Magazine article Economic Review

Asian Leasing Corporation Limited

Magazine article Economic Review

Asian Leasing Corporation Limited

Article excerpt

Leasing is basically a term loan or industrial credit which is structured according to the cash flow and taxation position of the borrower. Leasing offers a range of options to an investor or equipment user. Leasing has been recognised as one of the acceptable modes of financing under the non-interest based/Islamic system of financing. Leasing permits the use of capital equipment without initially owing it.

In a lease financing operation the end user or borrower, called "the Lessee", does not purchase the required equipment at the outset but has the right of using it for a certain period for which payment of rentals are made to "the Lessor", who remains the owner of the said equipment for the lease period. At the end of the lease period an option is provided to the lessee to purchase the equipment at its financial residual value.

Cost Benefits

In the industrialised countries, a significant volume of capital assets have been leased, thereby releasing funds that would have remained tied in the ownership of these capital assets for growth, as well as, for working capital needs. Certain advantages of Leasing arrangements to the end user "the Lessee" are given as under:-

* Leasing provides funds for 100 per cent of the equipment, cost including associated costs such as import duties, and surcharges etc.

* It improves the return on equity through increased use of leverage.

* It increases turnover/sales without committing the resources of an enterprise.

* Leasing rentals represent a periodical expense, which may be set according to the case flow generation by the leased equipment over the period of a leasing arrangement.

* Leasing preserves borrowing capacity for other equipment or activities and has a positive effect on the cash-flow, as the principle of leasing is "Pay-as-you-earn".

* Generally, leasing contracts provide for similar term financing as normal bank loans while the cash cost is lower. …

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