2 Elements of Leasing
3 Types of Leasing
4 Leasing Finance Institutions in India
financing is one of the popular and common methods of assets based finance,
the alter native to the loan finance. Lease is a contract. A contract Under
which one party, the leaser (owner) of an asset agrees to grant the use of that
Asset to another leaser, in exchange for periodic rental payments.
contractual agreement between the owner of the assets and user of the assets
for a specific period by a periodical rent.
be defined as a contractual arrangement in which a party owning an asset
provides the asset for use to another, the right to use the assets to the user
over a certain period of time, for consideration in form of periodic payment,
with or without a further payment.
to the equipment leasing association of UK definition, leasing is a contract
between the lesser and the leaser for hire of a specific asset selected from a
manufacturers or vender of such assets by the lessee. The leaser retains the
ownership of the asset. The leassee pass possession and uses the asset on payment
for the specified period.
2 Elements of Leasing
Parties : These are essentially
two parties to a contract of lease financing, name ly the owner and user of the
Leaser: Leaser is the owner of the
assets that are being leased. Leasers may be
individua l partnership, joint
stock companies, corporation or financial institutions.
Lease: Lease is the receiver of
the service of the assets under a lease contract.
Lease assets may be firms or
Lease broker: Lease broker is an
agent in between the leaser (owner) and lessee.
He acts as an inter mediary in
arranging the lease deals. Merchant banking divisions of foreign banks, subsidiaries
indian banking and private foreign banks are acting as lease brokers.
Lease assets : The lease assets
may be plant, machinery, equipments, land, automobile, factory, building etc.
3 Types of Leasing
1. Financing lease
lease is also called as full payout lease. It is one of the long-term leases
and cannot be cancelable before the expiry of the agreement. It means a lease
for terms that approach the economic life of the asset, the total payments over
the term of the lease are greater than the leasers initial cost of the leased
asset. For example: Hiring a factory, or building for a long period. It
includes all expenditures related to maintenance.
2. Operating lease
lease is also called as service lease. Operating lease is one of the short-term
and cancelable leases. It means a lease for a time shorter than the economic
life of the assets, generally the payments over the term of the lease are less
than the leaser‘s initial cost of the leased asset. For example : Hiring a car
for a particular travel. It includes all expenses such as driver salary,
maintenance, fuels, repairs etc.
3. Sale and lease back
lease back is a lease under which the leasee sells an asset for cash to a
prospective leaser and then leases back the same asset, making fixed periodic
payments for its use. It may be in the firm of operating leasing or financial
leasing. It is one of the convenient methods of leasing which facilitates the
financial liquidity of the company.
4. Direct lease
lease belongs to the owner of the assets and users of the assets with direct
relationship it is called as direct lease. Direct lease may be Dipartite lease
(two parties in the lease) or Tripartite lease. (Three parties in the lease)
5. Single investor lease
lease belongs to only two parties namely leaser and it is called as single
investor lease. It consists of only one investor (owner). Normally all types of
leasing such as operating, financially, sale and lease back and direct lease
are coming under this categories.
6. Leveraged lease
of lease is used to acquire the high level capital cost of assets and equipments.
Under this lease, there are three parties involved; the leaser, the lender and
the lessee. Under the leverage lease, the leaser acts as equity participant
supplying a fraction of the total cost of the assets while the lender supplies
the major part.
7. Domestic lease
In the lease transaction, if both the parties
belong to the domicile of the same country it is called as domestic leasing.
8. International lease If the
lease transaction and the leasing parties belong to the domicile of different
countries, it is called as international leasing. Advantages of Leasing Leasing
finance is one of the modern sources of finance, which plays a major role in
the part of the asset based financing of the company. It has the following
1. Financing of fixed asset
finance helps to mobilize finance for large investment in land and build ing,
plant and machinery and other fixed equipments, which are used in the business
2. Assets based finance
provides finance facilities to procure assets and equipments for the company.
Hence, it plays a important and additional source of finance.
finance is convenient to the use of fixed assets without purc hasing. This type
of finance is suitable where the company uses the assets only for a particular
period or particular purpose. The company need not spend or invest huge a mount
for the acquiring of the assets or fixed equipments.
4. Low rate of interest
rent is fixed by the lease agreement and it is based on the assets which Are
used by the business concern. Lease rent may be less when compared to the Rate
of interest payable to the fixed interest leasing finance like debt or loan
malities and arrangement of lease finance facilities are very simple and easy.
If the leaser agrees to use the assets or fixed equipments by the lessee, the
leasing arrangement is mostly finished.
cost When the company mobilizes finance through debt or equity, they have to
pay some a mount as transaction cost. But in case of leasing finance,
transaction cost or floating cost is very less when compared to other sources
7. Reduce risk
finance reduces the financial risk of the lessee. Hence, he need not buy the
assets and if there is any price change in the assets, it will not affect the
8. Better alternative
days, most of the commercial banks and financial institutions are providing
lease finance to the industrial concern. Some of the them have specialised
lease finance company. They are established to provide faster and speedy
arrange me nt of lease finance.
4 Leasing Finance Institutions in India
leasing finance becomes popular and effective financial sources for most of the
business concerns. With the importance of lease finance, now a days banks and
financial institutions provide leasing financial assistance to the industrial
concern. The following institutions are famous and widely providing lease
finance in India:
financial institutions in India may be classified into the following groups.
by Development Institutions
development institutions are providing leasing finance assistance to industrial
concerns. Some of the public sector leasing finance company in India are follows:
Credit & Investment Corporation of India (ICICI)
Finance Corporation of India (IFCI)
Investment Bank of India (IIBI)
Industries Development Corporation (SIDC)
Industrial Investment Corporation (SIIC)
Leasing by Specialized Institutions
financial institutions also provide lease finance to the industrial concern.
the lease finance providing institutions are as follows:
Insurance Corporation of India (LIC)
Insurance Corporation of India (GIC)
Trust of India (UTI)
Development Finance Corporation of India (HDFC)
Private Sector Leasing Company
sector leasing companies also provide financial assistance to the industrial
The following are the example of the private sector leasing companies in
Century Leasing Corporation Ltd.
Leasing Company of India
Private Sector Financial Company
sector financial companies also involve in the field of leasing finance. The
following are the example of the private sector finance companies:
manda l Investment and Finance Company Ltd.
Sundaram Finance Limited
Nagarjuna Finance Limited.