will be a problem over time as the revenue officials
get more of education on lease taxation, can be resolved either by proper
training or by a proper law.
Incentives claimable by the lesser:
Tax incentives are
surely responsible for the growth of leasing in most markets. In many markets, tax
incentives have been a very strong reason for reducing the cost of lease
transactions to make it viable for lessor to operate.
On an impassioned
study of Bangladesh taxation statutes, one finds there are plenty of incentives
that can be claimed by leasing companies in Bangladesh, in spite of major
reforms in taxation in 1998-99.
Primarily, the
following incentives are provided for in the Income-tax Ordinance in relation
to capital assets:
Depreciation allowance
as per Third Schedule, being:
Normal depreciation
allowance
Extra-shift allowance,
deleted from 1998-99 assessment year
Initial depreciation, deleted from 1998-99
assessment years]
Accelerated depreciation for plant or
machinery used in new undertakings, or expansion of existing undertakings.
Accelerated
depreciation for plant for treatment and disposal of toxic waste, or in research
and development in any undertaking owned and managed by a company
Obsolescence allowance
on sale or disposal of a depreciable asset.
Investment allowance
for assets eligible for accelerated depreciation
Investment allowance
in respect of balancing, modernization and replacement equipment
Though the practice
among companies in Bangladesh presently is to claim only depreciation, there
appears to be little reason for not claiming the investment allowance and
accelerated depreciation allowance as well, in respect of eligible assets.
If normal depreciation
as well as investment allowance/accelerated depreciation are claimed by leasing
companies, leasing in Bangladesh is a very profitable proposition and is
considerably better than loans or hire-purchase. However, if investment
allowance is not claimed or allowed to leasing companies, then leasing will be
considerably disadvantageous to hire-purchase in most cases, as may be seen
with numerical calculation.
Analysis:
About leading lease
financing company in Bangladesh
ICB Provides lease
finance mainly for procurement of industrial machinery, equipment and
transport. ICB provides professional advice and financial assistance to the
intending clients. The period of lease, rental, charges, and other terms and conditions
are determined on the basis of type of assets and the extent of assistance required
by the applicants. Since introduction of this scheme in 1999 good responses
have been received from the intending lessees.
Industrial Development Leasing Company of Bangladesh
(IDLC):
IDLC specializes in
project financing and provides innovative investment solutions. This includes
investing in projects that add value and contribute to the country's overall
economic development. It invests through equity participation, term lending and
lease financing. IDLC has played pivotal role in almost all the industrial
sectors. It has also special focus in infrastructure and social sector projects.
IDLC has also been
providing innovative investment solutions and project advisory services to its clients
in industrial and social sectors like education and health care. IDLC makes
investments in order to achieve a number of objectives:
-Employment and income
generation
-Revenue generation
for the government
-Production capacity
addition
-Earned or saved
foreign exchange
-Linkage and business
development
-Skills and technology
transfer
-Offering environmental risk assessment and
its management
The positive image
IPDC has created has been established through more than two
Decades of consistent
commitment towards excellence in providing financial
Services. With a
conscious effort to anticipate influences in the domestic and
Foreign investment,
IPDC has the ability to adapt to the changing needs of time.
Bangladesh Finance and Investment Company Limited (BFICL):
A non-banking finance
company incorporated in Bangladesh on 10 May 1999 as a public limited company.
It began business on 15 February 2000. BFICL purchases property in its own name
and pays 60% to 70% of the total price of a particular property to its
supplier.
On the expiry of the
lease periods/contracts, the lessee can gain the ownership of the leased
property/equipment upon payment of 5% of the transfer value of the equipment as
salvage value of the property. Alternatively, the ownership and physical
possession of the property goes back to the lesser.
Conclusion:
The leasing market is
becoming more competitive because of the new leasing companies are entering the
market. However, There are still leasing companies are doing well. The
political stability and overall economic development is an essential
precondition of the smooth growth of this sector. If we can ensure these two
preconditions, the leasing sector of Bangladesh would be able to perform a
strong role in our industrial development. If we disuses more and more about
lease financing, and if we try to spread it among our general public about its advantages,
we will go clearly ahead. It is very favorable to apply lease financing in Bangladesh.
From above discussion, it is clear that, in many sectors lease financing is
better than other financing. If we know about lease financing properly, we can use
or we can avail all the advantages of lease financing where other financing is not
favorable for us.
Appendixes:
Net Working Capital:
IDLC 2012 2011
Current asset 387543923 549496742
Less: Current Liability 625,436,987 999,906,522
Net working capital (404,881,062) (683,394,217)
ULC
Current asset 284,005,632 214,854,300
Less: Current Liability 367,620.005 999,906,522
Net working capital (83,614,373)
(205,598,693)
Lease Operation:
IDLC Lease contract 900,700,000 947,000,000 927,100,000
Growth (%) 5.1
(2.1)
ULC Lease contract 591,000,000 708,000,000 880,000,000
Growth (%) 20
21
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