INTRODUCTION TO LEASING

Leasing, as a financing concept, is an arrangement between two parties, the leasing company or lessor and the user or lessee, whereby the former arranges to buy capital equipment for the use of the latter for an agreed period of time in return for the payment of rent. The rentals are pre-determined and payable at fixed intervals of time, according to the mutual convenience of both the parties. However, the lessor remains the owner of the equipment over the primary period. By resorting to leasing, the lessee company is able to exploit the economic value of equipment by using it as if he owned it without having to pay for its capital cost. Lease rentals can be conveniently paid over the lease period out of profits earned from the use of equipment and the rent is cent percent tax deductible. The fundamental characteristic of a lease is that ownership never passes to the business customer. nstead, the leasing company claims the capital allowances and passes some of the benefit on to the business customer, by way of reduced rental charges. The business customer can generally deduct the full cost of lease rentals from taxable income, as a trading expense. !s with hire purchase, the business customer will normally be responsible for maintenance of the equipment.

HISTORY OF LEASING
"rom the ancient #amarian city of $r, archaeologists found clay tablets, which documented farm equipment leases from the year %&'& B(. )& years later, the *ing of Babylonia in his famous (ode of Hammurabi enacted the first leasing laws. The ancient civili+ations of ,gypt, -reece and .ome engaged in leasing transactions of real and personal property, while the /hoenicians actively promoted leasing by chartering ships to local merchants. Leasing first appeared in the $nited #tates in the '0&&1s to finance the use of horse-down wagons. By the mid-'2&&1s, railroad tycoons, involved third-party investors who would pool their funds, purchase railroad cars from a manufacturer, then lease the cars to the railroad in the form of 3equipment trust certificates4. n the early '5&&1s, companies began to act as lessors for equipment by leasing it out while maintaining title to it. 6ften, the lessees would be shippers who wanted control over their shipments without ownership. This method introduced the operating or true lease concept. 7eanwhile, other manufacturers were loo*ing for additional ways to sell their merchandise. They thought of installment sale, which allowed consumers and commercial mar*ets to augment their purchasing power by paying for equipment over time.

TYPE OF LEASING

Finance Leasing The finance lease or 8full payout lease8 is closest to the hire purchase alternative. The leasing company recovers the full cost of the equipment, plus charges, over the period of the lease. !lthough the business customer does not own the equipment, they have most of the 8ris*s and rewards8 associated with ownership. They are responsible for maintaining and insuring the asset and must show the leased asset on their balance sheet as a capital item. 9hen the lease period ends, the leasing company will usually agree to a secondary lease period at significantly reduced payments. !lternatively, if the business wishes to stop using the equipment, it may be sold second-hand to an unrelated third party. The business arranges the sale on behalf of the leasing company and obtains the bul* of the sale proceeds.

Operating Leasing f a business needs a piece of equipment for a shorter time, then operating leasing may be the answer. The leasing company will lease the equipment, expecting to sell it secondhand at the end of the lease, or to lease it again to someone else. t will, therefore, not need to recover the full cost of the equipment through the lease rentals.

This type of leasing is common for equipment where there is a wellestablished secondhand mar*et :e.g. cars and construction equipment;. The lease period will usually be for two to three years, although it may be much longer, but is always less than the wor*ing life of the machine !ssets financed under operating leases are not shown as assets on the balance sheet. nstead, the entire operating lease cost is treated as a cost in the profit and loss account.

Contract Hire: (ontract hire is a form of operating lease and it is often used for vehicles. The leasing company underta*es some responsibility for the management and maintenance of the vehicles. #ervices can include regular maintenance and repair costs, replacement of tyres and batteries, providing replacement vehicles, roadside assistance and recovery services and payment of the vehicle licenses

Sale an Lease !ac" an Direct Lease< n the arrangement of sale and lease bac*, the lessee sells his asset or equipment to the lessor :financier; with an advanced agreement of leasing bac* to the lessee for a fixed lease rental per period. t is exercised by the entrepreneur when he wants to free his money, invested in the equipment or asset, to utili+e it at whatsoever place for any reason. 6n the other hand, direct lease is a simple lease where the asset is either owned by the lessor or he acquires it. n the former case, the lessor and equipment supplier are one and the same person and this case is called =bipartite lease1. n bipartite lease, there are two parties. 9hereas, in the latter case, there are three different parties vi+. equipment supplier, lessor, and lessee and it is called tripartite lease. Here, equipment supplier and lessor are two different parties.
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Single In#estor Lease an Le#erage Lease: n single investor lease, there are two parties - lessor and lessee. The lessor arranges the money to finance the asset or equipment by way of equity or debt. The lender is entitled to recover money from the lessor only and not from the lessee in case of default by lessor. Lessee is entitled to pay the lease rentals only to the lessor. Leveraged lease, on the other hand, has three parties > lessor, lessee and the financier or lender. ,quity is arranged by the lessor and debt is financed by the lender or financier. Here, there is a direct connection of the lender with the lessee and in case of default by the lessor? the lender is also entitled to receive money from lessee. #uch transactions are generally routed through a trustee.

Do$estic an International Lease %Cross !or er lease&: 9hen all the parties of the lease agreement reside in the same country, it is called domestic lease. nternational lease are of two types > mport Lease and (ross Border Lease. 9hen lessor and lessee reside in same country and equipment supplier stays in different country, the lease arrangement is called import lease. 9hen the lessor and lessee are residing in two different countries and no matter where the equipment supplier stays, the lease is called cross border lease.

Capital lease: t is a lease obligation that has to be capitali+ed on the balance sheet. t is characteri+ed by< it is non-cancellable? the life of lease is less than the life of the asset being leased< and, the lessor does not pay for the up*eep, maintenance , or servicing costs of the asset during the lease period.

S'()lease: ! transaction in which leased properly is released by the original lessee to a third party, and the lease agreement between the two original parties remains in effect.

Feat'res an !ene*its o* a Leasing

Leasing allows you to drive a bigger, better, newer vehicle more often, with a smaller financial commitment than a personal loan, because you are only paying for the portion of the car you are using during the lease term. Typical features of a car lease include. .epaying only what you use. The monthly repayments of a lease are calculated on the vehicle1s depreciation during the lease term.

7ust have a balloon. The balloon payment reflects what your vehicle is expected to be worth at the end of the loan term.

so the sale of the vehicle should pay out your balloon. 9ith a lease you must set a balloon amount, for example a @ year lease may have a A)B
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residual balloon, a four year lease could have a @)B residual and a ) year lease may only be able to have a %)B residual.

Higher insurance costs. The cost of insuring a leased vehicle as opposed to one you own outright can be higher.

Cou can *eep the vehicle. !t the end of the lease term you are able to ma*e an offer on the vehicle to buy it, and this amount will need to come from your poc*et.

Dehicle value. Cou may also have to pay an amount out of your poc*et if there is a difference between the residual value and the mar*et value of the vehicle at the end of the lease term. This could be due to unexpected wear and tear on the vehicle, or higher miles which diminish its value.

Limited miles. ! lease may impose a limit on the number of miles you can travel during the lease term and the more miles you drive, the more expensive your lease can be. n some cases there are additional charges payable at the end of the lease if you go over the limited miles. !t the same time, the more miles a vehicle has done, the lower its resale is so even if your lease has unlimited miles, *eep your residual value in mind.

AD+ANTAGES AND DISAD+ANTAGE OF LEASING,

A #antages o* Leasing
-, No Large O'tla. The biggest advantage of leasing equipment is that the cost is spread over a number of years? there is no need for you to pay the entire amount upfront. This can significantly help maintain cash flow, which is critical to all businesses. /oor cash flow is the main cause of small business failures, and leasing can help you to *eep it under better control. Leasing can also allow you to use better equipment :e.g. ! more efficient E faster E more accurate product; that would be too expensive to buy outright. /, Sec'rit. 9hen you lease a product, it is still owned by the leasing company, meaning that they have better security on your finance. This means you are unli*ely to need any further security to be able to start a leasing contract, and therefore you have a much better chance of acceptance :passing the credit chec*; than with other forms of finance. 0, Ta1 A #antages Lease rentals are considered as an operating cost, which means that it is often possible to deduct them from taxable profits :as a trading expense;. However, you should always chec* that the equipment you are buying is eligible before agreeing to a contract. f your business pays no or minimal taxes, then some leasing companies will claim the capital allowance on your behalf, and lower the leasing costs accordingly. 2, !' geting !s a lease agreement is almost always a fixed contract, it is relatively easy to budget and forecast with. The amount can be wor*ed into your businesses budget much more easily than an irregularly occurring lump sum? allowing you to *eep a much better control over current and future cash flow. n the event that you need an item replacing quic*ly, you can do so with a relatively
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minor monthly adFustment to the budget, instead of a lump sum that could seriously damage cash flow.

Disa #antages o* Leasing

-, No O3ners4ip The main disadvantage of leasing is that you never own the product. t remains the property of the leasing company during and after the lease. The only exception being if you arrange for it to be sold to another company or person, in which case the leasing company would receive the money and a percentage would be passed bac* to you :depending on the amount, product type, age, and which leasing company you use;. !s you do not own the product, you are unable to sell it in the event it is no longer needed, and you cannot upgrade to a newer or better product without either paying off the remaining contract, or paying a large fee to cancel the contract. Cou also need to carry on paying a smaller lease cost, even after the cost of the equipment has been fully covered. Hire purchase will allow you to own the product at the end of the agreement, but this is normally more difficult to arrange, and is often available only on highly costly items. /, Long Ter$ E1pense !lthough leasing allows you to avoid paying a large lump sum, over a long period of time it often wor*s out considerably more expensive. 6ver the course of a standard lease, you pay the cost of the equipment as well as the leasing companies charges. !fter the lease finishes you need to carry on paying rental to use the product :although after the initial lease the cost of rental goes down significantly;. This means that over a number of years, you will pay considerably more than the actual cost of the equipment without ever actually owning it. 0, 5aintenance
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!lthough you do not own the equipment that you lease, you are still responsible for its maintenance and repair. $nless you have specifically trained employees to fix the equipment, then this could prove very costly in the event of a serious fault. #ome leasing companies will allow you to cover the maintenance and repair costs for an extra sum :which is added to the monthly leasing cost;. This will increase your monthly payments, but may save you money in the long run? particularly with manual or highly technical products that may go wrong frequently, and may cause severe disruption if out of action. (over is normally through the leasing company itself, or through a separate insurance policy. (ar leasing is slightly different, as many of these agreements include basic maintenance. However, it is vitally important to chec*, as some will not include it in the basic price, and the terms and conditions will vary with each leasing company. 2, Lost ta1 (ene*its: ! potential disadvantage of leasing is losing the tax benefits of depreciation deductions that come with ownership. This disadvantage may be insignificant, however, if the 3lost4 benefits are offset by deduction of rental payments or if revenue income is less or tax liability is less anyways because of other factors of taxation.

INTRODUCTION TO HIRE PURCHASE

Hire purchase is a type of installment credit under which the hire purchaser, called the hirer, agrees to ta*e the goods on hire at a stated
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rental, which is inclusive of the repayment of principal as well as interest, with an option to purchase. $nder this transaction, the hire purchaser acquires the property :goods; immediately on signing the hire purchase agreement but the ownership or title of the same is transferred only when the last installment is paid. The hire /urchase !ct, '50% defines a hire purchase agreement as, =an agreement under which goods are let on hire and under which the hirer has an option to purchase them in accordance with the terms of the agreement and includes an agreement under which<a; /ossession of goods is delivered by the owner thereof to a person on condition that such person pays the agreed amount in periodical installments, and b; the property in the goods is to pass to such person on the payment of the last of such installments, and c; such person has a right to terminate the agreement at any time before the property so passes.

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HISTORY OF HIRE PURCHASE

Hire purchase has been there in ndia for more than G decades. The first hire purchase company is believed to be (ommercial (redit (orporation, successor to !uto #upply (ompany. This company was based in 7adras. n north ndia, 7otor and -eneral "inance and nstallment #upply (ompany was set up. This was around '5%). (onsumer durables hire purchase was promoted by the dealers in the equipment. #inger #ewing 7achine or 7urphy radio dealers would provide installment facilities on hire purchase basis to the customers of their products. Hire purchase of commercial vehicles also has flourished fast.

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Feat'res an !ene*its o* a Hire P'rc4ase

9hen you enter into a hire purchase arrangement, your financier is agreeing to purchase equipment > or a vehicle > on your behalf, and then hire it bac* to you over a set term. This means you have the use of the vehicle during that term, but don1t own it. 6ther features of a hire purchase include< ! loan term of between three and five years. !s part of the hire agreement you can choose how long you want to hire your vehicle bac* for.

Cou own the vehicle at the end. !t the end of a hire purchase agreement, once you have made your final payment and any balloon payment you implemented, the vehicle is automatically yours.

$pfront costs. 9hen you first enter into a hire purchase you will need to ma*e an initial loan payment and pay a deposit, stamp duty and registration fees. n some cases you can negotiate that some of these fees be added to the hire amount.

"ull monthly repayments. The monthly repayments due on your hire purchase will be calculated on the total amount of the purchase price, plus interest charges, duties and other loan fees.

Ho you want a balloonI 9ith a hire purchase you can choose whether or not to have a balloon payment due at the end of the loan term. Having a balloon payment will lower your monthly repayments, but this amount will be payable at the end of the term, and you need it to correlate to the mar*et value of the vehicle at the time.
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 7ore expensive insurance. 9hen you are hiring a vehicle rather than buying it outright, your insurance company can often impose higher premiums.

Jeep, sell or refinance your hire purchase. !t the end of the hire purchase term you can *eep the car after you ma*e your final payment and pay out any balloon. Cou can also sell or trade in the vehicle, but the ris* of dropping value now become yours. 6r you can refinance the balloon amount over a new term if you want to *eep the vehicle for a few more years.

$nlimited miles. There are no limits to the miles you can put on the cloc* with a hired vehicle, but Fust *eep in mind that the more miles the vehicle has, the lower its value will be at the end of the hire term. Tax benefits. 9ith a hired vehicle you are able to claim depreciation of the purchase price, plus the interest charges on your loan, and the ongoing running costs of the vehicle, based on the percentage of business use.

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AD+ANTAGES AND DISAD+ANTAGE OF HIRE PURCHASE, A #antages o* Hire P'rc4ase

#pread the cost of finance. 9hilst choosing to pay in cash is preferable, this might not be possible for consumer on a tight budget. ! hire purchase agreement allows a consumer to ma*e monthly repayments over a prespecified period of time. '; Interest)*ree cre it #ome merchants offer customers the opportunity to pay for goods and services on interest free credit. This is particularly common when ma*ing a new car purchase or on white goods during an economic downturn. %; Hig4er acceptance rates

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The rate of acceptance on hire purchase agreements is higher than other forms of unsecured borrowing because the lenders have collateral? @; Sales ! hire purchase agreement allows a consumer to purchase sale items when they aren8t in a position to pay in cash. The discounts secured will save many families money? A; De(t sol'tions (onsumers that buy on credit can pursue a debt solution, such as a debt management plan, should they experience money problems further down the line.

Disa #antages o* Hire P'rc4ase

'; Personal e(t ! hire purchase agreement is yet another form of personal debt it is monthly repayment commitment that needs to be paid each month. /& Final pa.$ent ! consumer doesn8t have legitimate title to the goods until the final monthly repayment has been made. 0& !a cre it,

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!ll hire purchase agreements will involve a credit chec*. (onsumers that have a bad credit rating will either be turned down or will be as*ed to pay a high interest rate? 2& Cre itor 4arass$ent 6pting to buy on credit can create money problems should a family experience a change of personal circumstances. 6& Repossession rig4ts ! seller is entitled to 8snatch bac*8 any goods when less than a third of the amount has been paid bac*. #hould more than a third of the amount have been paid bac*, the seller will need a court order or for the buyer to return the item voluntarily.

Di**erent 5et4o o* Hire p'rc4ase

F'nction Hire purchases are used to acquire houses, automobiles, furniture, and other large items that generally cannot be paid in a lump sum. Hire purchases function as legal documents for which the lender can legally hold the title until the item is paid in full.

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T.pes ! hire purchase can be an installment or deferred payment plan. n the former, a set monthly payment is paid on a certain day each month for a specified length of time. !fter the last payment, the item becomes the purchaser8s property. n the latter, the property immediately belongs to the purchaser while payments are regularly made.

Ti$e Fra$e ! hire purchase can be for a few months up to many years. The interest rate can vary from low to high, depending on the institution granting the agreement. $sually, a more expensive item will be set up for '&, '), or more years. Typically, a mortgage covers a span of @& years.

Facts To be valid, a hire purchase must be signed by both parties. t should contain a description of the item, the price paid, the deposit :if any;, monthly amounts due, statement of each party8s rights, and requirements, if any, for early termination.

!ene*its Hire purchase allows a person to buy an item, such as a house, over a long period of time. 9ith such an agreement, the buyer can enFoy his property while ma*ing payments. The buyer also has the right to sell the property and allow the new purchaser possession of his house.

7arning

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f the purchaser fails to ma*e the installments in a timely manner, the lender has the right to repossess the property or item. n severe cases, the purchaser may file for foreclosure or ban*ruptcy, at which time the item8s ownership will be returned to the lender.

Consi erations -enerally, a person must be at least '2 years of age to enter into a valid hire purchase. There is no upper age limit to incurring such a purchase agreement. ,ach person should carefully consider his financial position before incurring any type of hire purchase.

Stan ar Pro#isions o* Hire P'rc4ase

To be valid, H/ agreements must be in writing and signed by both KpartiesL.They must clearly lay out the following information in a print that all can read without effort< '. ! clear description of the goods %. The cash price for the goods
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@. The H/ price, i.e., the total sum that must be paid to hire and then purchase the goods A. The deposit ). The monthly instalments :most states require that the applicable interest rate is disclosed and regulate the rates and charges that can be applied in H/ transactions;. G. ! reasonably comprehensive statement of the parties8 rights :sometimes including the right to cancel the agreement during a Mcooling-offM period;. 0. The right of the hire to terminate the contract when he feels li*e doing so with a valid reason. T4e seller an t4e o3ner f the seller has the resources and the legal right to sell the goods on credit :which usually depends on a licensing system in most countries;, the seller and the owner will be the same person. But most sellers prefer to receive a cash payment immediately. To achieve this, the seller transfers ownership of the goods to a "inance (ompany, usually at a discounted price, and it is this company that hires and sells the goods to the buyer. This introduction of a third party complicates the transaction. #uppose that the seller ma*es false claims as to the quality and reliability of the goods that induce the buyer to MbuyM. n a conventional contract of sale, the seller will be liable to the buyer if these representations prove false. But, in this instance, the seller who ma*es the representation is not the owner who sells the goods to the buyer only after all the instalments have been paid. To combat this, some Furisdictions, including reland, ma*e the seller and the finance house Fointly and severally liable to answer for breaches of the purchase contract

I$plie 3arranties an con itions to protect t4e 4irer

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The extent to which buyers are protected varies from Furisdiction to Furisdiction, but the following are usually present< '. The hirer will be allowed to enFoy quiet possession of the goods, i.e. noone will interfere with the hirer8s possession during the term of this contract 2. The owner will be able to pass title to, or ownership of, the goods when the contract requires it @. That the goods are of merchantable quality and fit for their purpose, save that exclusion clauses may, to a greater or lesser extent, limit the "inance (ompany8s liability 9here the goods are let by reference to a description or to a sample, what is actually supplied must correspond with the description and the sample. T4e 4irer8s rig4ts The hirer usually has the following rights< '. To buy the goods at any time by giving notice to the owner and paying the balance of the H/ price less a rebate :each Furisdiction has a different formula for calculating the amount of this rebate; %. To return the goods to the owner N this is subFect to the payment of a penalty to reflect the owner8s loss of profit but subFect to a maximum specified in each Furisdiction8s law to stri*e a balance between the need for the buyer to minimi+e liability and the fact that the owner now has possession of an obsolescent asset of reduced value @. 9ith the consent of the owner, to assign both the benefit and the burden of the contract to a third person. The owner cannot unreasonably refuse consent where the nominated third party has good credit rating A. 9here the owner wrongfully repossesses the goods, either to recover the goods plus damages for loss of quiet possession or to damages representing the value of the goods lost.
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T4e 4irer8s o(ligations The hirer usually has the following obligations< '. To pay the hire instalments %. To ta*e reasonable care of the goods :if the hirer damages the goods by using them in a non-standard way, he or she must continue to pay the instalments and, if appropriate, compensate the owner for any loss in asset value; @. To inform the owner where the goods will be *ept. A. ! hirer can sell the products if, and only if, he has purchased the goods finally or else not to any other third party. t is pretty much similar to instalment but the main difference is of ownership. T4e o3ner8s rig4ts The owner usually has the right to terminate the agreement where the hirer defaults in paying the instalments or breaches any of the other terms in the agreement. This entitles the owner< '. to forfeit the deposit %. to retain the instalments already paid and recover the balance due @. to repossess the goods :which may have to be by application to a (ourt depending on the nature of the goods and the percentage of the total price paid; A. to claim damages for any loss suffered.

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DIFFERENCE !ET7EEN HIRE PURCHASE AND LEASING

Hire p'rc4ase is also i**erent *ro$ leasing: -& O3ners4ip: n a (ontract of lease, the ownership rests with the lesser throughout and the lease has no option purchase the goods. /& 5et4o o* Financing: Leasing is method of financing business assets whereas hire purchase is a method of financing both business assets and consumer articles. 0& Depreciation:

n leasing, depreciation and investment allowance cannot be claimed by the lessee, n hire purchase, depreciation and investment allowance can be claimed by the hirer. 2& Ta1 !ene*its: The entire lease rental is tax deductible expense. 6nly the interest component of the hire purchase instalment is tax deductible. ); Sla#age +al'e:
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The lessee, not being the owner of the asset, does not enFoy the salvage value of the asset. The hirer, in purchase, being the owner of the asset, enFoys salvage value of the asset. 9& Deposit: Lessee is enquired to ma*e any deposit whereas %&B deposit us required in hire purchase. :& Rent)P'rc4ase: 9ith lease, we rent and with hire purchase we buy the goods. ;& E1tent o* Finance: Lease financing is invariably '&& percent financing, t requires no immediate down payment or margin money by the lessee. n hire purchase a margin equal to %&-%) percent of the cost of the asset is to be paid by the hirer. 5; 5AINTENANCE: The cost of maintenance of the hired asset is to be borne by the hirer himself. n case of finance lease only, the maintenance of leased asset is the responsibility of the lesse.

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CASE STUDY LEASING

CSI Leasing C'sto$er /erforms complex data analysis from oil and gas exploration findings Headquartered in the southern $.#., with operating divisions on three continents and five countries

7aintaining the most current technology systems critical to business model

T4e Pro(le$ The primary reason this company leases technology is to stay current. ! cornerstone of their competitive advantage lies in the ability to quic*ly compute complicated data and statistical analysis. Cet, with each global division choosing technology lessors autonomously, the corporate headquarters was burdened with a variety of problems. There was little consistency in lease terms and conditions, or in the way leases were accounted for financially. Hespite a corporate policy mandating that all leases comply with $.#. "!#B '@ treatment for operating leases, the different international structures made it nearly impossible for the corporate accounting group to validate compliance. T4e Sol'tion 6ur customer1s goals for each international operating division were< prenegotiated terms, consistent lease rates worldwide and a refresh schedule determined by the corporate office. !lready enFoying a long-term relationship
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with (# Leasing for the $.#. operations, the ( 6 and ("6 turned to (# to examine a global technology leasing solution. Their (# account executive too* on the role of global account manager, and wor*ed inside (# to set up a consistent global program. Ho3 7e Di It Because their $.#. account executive has direct access to our international administration group, it was not difficult to ma*e this happen. 9e established a single worldwide program to meet each of our customer1s goals. By negotiating all terms and lease rates globally, we were able to help our customer meet their "!#B '@ requirements, while also allotting for differences in local tax laws. ,liminating poor choices on a local level also helped our customer increase operational efficiencies. 9ith two dedicated (# lease administrators worldwide :one for all of Oorth !merica and one for ,urope;, they now have a consistent and personal support team for ordering and documentation procedures. !dditionally, the corporate technology group enFoys the ability to view global leased asset details through 7y (# in each location. "or this customer, the synergies from having a consistent theme worldwide show from an accounting, operations and competitive standpoint.

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Case St' . Hire P'rc4ase

This study attempts to analy+e the quantitative as well as qualitative information to identify and evaluate the performance and current state of affairs of finance companies in the field of hire purchase financing in /o*hara. The study reveals that the credit-deposit ratios are very satisfactory. The relationship between total deposit collection and total loan to hire purchase loan is highly significant. The businessperson and professional users are predominantly rushing in utili+ing the hire purchase financing due to the easy payment terms. The .. on hire purchase loan is normally higher than their explicit rate of interest and service charge. ,xcept in few cases, there are loan defaulters in all finance companies. n general, the performance of finance companies in hire purchase financing is satisfactory. The (ommonest method 6" selling property is the cash sale. The credit sale system is an alternative method of cash sale. The third system of selling property is the instalment system. n, installment system, property are delivered to the buyer immediately but payments is made in periodic installments such as wee*ly or monthly, quarterly or half-yearly or yearly so on. Hire purchase and installment purchase systems are the maFor parts of
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installment system. However, hire purchase installment system is the prime concern of this study. 9ith an increasing demand for better life, the consumption of property has been on the uprising scale. This has not been bac*ed up by adequate purchasing power, transforming it into effectual demand :7u*harFee and Hanif '552;. This has created the mar*et for hire purchase system. 9hen a person is unable to acquire an asset against immediate cash payment, he may arrange with the vendor to stagger the payment. "inancial institution plays role of facilitators between buyer and seller to enter into the hire purchase agreements. Hirepurchase agreement ma*es it possible for businesspersons, professionals and others to ta*e advantage of assets all of which enable them to organi+e and operate their activities effectively. !fter the liberali+ation policy introduced in '55&, the financial sector especially the finance companies have contributed significantly to increase the hire purchase business in Oepal. n this study, therefore, an attempt has been made to analy+e the current performance of finance companies in /o*hara in the field of hire purchase financing.

Concl'sion
Today asset based financing has formed an integral part of the "inancing scenario. This is because firms today can1t afford to buy the equipment sE machines outr ight. Oot all fir ms today ar e t hat financi al ly sound. Today fir ms fi nd it extr emely di fficul t t o obt ai n fi nancial ai d fr om t he nor mal sources. "irms that have the financial capacity prefer to hireElease the equipments it releases the financial burden as well as provides tax benefit of depreciation. ,specially /roFect financing has come of age as most of the ban*s today are into proFect financing. ,arlier it was chartered accountants who indulged into proFect financing but now it is more of ban* involvement. But today the growth in /roFect "i nance i s low wher e as l ease and hire purchase are on a upward tr end wi th more and more companies li*e BaFaF, Hero Honda providing their products on hire. #o in the changing
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economi c and financi al environment of ndi a, asset based financing has assumed an extremely important role.

!i(liograp4.

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