BM Leasing in Emerging Markets

Leasing in Emerging Markets
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(c) The International Bank for Reconstruction and Development / The World Bank

Lessons of Experience Series
Copyright © 1996
The World Bank and International Finance Corporation
1818 H Street, N. W.
Washington, D. C. 20433, U.S.A.
All rights reserved

Manufactured in the United States of America
First printing July 1996
The International Finance Corporation (IFC), an affiliate of the World Bank, promotes the economic development
of its member countries through investment in the private sector. It is the world's largest multilateral organization
providing financial assistance directly in the form of loan and equity to private enterprises in developing
countries.
The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors and should
not be attributed in any manner to the IFC or the World Bank or to members of their Board of Executive Directors
or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this
publication and accepts no responsibility whatsoever for any consequence of their use. Some sources cited in this
paper may be informal documents that are not readily available.
The material in this publication is copyrighted. Requests for permission to reproduce portions of it should be sent
to Director, Corporate Planning Department, IFC, at the address shown in the copyright notice above. The IFC
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Index of Publications , which contains an alphabetical title list (with full ordering information) and indexes of
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Unit, Office of the Publisher, The World Bank, 1818 H Street, N.W., Washington, D.C. 20433, U.S.A., or from
Publications, The World Bank, 66 Avenue d'Iena, 75116 Paris, France.
Laurence W. Carter is a senior policy analyst in the Corporate Planning Department of IFC. Teresa Barger is a
manager in IFC's Office of the Vice President for unknown
Operations, and Irving Kuczynski is Director of Financial
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Sector Issues in the same office. Mon, 16 Nov 2009 10:36:27
Leasing in Emerging Markets 1
This serial publication has been cataloged by the Library of Congress as follows:
Library of Congress Cataloging−in−Publication Data

Carter, Laurence W., 1960−
IFC's experience in promoting leasing in developing countries,
19771995 / Laurence W. Carter
p. cm.—(IFC lessons of experience series; 2)
ISBN 0−8213−3675−4
1. International Finance Corporation. 2. Lease and rental services—
Developing countries 3. Industrial promotion—Developing countries.
I. Title. II. Series.
HG3881.5.I56C367 1996
338.4—dc20 96−28074
CIP
Statistics sourced to the World Leasing Yearbook, 19881994 , are based substantially on information
compiled by London Financial Group , London , U.K. This data may not be reproduced without the prior
permission of London Financial Group and IFC .break
Many small and new firms in developing countries use leasing to finance their investments. Because the leasing
company retains legal ownership of the leased asset, it enables a firm to qualify for use of leased equipment based
on its generated cash flow rather than its credit history, assets, or capital base. Twenty years ago, new or small
firms without adequate collateral or a credit history would have faced severe difficulties in obtaining financing.
Today, the growth of the leasing industry has made much needed equipment available to a broad range of
enterprises.
Since its first investment in a Korean leasing company in 1977, IFC has vigorously promoted leasing in
developing countries through a combination of advising governments and investing in leasing companies. Leasing
today finances over US$40 billion worth of new vehicles and equipment each year in developing countries.
Leasing in Emerging Markets describes IFC's experience in the leasing industry.break
Preface
The role of capital markets in economic development is becoming increasingly evident. It is now widely
recognized that there is a direct correlation between economic growth and development of the financial sector. A
well−functioning financial intermediation system helps to facilitate a virtuous circle of productivity increases,
economic growth, and domestic savings.
IFC has been involved with the capital markets sector for over 25 years, reflecting its focus on assisting
developing countries in building their physical and financial infrastructure. It has helped supplement domestic
resources by mobilizing external savings flows to emerging markets, and focused on developing domestic
financial institutions and capital markets. This approach to "deepening" and "broadening" domestic markets has
been critical to IFC's strategy of promoting the growth of local savings.
IFC has pursued its capital markets objectives by:
providing technical assistance to helpDelivered

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change lawse-library
World Bank and establish
to: regulatory agencies;
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creating new institutions . IFC has worked with foreign and local sponsors to create new institutions, often the
Preface 2
first of their kind in a country;
supporting existing financial institutions . IFC has helped domestic financial institutions expand their access to
local and foreign financing sources (through provision of credit and agency lines, commercial paper programs,
bond guarantees, etc.) and to strengthen their balance sheets (e.g., through swaps, the second tier capital and
securitization of assets); and
encouraging financial institutions to reach under−served business segments —especially small−and

medium−sized enterprises (SMEs). IFC has used credit lines and promoted SME−focused institutions to improve
the access of new, small−and medium−sized firms to financing.
Since 1971, IFC has invested and made available through financial intermediaries some $3.5 billion in the
financial and capital markets sector, covering more than 560 separate transactions to clients in over 50 countries.
In addition, it has provided technical assistance through nearly 800 projects in over 90 countries. The scale of
IFC's capital markets operations has increased dramatically since the beginning of the 1990s, during which time
capital markets have come to the forefront of the development agenda worldwide. During 19911995, investments
in the financial sector accounted on average for 22% of the Corporation's aggregate investment commitments, and
for nearly 35% of its total number of transactions.
Within this framework, the development of the leasing industry has been extremely important. The Corporation
has promoted the development of the industry through a combination of measures, including advice to
governments on leasing regulations, undertaking of feasibility studies, identification of sponsors and technical
partners, and investments in new leasing companies. Between 1977 and 1995 IFC's Board approved 120
transactions involving 63 leasing companies in 36 countries, many of these being the first leasing companies set
up in the country concerned. The impact has been substantial: in virtually every country, the industry has grown
rapidly. Large numbers of small−and medium−sized companies have been able to secure better access to
financing. For instance, in 1994, 16 leasing companies in which IFC had invested wrote over 10,000 new leases
worth over US$2 billion.break
This paper, covering IFC's promotion of the leasing industry in developing countries, is part of the Corporation's
strategy to further extend its development impact by disseminating the lessons of its experience in key sectors and
activities to external audiences. The paper is one of a series of reports dealing with capital markets issues, all to be
released as part of IFC's Lessons of Experience series. The work on these reports was carried out by a team of IFC
staff under the coordination of Dileep Wagle and Teresa Barger. This paper was prepared by Laurence Carter,
Teresa Barger, and Irving Kuczynski, with research support from Lory Camba−Opem and Tracy Rahn. Consistent
with the fundamental basis of the series, the paper draws upon a full range of operational experience from across
the Corporation. Data from the World Leasing Yearbook was provided by David Porter, Chairman of the London
Financial Group. Data on IFC transactions reflect IFC's operational position as of end−June 1995.break
JANNIK LINDBAEK
EXECUTIVE VICE PRESIDENT
INTERNATIONAL FINANCE CORPORATION
JULY 1996 unknown
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Preface 3
Contents
Executive Summary link

Financing Opportunities for Small Firms link
What Exactly Is Leasing? link
A Large, Growing Industry link
Why Has Leasing Grown so Fast? link
The Lessee link
Leasing Companies link
Governments link
IFC's Experience link
Lesson's from IFC's Experience link
What Is IFC's Role? link
What Is the Development Impact? link
What Makes Successful Leasing Companies? link
1 link
Development of Leasing Worldwide
Background link
Developing Markets Driving Leasing Industry Growth link
Regional Trends link
Leasing: Important to SMEs link
Why Has Leasing Grown so Fast? link
The Lessee link
The Lessor link
Governments link
Leasing and Financial Sector Development link
What Leasing Needs: A Conducive Macroeconomic Environment link
What Leasing Needs: A Conducive Regulatory Environment link
Legal link
Supervision and Regulation link
Tax and Accounting link
2 link
IFC's Leasing Experience
Accelerating Approvals unknown link
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IFC's Commitments link
Contents 4
Wide Geographic Coverage link

Mobilization link
Leasing Works—Even in Risky Countries with Poor Access to link
International Capital
Low Volume Masks Significance link
Debt−Equity Ratios link
Foreign Sponsors and Technical Partners link
IFC's Portfolio link
Regional Split link
Performance Indicators link
Financial Performance of IFC's Portfolio link
Equity link
Loans link
Lessons from IFC's Experience link
More Impressive Than the Numbers Suggest . . . link
. . . But Returns Are Lower Than the Numbers Suggest link
3 link
IFC's Role in Promoting Leasing
Financing Small−and Medium−Sized Enterprises link
IFC's Proactive Approach to Leasing link
Are Regulatory Barriers Preventing the Development of Leasing? link
Can IFC Catalyze the Industry by Sponsoring a Leasing link
Company?
Will the Leasing Company Be Able to Mobilize Medium−Term link
Local Debt?
Can the Leasing Company Use Foreign Currency Loans? link
How Best to Foster Sustainable, Competitive Leasing link
Companies?
Are the Leasing Company's Assets and Liabilities Matched? link
Can the Product Line of Existing Leasing Companies Be link
Widened?
Can IFC Help to Promote Greater Private and Local Ownership? link
4 link
Evaluation of IFC's Leasing Experience
Leasing Companies Do Lend to New, Small−andunknown
Medium−Sized link
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Enterprises Mon, 16 Nov 2009 10:36:27
Contents 5
Leasing Has Grown Rapidly in Most Countries link

Competition and Private Investment are Increasing link
Leasing Helps Mobilize Savings and Develop the Financial link
Sector
Checklist for Successful Leasing Companies link
Conclusion link
Future IFC Work to Promote Leasing link
Appendix Tables link
Box A1: Worked Example Using IAS Accounting Standards link
Table A1: Leasing Volume and Market Share, 19881994 link
Table A2: IFC's Leasing Project Approvals, 1977−June 1995 link
Table A3: Summary of IFC's Leasing Project Approvals link
Table A4: IFC's Leasing Project Commitments, 1977−June 1995 link
Table A5: Summary of IFC's Leasing Commitments link
Table A6: IFC's Leasing Project Droppages and Cancellations link
Table A7: Leasing Market Share, Private Investment, and Broad link
Money, 19881993
Bibliography link
Text Boxes
Box 1.1: Leasing Definitions link
Box 1.2: Leasing Development in Korea and Thailand link
Box 1.3: Leasing Levels the Playing Field for Investment link
Incentives
Box 1.4: Competitive Advantage for a Lessor: Processing, link
Relationships and Marketing
Box 2.1: Examples of Technical Partners in IFC Leasing link
Investments
Box 2.2: Mobilizing Local Finance for a Leasing Company in link
Côte d'Ivoire
Box 2.3: High Costs: Introducing Leasing to Senegal link
Box 3.1: Developing a Favorable Regulatory Environment for link
Leasing
Box 3.2: Identifying Constraints to Leasing in West Africa link
Box 3.3: Assessing the Market link
Box 3.4: Uneven Progress: The Right Conditionsunknown
Make a link
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Difference Mon, 16 Nov 2009 10:36:27
Contents 6
Box 3.5: Accessing Local Finance and Marketing Channels: link

Romania
Box 3.6: A Local Currency Issue That Failed: Botswana link
Box 3.7: Providing Dollar Financing to a Chilean Leasing link
Company
Box 3.8: Typical Operating Guidelines for a Leasing Company link
Box 3.9: Competition and Growth in Thailand's Leasing Industry link
Box 4.1: KDLC and the Development of Korea's Leasing link
Industry
Box 4.2: Riding the Roller Coaster: Leasing in Peru, 19811993 link
Box 4.3: Legal Difficulties link
Box 4.4: Financial Liberalization Encourages Investors in link
Pakistan
Box 4.5: Financing Options: With and without a Leasing Industry link
Box 4.6: Leasing to Merchant Banking: Developing the link
Philippine Capital Markets
Text Figures
Figure 1.1: Leasing in Developing Countries, 19881994 link
Figure 2.1: IFC's Leasing Equity Approvals, FY77FY95 link
Figure 2.2: IFC's Leasing Commitments by Region, 1977−June link
1995
Figure 2.3: A Leasing Company's Balance Sheet link
Figure 2.4: More Projects in Riskier Countries link
Figure 2.5: Sharp Growth: IFC's Leasing Portfolio, 19921995 link
Figure 3.1: Financing SMEs through Building Local Financial link
Institutions
Figure 3.2: IFC's Specific Roles in Promoting Leasing Companies link
Figure 4.1: Size Distribution of Korean Leasing Company's link
Leases, 1993
Text Tables
Table 1.1: Top 50 Leasing Markets, 19881994 link
Table 1.2: Private Investment Financed by Leasing, 19881994 link
Table 1.3: Finance Raised by Korean Firms, 19911993 link
Table 2.1: IFC Approvals, 1977−June 1995: The Big Picture link
Table 2.2: IFC Commitments, 1977−June 1995 link
unknown
Table 2.3: Regional Distribution of IFC Commitments,
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1977−June 1995 Mon, 16 Nov 2009 10:36:27
Contents 7
Table 2.4: Mobilization Rates link

Table 2.5: Equity Shares in Leasing Companies at Time of IFC's link
Entry
Table 2.6: Average Debt−Equity Ratios, 19911995 link
Table 2.7: IFC's Leasing Portfolio, June 1995 link
Table 2.8: Regional Distribution, 19921995 link

Table 2.9: Good Overall Performance link
Table 3.1: Pioneering the Leasing Industry link
Table 4.1: Falling Spreads Ascribed to Increased Competition link
Table 4.2: Market Share of Leasing Industry Versus Private link
Investment, 19881993
Table 4.3: Market Share of Leasing Industry Versus Monetary link
Depth, 19881993
Appendix Tables and Text Boxes
Box A1: Worked Example Using IAS Accounting Standards link
Table A1: Leasing Volume and Market Share, 19881994 link
Table A2: IFC's Leasing Project Approvals, 1977−June 1995 link
Table A3: Summary of IFC's Leasing Project Approvals link
Table A4: IFC's Leasing Project Commitments, 1977−June 1995 link
Table A5: Summary of IFC's Leasing Commitments link
Table A6: IFC's Leasing Project Droppages and Cancellations link
Table A7: Leasing Market Share, Private Investment, and Broad link
Money, 19881993
Glossary
CAMENA Central Asia, Middle East and North Africa
DFI Development finance institutions
FY Fiscal year
GDP Gross domestic product
IFC International Finance Corporation
IRR Internal rate of return
LAC Latin America and the Caribbean
LDC Less developed country
OECD Organization for Economic Cooperation and
Development unknown
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SME Mon,enterprises
Small−and medium−sized 16 Nov 2009 10:36:27
Contents 8
TCD Transferable certificates of deposit

US$m US$ millions
US$bn US$ billions
1—
Executive Summary
Financing Opportunities for Small Firms
Consider three entrepreneurs seeking financing:
1) The owner of a small , three−year−old road maintenance company in Ghana has secured his first big break: a
contract from the Ministry of Public Works to maintain roads in a region of the country for three years. He needs
to double his truck fleet from two to four. His bank manager, although sympathetic, points out that the owner has
only two years of accounts and has already mortgaged his house to secure a loan to buy one of the earlier trucks.
The owner approaches a leasing company, which concludes that the firm will be able to make the lease payments
without difficulty. After a 20% down payment from the contractor, the trucks are supplied within two weeks, on a
three−year lease.
2) A Romanian chemist wants to set up a private medical testing laboratory to conduct tests for several local
hospitals. She has identified the equipment required, which needs to be imported from Germany. She has 25 years
of experience, lots of contacts within the local medical community and an option to rent lab space. But she has
limited personal savings, no fixed assets to collateralize, and no corporate sponsor. She approaches several banks,
which suggest that they might consider a loan after two to three years of successful operation, but that they could
not help now. After looking at her business plan, the manager of a leasing company concludes that she will be
able to service the lease payments. The leasing company imports the equipment (handling all of the paperwork)
and supplies it to the chemist under a two−year lease.
3) Following a year of growing orders, a small textile manufacturer in Bangladesh wants to borrow US$500,000
to double the capacity of his factory. He needs US$300,000 worth of new machinery and US$200,000 in extra
working capital. His bank manager tells him that the bank is suffering from constrained liquidity and can only
make loans for under six months. The manufacturer borrows US$200,000 of short−term working capital from the
bank and arranges a four−year lease for the machinery with the local leasing firm.
Without leasing companies, investments like these would not happen. Twenty years ago (more recently in most
developing countries), these entrepreneurs would not have found a leasing company. Demand from new, small−
and medium−sized enterprises such as these has turned leasing in developing countries into a US$40 billion−plus
industry—from nothing—within just 20 years.
IFC has played a central role in this change, through a combination of advising governments about leasing
regulations, undertaking feasibility studies, identifying sponsors and technical partners, drafting business plans
and operating policies, and investing in new leasing companies. IFC has invested in leasing companies in over
half of the developing countries which have a leasing industry today (and often, IFC investment has been the
country's first leasing company).break

unknown
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1— Executive Summary 9
What Exactly Is Leasing?
Financial leasing is a contractual arrangement that allows one party (the lessee ) to use an asset owned by the
leasing company (the lessor ) in exchange for specified periodic payments. Critical to this arrangement, legal
ownership (retained by the leasing company) is separated from economic use of the asset (held by the lessee). The
leasing company focuses on the lessee's ability to generate cash flow to service the lease payments, rather than
relying on its credit history, assets or capital base. This arrangement particularly suits new, small− or
medium−sized enterprises (SMEs) without a long history of financial statements. Security for the transaction is
provided by the asset itself.
A Large, Growing Industry
Leasing can be traced back thousands of years, although it has evolved considerably during the last 40 years. The
industry evolved from being a manufacturer's selling technique into a specialized financial service with the
formation of the first independent leasing company in 1952 in the United States. The industry extended to Europe
and Japan in the 1960s and has been spreading through developing countries since the mid−1970s. By 1994
leasing had been established in over 80 countries, including over 50 developing economies.
In 1994 over US$350 billion of new vehicles, machinery and equipment was financed through leasing, accounting
for about an eighth of the world's private investment. In OECD countries up to a third of private investment is
financed through leasing.
Developing countries are driving most of the leasing industry's growth today: between 1988 and 1994, new leases
written increased from US$15 billion to US$44 billion. The most spectacular increase has been in South Korea.
Started in 1975 and supported by IFC investments in the first leasing company, the South Korean leasing market
was the fifth largest in the world by 1994.
Furthermore, market penetration (leasing as a share of private investment) more than doubled in both middle and
low−income countries between 1988 and 1994. By 1994 leasing accounted for an average of 11% of the financing
of capital equipment in middle−income countries, up from just 4% in 1988.
Why Has Leasing Grown so Fast?
Leasing has addressed an unmet demand from new, small− and medium−sized firms and attracted borrowers
away from traditional bank loans. It offers advantages to all parties:
The Lessee
Although leasing is a high−spread business it offers potential advantages to the lessee:
Simpler security arrangements and the less strict requirements for historical balance sheets mean that SMEs can
access lease finance more easily than bank loans.
Availability . In developing countries leasing may be the only form of medium− to long−term finance available
for purchasing equipment.
Convenience . Leasing can be arranged more quickly and simply than conventional loan financing because
outside security often does not need toDelivered
be established.
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Lower transaction costs . Despite the relatively
Mon, 16high spreads
Nov 2009 of
leasing, the costs of assigning collateral,
10:36:27
documentation, and slower processing times for bank borrowing can be significant, particularly for smaller
What Exactly Is Leasing? 10
borrowers.
Little cash required . Leasing can finance a higher percentage of the capital cost of equipment than bank
borrowing, often with little downpayment.
Flexibility . Leasing contracts can be structured to meet the cash flow needs of the lessee.
Tax incentives . In many countries lessees can offset their full lease payments against income before tax,
compared to just the interest on bank loans. Furthermore, lessors may pass on tax benefits associated with their
depreciation to lessees via reduced financing costs. Governments grant tax incentives to leasing because they
recognize that it enables new and small firms to access financing for investment.break
Leasing Companies
Leasing companies also benefit SMEs:
Ownership of the asset gives the lessor strong security. In countries where weak collateral laws hinder bank
lending, leasing offers the advantage of (often) not requiring collateral beyond the security of leased asset itself,
and of simpler repossession procedures, because ownership of the asset already lies with the lessor.
Dedicated use of funds . Because the lessor purchases the equipment directly from the supplier there is no
opportunity for the lessee to use the funds for other purposes.
Relatively simple documentation keeps transaction costs down, allowing leasing companies to achieve high
leasing volumes efficiently.
Lighter regulation . Because leasing companies are not usually deposit takers they tend to be less tightly
regulated than banks.
Governments
Many governments have promoted leasing as a way of encouraging investment. But leasing offers other benefits:
it broadens competition in financial services and introduces businesses and financiers to innovations such as
cash−flow−based credit analysis.
IFC's Experience
In addition to over 50 technical assistance projects to advise governments on how to promote leasing, between
1977 and June 1995, IFC's Board approved US$523 million via 120 transactions to 63 leasing companies in 36
countries. IFC invested equity in most of these companies at an average of just under US$500,000 per approval.
Over 75% of IFC's leasing financing was approved during the last five years, reflecting:
Industry growth . The industry is quickly spreading to more countries.
Needs of transition economies and low−income economies . Leasing has proven an appropriate financing source
for the emerging private sector in transition economies and in low−income regions, such as Sub−Saharan Africa.
Financial sector stabilization and liberalization .unknown
Following severe macroeconomic and financial sector
instability during the 1980s debt crisis, many IP : 81.180.68.7
countries have implemented stabilization and liberalization
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programs that have allowed leasing industries to flourish.
Leasing Companies 11
IFC focus . As the importance of leasing to SMEs has become more evident with experience, IFC has stepped up
its promotion efforts.
The leasing companies in which IFC has invested have, on average, proven relatively profitable and efficient.
Returns on equity have averaged over 20 percent. Combined with relatively low provisioning rates (compared to
bank lending), this suggests that leasing is less vulnerable to default than lending. Since IFC made its first loan to
a leasing company in 1977 there have not been any defaults to IFC—and none of the loans have shown arrears to
date.
Lessons from IFC's Experience
Within this positive picture, several lessons have emerged from IFC's experience:
Technical partners should have a substantial equity stake (20% 40% ). Although foreign technical partners have
played an important role in the majority of the leasing companies that IFC has sponsored, they have not always
proven effective, for various reasons, including unfamiliarity with the market, cultural differences, and lack of
interest. Technical partners with a substantial investment are more likely to contribute effectively.
Careful portfolio management pays . Many of the problems that arose in IFC−sponsored leasing companies
resulted from overly concentrated portfolios by client or sector.
Leasing companies are vulnerable to adverse macroeconomic changes . A worsening of the macroeconomic
climate usually affects small−and medium−sized firms quickly. Such firms often form a high percentage of
leasing customers. Furthermore, if credit is tightened, leasing companies may suffer from financing constraints or
term mismatches.break
Leasing companies benefit from foreign exchange convertibility and reduced tariffs on imported machinery and
equipment . Leasing companies in developing countries often require foreign exchange to purchase imported
equipment, but prefer to denominate their leases in local currency (because of their SME client base). Without
foreign exchange convertibility leasing companies write mostly foreign currency leases to match their loans to
finance imported equipment, which restricts their market to exporters.
Stand−alone leasing firms compete more vigorously for markets and focus on their portfolios . For this reason
IFC usually prefers to finance stand−alone companies, although such firms can be at a disadvantage when
competing with leasing subsidiaries of commercial banks, which can tap low−cost depositors' funding from their
parents.
Difficulties in mobilizing domestic financing are often one of the most serious constraints to expansion. This is
one of the key roles that local partners can bring to a new leasing company, as well as knowledge of local
markets.
What Is IFC's Role?
In the long run, IFC's most important and effective approach to financing SMEs is indirect, through promoting
domestic financial institutions that target small and new firms. IFC uses three main mechanisms:
Sponsoring leasing companies ; Delivered by The World Bank e-library to:

unknown
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Making loans to banks for on−lending to SMEs
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Lessons from IFC's Experience 12
Promoting venture capital funds which provide SMEs with equity and managerial advice.
Building these institutions enables a sustainable flow of local financing to reach SMEs, as they all primarily
mobilize domestic financing (appropriate for SMEs, which are not usually prepared to take foreign exchange
risk). Working through such institutions IFC can ultimately reach more SMEs at lower costs than via its
complementary direct financing programs.
Because of its developmental importance, IFC often takes the initiative to promote leasing. Broadly, IFC seeks to
extend the leasing industry to more countries and to promote vigorous, competitive leasing industries in countries
where it already exists. More specifically, IFC advises governments, initiates concepts, undertakes feasibility
studies, sounds out potential technical partners, helps draft business plans and operating policies, mobilizes
funding, invests directly, and sits on the boards of leasing companies.
Mobilizing domestic financing is a particularly important part of IFC's role. Some mobilizating follows almost
automatically after a new leasing company is established because leasing companies typically leverage
themselves. Thus, while a dollar of IFC equity is matched on average by three other dollars of sponsor equity, the
company will leverage its equity by raising 56 times as much debt, enabling it to write over US$20 of leases.
Over the medium−term, mobilization is higher still because most leasing companies grow rapidly. For example, a
sample of 11 leasing companies which IFC helped start between 1977 and 1988 had an initial capitalization of
US$61 million (that is, about US$5 million apiece). By 1994 the capitalization of those 11 companies totalled
US$3.3 billion.
What Is the Development Impact?
A ripple−effect of related development impacts from leasing can be identified, with each subsequent impact being
more widespread and powerful than the previous:
More SMEs access financing . In 1994, 16 of IFC's leasing companies wrote over 10,000 new leases worth over
US$2 billion. Lease sizes varied enormously between countries and companies, ranging from one company that
wrote over 2,700 leases worth an average of US$18,000 each to another that wrote a similar number of leases
averaging US$580,000 each.
The industry grows rapidly as lessors gain experience, and potential borrowers come to understand leasing. For
example, when IFC helped establish Malawi's first leasing company in 1986, it expected the volume of new
leasing business to rise to US$3.6 million after five years. In fact, its new business in 1991 was over double this
level and two new competitors entered the market.break
Increased competition stimulates new product development (leasing to new sectors, cross−border leases, and so
on ) and sometimes reduced spreads . In Bostwana, for example, the new leasing company captured 25% of the
market within its first year. Leasing spreads fell from over 10% in the late 1980s to under 5% in 1994.
Private investment in capital equipment has increased in many countries which have developed leasing
industries. Although sample sizes are small (18 countries) and direction of causality cannot be proven, there does
seem to be a correlation between the market share of leasing and private investment as a share of GDP.
Leasing companies help develop capital markets

Delivered by The. World
On the asset
Bank side,
e-library to: they introduce small and medium businesses
that previously relied on informal financing, supplier unknown
credit, and internal cash generation to formal financial
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markets. They also increase financing options Mon,for larger
16 Nov 2009companies.
10:36:27 On the liability side, leasing companies'
efforts to mobilize debt and equity help deepen and broaden domestic capital markets. Leasing companies
What Is the Development Impact? 13
mobilize debt by:
(1) borrowing from banks and finance houses or, where available, pension funds and insurance companies .
Demand from leasing companies broadens the term lending options for all of these institutions.
(2) issuing bonds or other marketable instruments . This broadens the choice and liquidity of instruments on
domestic capital markets. In their search for financing, several of the leasing companies which IFC has supported
have innovated in their domestic bond markets. In Korea, KDLC's W20 billion nonguaranteed corporate bond,
issued in May 1986, was the first domestic securities issue by a Korean leasing company.
(3) finally, securitizing their lease receivables. IFC is working on securitizing lease receivables for some of its
leasing companies.
On the equity side, several IFC−sponsored leasing companies have floated their shares. IFC has invested both in
leasing companies that had already listed (for instance, in Sri Lanka and several in India) and has supported others
in which it had stakes to issue shares publicly (Korea, Portugal, Pakistan, and Zimbabwe).
What Makes Successful Leasing Companies?
IFC's experience suggests that six factors enable leasing companies to flourish:
Management . A high standard of cash−flow−based credit analysis and supervision of clients, complemented by
follow−up and equipment insurance procedures are critical.
Competent partners . In many markets where leasing is being introduced, it is important to have an active,
committed and competent foreign technical partner. The technical partner, which should have enough equity to
ensure active participation, should: establish and monitor standards and procedures; train local staff; advise on
lease pricing, marketing and administration; and perhaps second the first general manger.
Funding . The single biggest obstacle to the growth of IFC's investee leasing companies is access to term local
currency funds. Access to term deposits from insurance companies or pension funds or to a local bond market
helps overcome this problem.
Asset−liability matching (ALM ). Leasing companies must match fixed−rate leases with fixed−rate term funding,
or if only floating rates are available (locally or internationally), it needs a regulatory framework that allows
periodic adjustments of lease rates.
Attractiveness to lenders . Given their high debt−equity ratios, leasing companies must remain attractive to
lenders. Security sharing agreements that establish equal rights to a pool of collateral for senior lenders are often
used in IFC agreements. Also, IFC gives guarantees or direct loans, particularly to new companies that have not
yet established credit histories that allow them to borrow locally.
Regulatory framework . Leasing companies need a regulatory, legal and fiscal environment that at least provides
equal treatment compared withcontinue
other sources of capital investment financing. Clear, simple and effective legal procedures are important to
reclaim assets if the terms of the leaseDelivered
agreementby Theare breached.break
World Bank e-library to:
unknown
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What Makes Successful Leasing Companies? 14
1—
Development of Leasing Worldwide
Leasing is big business. In 1994 over US$350 billion of new vehicles, machinery and equipment was financed
through leasing, accounting for about an eighth of the world's private investment. In OECD countries up to a third
of private investment is financed through leases.
Leasing has expanded rapidly over the past 20 years in developing countries. IFC has helped promote this trend
through a combination of technical assistance to governments on leasing regulations, identifying sponsors and
technical partners, and investing in new leasing companies. IFC has invested in leasing companies in over half of
the developing countries with a leasing industry today—often assisting the country's first leasing company to get
started. IFC has promoted leasing vigorously because of its high developmental impact. It is an especially suitable
financing vehicle for new, small−and medium−sized enterprises (SMEs).
Background
Financial leasing is a contractual arrangement between two parties, which allows one party to use an asset owned
by the other in exchange for specified periodic payments. The lessee usescontinue
Box 1.1: Leasing Definitions
Financial leases are an alternative to bank loan financing of equipment

purchases. The lessor buys the equipment chosen by the lessee, which is
then used by the lessee for a significant period of its useful life. Financial
leases are often called full−payout leases because the lease payments
during the lease term usually amortize the lessor's total purchase
costs—residual value is typically between 0% and 5% of the original
acquisition price—plus covering interest costs and providing some profit.
The lessee bears the risk of obsolescence and the cost of maintaining and
insuring the asset. Typically the lessee has the right to buy the asset at the
end of the lease contract for a nominal fee. The companies IFC has
sponsored generally provide financial leases.
Operating leases are not a means of financing equipment purchase.

Instead, the lessee contracts for short−term use of equipment the leasing
company has on hand: car rentals are a typical example. The capital cost
is typically recovered from multiple, serial rentals and the final sale of the
asset. Maintenance and obsolescence risk lies with the leasing company.
Hire−purchase is a hybrid instrument that provides an alternative to

bank financing for purchasing an asset. It is usually sold to retail
(individual) customers for financing motorcycles, sewing machines,
refrigerators and other small ticket items. The lessee renders a high down
payment (often around 30% of the cost) and with each lease payment a
higher percent of the title is transferred to the lessee. Thus the lessee
builds equity and transfer is automatic once all the payments are made.
This arrangement is less secure for the Delivered
lessorbyjuridically
The World Bank e-librarythe
because to:
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lessee is a part owner of the asset; on the other IPhand, the lessees tend to
: 81.180.68.7
Mon, 16 Nov 2009 10:36:27
have a large enough stake in the equipment that they do not want to risk
1— Development of Leasing Worldwide 15
losing it through payment default. Some companies in which IFC invests

provide both hire−purchase and financial leasing.
Table 1.1: Top 50 Leasing Markets,

19881994
1988 1990 1992 1994
Leasing volume (US$bn )
High income countries 259 310 292 313
[1]
Middle income 12 17 27 39
countries
Low income countries 3 5 5 5
Total [2 ] 274 332 323 357
Market share (% ) [3
]
High income countries 15 15 15 15
Middle income 4 5 9 11
countries
Low income countries 3 4 4 7
Average 9 10 11 13
Source : World Leasing Yearbooks , 19881994.
Note : [1] World Bank classification.
[2] This 1994 survey is based on a sample of 24 high,
20 middle, and 6 low−income countries, as classified
by the World LeasingYearbook .
[3] Unweighted averages. Leasing as % of private
investment.
the asset and pays a rental to the lessor , who owns it. The legal owner relies on the ability of the user to generate
sufficient cash flow to make lease payments, rather than relying on its credit history, assets or capital base.
Security for the transaction is provided by the asset itself. Leasing enables borrowers without well−developed
balance sheets or credit histories (especially new or small firms) to use capital equipment in cases where they
would not be able to access traditional bank lending. Box 1.1 describes different leasing arrangements.
Leasing can be traced back thousands of years, although it has evolved considerably during the last 40 years. In
the nineteenth century, leasing was used by the Bell Telephone Company, and short−term leases were available
for cotton looms, electricity and gas meters, and some manufacturing equipment. Equipment manufacturers
realized the value of leasing as a marketing tool, and the growth of the aircraft and car industries further
stimulated the development of leasing (partly because repossession of moveable property in the event of default is
relatively easy). The industry evolved from being a manufacturer's selling technique into a specialized financial
service with the formation of the first Delivered
independent leasing
by The World company
Bank e-library to:in 1952 in the United States. The industry
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extended to Europe and Japan in the 1960s and IP has been spreading through developing countries since the
: 81.180.68.7
Mon, 16 Nov 2009 10:36:27
mid−1970s. By 1994 leasing had been established in over 80 countries, including over 50 developing economies.
1— Development of Leasing Worldwide 16
Developing Markets Driving Leasing Industry Growth
Leasing is now a mature industry in most high−income economies. The United States is a clear leader both in
terms of volume (with US$140 billion of leases written in 1994) and market penetration (with 30% of plant and
equipment purchases). In many developing economies, however, leasing has been growing very rapidly. Between
1988 and 1994 new leases written in developing countries increased from US$15 billion to US$44 billion. By
1994, middle− and low−income countries accounted for five out of the largest twenty leasing markets. The most
spectacular increase has been in South Korea. Started in 1975 and supported by IFC investments in the first
leasing company, the South Korean leasing market was the fifth largest in the world by 1994.
Furthermore, market penetration (leasing as a share of private investment) more than doubled in both middle and
low−income countries between 1988 and 1994 (see Table 1.1 and Figure 1.1). By 1994 leasing accounted for an
average of 11% of the financing of capital equipment in middle income countries, up from just 4% in 1988.
There are some important caveats to these data which, while they do not affect the broad conclusions, do mean
that cross−country comparisons should be treated carefully. Euromoney's World Leasing Yearbook pub−soft
Figure 1.1:
Leasing in Developing Countries, 19881994
lishes figures on the 50 largest leasing markets, of which about half are in developing economies (see Appendix
Table A1). Definitional differences mean that the numbers are not strictly comparable between countries.
Furthermore the small number of low− income countries in the top 50 markets means that the large jump in
market share between 1992 and 1994 should be treated as indicative of the trend rather than representative of all
low income countries.1
On average, leasing was financing 11% of private investment in middle−income countries by 1994, yet wide
variation remains between countries. Thus, leasing's share of private capital investment in South Korea exceeds
20%, while it is below 2% in Thailand (Box 1.2 explains why).
Regional Trends
America still accounts for 40% of worldwide leasing, yet the regional distribution of leasing has changed
markedly during the past five years. In 1993 Asia overtook Europe for the first time, and in 1994 accounted for
28% of the world market compared toDelivered by The World Bank e-library to:
Europe's 25unknown
percent. Latin America's share increased by more than five
times from 0.8% in 1989 to 4.2% in 1994. Africa'sIP : 81.180.68.7
share of the global total increased marginally from 1% to
Mon, 16 Nov 2009 10:36:27
1.3%, but the figures should be treated with caution as South Africa and Morocco have been the only two African
Developing Markets Driving Leasing Industry Growth 17
countries in the top 50 leasing markets every year since 1989.
Although variations in data quality between countries mean that the figures should be considered indicative rather
than precise, regional trends in the market penetration of leasing broadly reflect the pattern set by volumes (see
Table 1.2). While leasing has matured in the United States and Europe, leasing's market share grew from an
average of 3.5% in 1988 to 13.4% of capital investment in 1994 in the Latin American countries in the top 50
markets (Brazil, Mexico, Colombia, Venezuela, Chile, Peru and Ecuador). The increase in Asia was almost as
dramatic, from 4.4% to 7.8 percent.break
Table 1.2: Private Investment Financed by Leasing ,

19881994
Regional 1988 1990 1992 1994
average (% ) (% ) (% ) (% )
North America 21.3 20.6 21.5 22.1
Asia 4.4 4.9 5.9 8.2
Europe 11.7 12.1 13.5 13.4
Latin America 3.5 5.4 8.8 13.4
All regions 9.0 9.6 10.9 12.5
Source : World Leasing Yearbook . IFC.
Note : Unweighted averages. Market share for Africa
and Australia/NZ not shown because of small sample
sizes; these markets, however, are included in the "All
Regions" average. World Leasing Yearbook , 1995.
Box 1.2: Leasing Development in Korea and Thailand
Why does leasing account for a much higher share of private capital
investment in Korea than Thailand? The answer is mainly in the
countries' different regulatory and fiscal environments.
In 1973 the Korean government, drawing on IFC advice, enacted a

leasing industry promotion law, which defined the regulatory framework
for leasing. In 1976 the government issued leasing regulations, which
stipulated the type of assets that licensed leasing companies may lease,
specified that lessees could deduct lease payments before tax, and that
lessors could deduct interest charges and accelerated depreciation before
tax. In addition, leasing companies were exempted from customs
restrictions on importing equipment, and allowed more expeditious
treatment in the handling of foreign trade transactions. Later in the decade
restrictions on spreads and local borrowing were removed.
As the demand for capital equipment rose with Korea's rapid economic
growth, leasing companies were better placedbythan
Delivered banks
The World toe-library
Bank meet it. to: As
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part of its tight monetary policy, the government IP :imposed
81.180.68.7restrictions on
bank lending—which meant that bank lending Mon, 16
toNov
SMEs2009 was
10:36:27
particularly
Developing Markets Driving Leasing Industry Growth 18
constrained. Being less tightly regulated than banks, leasing companies

were able to respond to the increased lending opportunities.
Thailand's first leasing company started in 1978, with IFC participation.

However the industry grew slowly until the early 1990s. Until 1991
reforms, the tax treatment of leasing was harsher than the two
alternatives: bank borrowing or hire−purchase. This is well illustrated by
the change after the law was amended. In 1993 leasing volume tripled to
US$560 million, from US$180 million in 1992.
Leasing:
Important to SMEs
Leasing is even more important to new, and small− and medium−sized firms than these large, growing volumes
and market shares suggest. Surveys of how companies finance themselves typically focus on how firms draw on
three main sources of capital: internal cash, bank loans and capital markets. Yet in many developing countries
capital markets are relatively undeveloped, and banks (understandably) often prefer to lend to larger firms that can
offer stronger security. Banks are also often reluctant to undertake term lending. New or small firms without
strong collateral (or which are located in countries without effective laws for repossessing security) typically do
not have access to much bank lending; leasing or supplier credits may be their only external financing options.
In South Korea for example, leasing (which is provided by both banks and nonbank financial institutions)
accounts for nearly a fifth of total finance raised by the business sector (see Table 1.3). It is the single most
important source of external finance for small firms.
Why Has Leasing Grown so Fast?
The rapid growth of leasing in so many countries suggests that the product has both addressed an important unmet
demand and attracted borrowers away from traditional financial products such as bank loans. It offers advantages
to all parties:
The Lessee
Although leasing is generally a high−spread business, there are many advantages for the lessee, compared to
conventional bank borrowing:
Simpler security arrangements and the less strict requirements for historical balance sheets means that new,
small− and medium−sized enterprises can access lease finance more easily than bank loans.
Availability . In developing countries leasing may be the only form of medium− to long−term finance available
for purchasing equipment.
Convenience . Leasing can be arranged more quickly and simply than conventional loan financing because
outside security often does not need to be established. Furthermore, many leases are provided by specialized
companies, with management focused on providing leasing related services. Speed and ease of processing are an
important source of competitive advantage to such companies.
unknown
Lower transaction costs . Despite the relativelyIPhigh spreads of leasing,
the costs of assigning collateral,
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Mon, 16 Nov 2009 10:36:27
documentation and slower processing times for bank borrowing can be significant, particularly for smaller
Leasing: Important to SMEs 19
borrowers (as many of these costs are fixed and not based on the size of the loan).
Little cash required . Leasing can typically finance a higher percentage of the capital cost of a piece of equipment
than bank borrowing, often with little or no initial down payment required. This allows the company to preserve
its cash or bank facilities to meet working capital needs.
Flexibility . Leasing contracts can be structured to meet the cash flow needs of the lessee.2
Tax incentives . In many countries lessees can offset their full lease payments against income before tax,
compared to just the interest on bank loans. Furthermore, lessors may pass on tax benefits associated with their
depreciation to lessees via reduced financing costs. The tax incentives reflect the fact that governments recognize
that there are economic benefits associated with leasing, as it expands productivity by enabling new and small
firms to access financing for investment (see Box 1.3).break
Table 1.3: Finance Raised by Korean Firms ,

19911993
(US$ billions ) [1 ]
Financing source 1991 1992 1993
Banks [2] 15.8 10.6 10.5
Nonbanks [2] 17.5 14.9 14.6
Bonds, stocks, and 30.2 29.0 40.9
commercial paper
Borrowing from abroad 3.3 3.2 −1.6
Others (trade credits, govt) 12.8 12.5 12.3
Total including leasing 79.5 70.3 76.7
New leasing contracts 9.9 12.0 14.2
Leasing as % of total 12.4% 17.1% 18.5%
Source : Bank of Korea Quarterly Economic Review ,
June 1994.
Notes : [1] Conversion to US$ based on average
conversion rate for the year as cited in Emerging Stock
Markets Factbook , IFC. 1991 = 732W/US$; 1992 =
780W/US$; 1993 = 802.6W/US$.
[2] Including leasing.
Box 1.3 : Leasing Levels the Playing Field for Investment Incentives
Some observers consider leasing to be tax driven and thus without

fundamental economic benefits. To the contrary, while it is true that the
fiscal regime plays a crucial part in development of a leasing industry, it
is inaccurate to say that tax arbitraging does not yield economic benefits.
unknown
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Leasing: Important to SMEs 20
Most countries use tax incentives to promote capital investment, through

instruments such as accelerated depreciation, investment allowances or
investment tax credits. However the value of these benefits is not equal to
all firms. They tend to be most useful to existing firms that have taxable
profits against which to offset these allowances. New or small firms
(which may be making losses or only small profits) may not be able to
use these tax benefits—the firms are deemed "tax exhausted." And yet
some of them might have investment opportunities that would yield
higher returns to the economy than the firms that are able to take
advantage of the tax incentives. Enter the leasing company, which buys
the equipment and (as legal owner) offsets the depreciation against its
taxable profits. It then passes on part of the benefit to the lessee, via a
lower financing cost—or by making the loan at all. There are variations,
but the principle is the same: giving the same incentives to invest to
tax−exhausted firms as to those with tax capacity. Sometimes a leasing
company can act as a broker between a firm with a potential investment
but no tax position and a company with tax capacity but weak investment
alternatives.
The existence of a leasing industry thus may allow a mismatch in tax

positions to be arbitraged, such that capital investment is more likely to
be undertaken by the firm that expects the highest marginal return on
investment, even if it does not have a favorable tax position. The overall
volume and efficiency of capital investment is higher than in an economy
where tax positions cannot be swapped between firms. Governments
recognize these benefits and often devise their tax regimes to encourage
arbitraging and thus promote investment efficiency.
The Lessor
Leasing offers profitable opportunities to reach borrowers and expand into existing markets. Advantages include:
Ownership of the asset gives the lessor strong security. In countries where weak collateral laws hinder bank
lending, leasing offers the advantage of (often) not requiring collateral beyond the security of the leased asset
itself, and of simpler repossession procedures, because ownership of the asset already lies with the lessor. In some
countries, bank loans are commonly structured as leases because problems with the judicial system mean that
recovering collateral on bank loans is difficult.
Dedicated use of funds . Because the lessor purchases the equipment directly from the supplier (often after the
lessee has chosen it), there is no opportunity for the lessee to utilize the funds for other purposes.
Relatively simple documentation keeps transaction costs down, allowing leasing companies to achieve high
volumes efficiently (see Box 1.4).
Lighter regulation . Because leasing companies are not usually deposit takers they tend to be lesscontinue
Box 1.4: Competitive Advantage for a Lessor: Processing ,

Relationships and Marketing Delivered by The World Bank e-library to:
unknown
IP : 81.180.68.7
A mid−term evaluation of an IFC Mon,in
investment 16 aNov
Sri2009 10:36:27
Lankan leasing
The Lessor 21
company found that it was facing competition from two

government−owned development finance institutions (DFIs) that offered
potential borrowers both leasing and loans. The DFIs had a considerable
funding advantage: they were allowed access to subsidized funds, and
their financings were not subject to the turnover taxes levied on private
leasing companies. Nevertheless, the independent leasing company was
able to compete successfully by exploiting its areas of comparative
advantage:
speedy processing: Its average processing time for a lease was one week,
compared to 48 weeks for the DFSs;
aggressive marketing;
leasing relatively small items, where other factors than simply the cost of
financing are important; and
close client relationships, which facilitate processing and supervision.
tightly regulated than banks. This may allow them to use higher leverage than some other financial institutions
(and frees them from directed lending mandates sometimes imposed on banks by governments).
Governments
Governments in many countries have realized that leasing facilitates investment in capital equipment and have
promoted the development of the industry. Furthermore, the benefits may go beyond improved access to
financing. A leasing industry broadens competition in financial services and introduces businesses and financiers
to financial innovations, such as cash−flow−based credit analysis. And by facilitating the financing of imported
capital equipment, leasing companies can help transfer technology to domestic industries.
Leasing and Financial Sector Development
While there is no single universal pattern of financial sector development, a typical course of development has
been observed in many developing economies over the past 50 years. The banking system has been heavily
controlled or directly owned (private banks were nationalized and/or new state−owned banks set up) by
governments. Banks are the primary means of mobilizing domestic savings and are the major source of credit for
enterprises. Until the end of the 1980s, it was common for governments to direct bank lending to favored sectors,
including SMEs. Numerous state−owned development finance institutions were set up for this purpose. In some
countries, state−owned insurance companies and pension funds were established, sometimes as government
monopolies.
To complement the banking system, usually some form of money market evolves. In some countries government
bonds have provided medium−term investment vehicles for the market. Where they have developed, security
markets provide vehicles for raising and trading debt and equity. Many LDCs' securities markets are dominated
by government bonds in the early stages but, as they develop, they provide debt and equity capital for enterprises
and new term instruments for investors.
As markets liberalize and governments become more committed to eliminating market distortions, interest rate
and credit controls have been loosened, banks have been privatized and new private banks have been allowed to
Delivered
bring competition to oligopolistic markets. by Thehave
Banks World started
Bank e-library to: more on commercial terms; initially they
lending
unknown
focus on larger, established companies with a credit history and collateral. New enterprises and SMEs, without
IP : 81.180.68.7
Mon, 16 Nov 2009 10:36:27
these benefits, have still faced difficulties in accessing bank credit. Leasing has helped address these needs.
Governments 22
As leasing develops, it helps fill gaps in the asset, liability and security markets:
Asset side . Leasing companies can profitably lease to smaller enterprises on the basis of the cash flow to be
generated by the leased asset instead of on the lessee's credit history and other collateral.
Liability side . In the early stages of leasing, lessors generally borrow from insurance companies, pension funds
and banks, giving these institutions a broader base of medium−term assets in which to invest.
Securities markets . As a leasing company develops a credit history, it can issue commercial paper, notes or
bonds on the securities market. Often the companies enhance the security of this paper by giving the security
holders claim to the lease receivables, which represents a diverse pool of lessees and equipment. Lessors may also
tap the equity markets by going public once they have established a satisfactory operating history. At the next
level of sophistication, lessors can securitize their lease receivables (as is done in developed markets) thus
creating another marketable security, tapping a larger pool of funding, and increasing their debt capacity.
What Leasing Needs:

A Conducive Macroeconomic Environment
A healthy leasing industry requires private investment activity which, in turn, is facilitated by a positive
macroeconomic environment: fiscal and price stability, undistorted prices of capital and foreign exchange,
competitive markets and availability of medium−term local currency finance. Leasing companies particularly
need: 1) access to local currency in tenors of three years or more (from banks or institutions such as life insurance
companies); and 2) foreign exchange convertibility. Incontinue
most developing countries, foreign exchange is needed for importing capital equipment but lessees—especially
small and domestically−oriented firms—are unwilling to take foreign exchange risk by accepting
dollar−denominated leases. So leasing companies need foreign exchange convertibility (or locally available
hedging mechanisms) in order to offer local currency leases to finance imported equipment.
What Leasing Needs:

A Conducive Regulatory Environment
The appropriate regulatory treatment of leasing recognizes it as a viable alternative to outright purchase and
provides equal or more favorable regulatory treatment vis à vis other methods of financing capital investment.
Creation of a suitable environment involves three elements: legal, supervision/regulation, and tax/accounting.
Legal
The rights and duties of the lessor as legal owner of the equipment and the rights and duties of the lessee as user
should be clearly stated. The legal owner needs a clear, simple, workable and timely process to reclaim an asset if
the terms of the lease are breached by the lessee, including automatic right of repossession without lengthy court
proceedings and the right to claim payments due and other damages. If repossession is legally and juridically
easy, leasing companies can then write riskier business than otherwise, and they can price their leases with a
lower risk premium, allowing them to make credit available more cheaply.
The lessee must have the right to use the equipment unimpeded and gain the full productivity of the asset.
Typically, the lessee also has the rightDelivered
to assume
by Theownership upon the
World Bank e-library to: exercise of a pre−agreed purchase option at
the end of the contract. At the same time, the lessee is obligated to make timely lease payments, and insure and
unknown
IP : 81.180.68.7
maintain the equipment.3 In some transforming Mon, 16economies where laws have been evolving, it has been necessary
Nov 2009 10:36:27
to clarify that the lessee also has no right to create a lien on leased assets.
What Leasing Needs: A Conducive Macroeconomic Environment 23
Supervision and Regulation
As most leasing companies do not take deposits from the public and do not participate in central bank−operated
money markets, they are rightly subject to much less regulation than commercial banks. This relative freedom
from government controls has been one key to their success. Governments have been much less tempted to use
leasing companies as vehicles for achieving noncommercial social or political goals.
In countries with regulatory bodies overseeing leasing (usually the central bank or the ministry of finance), those
bodies often oversee the prudential conditions for the operation of leasing companies, such as: maximum
debt/equity ratios, minimum capital requirements, ability to raise wholesale or retail deposits, whether leasing
companies must be stand−alone entities (for instance, if the company is part of a bank or is operated as a separate
subsidiary), and mandatory provision of transparent and standardized financial statements. IFC often encourages
the development of prudential guidelines to protect both leasing company creditors and their lessees from
unsound lessors, thereby promoting the expansion of the leasing industry.
Tax and Accounting
Tax and accounting regulations vary among countries due largely to differing views as to whether legal ownership
or use of the asset defines which party may depreciate the asset. Often the accounting treatment and the tax
treatment for leasing companies will differ to reflect the differing purposes of the two sets of accounts:
Financial accounting is designed to give shareholders a fair picture of the leasing company's health.
Tax accounting is intended to give national tax authorities the flexibility to encourage capital investment. Most
countries have tax regimes preferential to capital investment and to small businesses so it is consistent to offer
fiscal incentives through firms such as leasing companies that deal almost exclusively in financing capital
equipment and offer finance to new and small businesses.
In many countries with vibrant leasing industries, the lessor is treated as the owner of the asset for tax purposes,
and often for accounting purposes as well. The lessor treats the entire lease payment (interest and principal) as
income and depreciates the asset on its books, usually on an accelerated schedule. For the lessor, income is 1)
accelerated and therefore taxed earlier than it would be for a bank, and 2) a larger taxable amount than it would be
for a bank as it includes interest andcontinue
repayment. On the other hand, to level the playing field the leasing company takes the depreciation of the asset.
The lessee claims the full lease payment as a deduction from taxable income. Since the lease payment includes
both interest and the full cost of the equipment, this allows the lessee an effective "depreciation" period equal to
the life of the lease, which is generally shorter than the economic life of the equipment.4
From the point of view of national fiscal authorities there may be a "double dip" in that the lessor takes full
depreciation and the lessee simultaneously expenses the repayment portion of the lease. Most governments have
embraced this fiscal treatment for these reasons:
Promoting investment . The "double dip" enables government to encourage the use and financing of productive
equipment and to facilitate the extension of credit to firms which would not qualify for bank loans and/or are "tax
exhausted" (see Box 1.3).
Limited cost in early stages . A new leasing company has virtually no taxable income with which to offset
unknown
IP : 81.180.68.7
depreciation. Thus there is no loss of income to the national treasury in the early years of the industry. Likewise,
Mon, 16 Nov 2009 10:36:27
SMEs and new enterprises often do not have sufficient taxable income to make the deduction of the full lease
Supervision and Regulation 24
payment useful.
Encouraging the industry . Empirically, IFC has found that leasing companies do not enter markets aggressively
unless the asset depreciation is available to them, even if they cannot make full use of it until later years.
The International Accounting Standards of 1991/1992 recommended that the lessee , as the economic if not legal
owner of the equipment, include the leased asset on its balance sheet and take the depreciation expense (Appendix
Box A1 gives a worked example). Under these recommendations, the lessor lists the lease receivable as an asset
on its books. While this may be a reasonable accounting treatment, empirically, IFC has found that the adoption
of this principle for tax accounting has led to the demise or decline of the leasing industry in some countries (for
example, Kenya) over certain periods.
IFC has encountered instances where tax incentives, investment allowances and sales taxes have become tax and
accounting issues. In general, leasing companies should receive the same treatment as an industrial company
which is buying an asset with bank finance. For example, the leasing company should be allowed to take the
investment credit or accelerated depreciation that industrial companies are given, as this will simply be passed on
to the user of the equipment in the lease price. Likewise, sales taxes on the original asset purchase should be
levied once. Where a second sales tax is levied when the lessee exercises a purchase option, this should be based
on the amount actually paid and not on the assessed value, as the equipment has usually already been depreciated
fully by the original owner (that is, the lessor).break
1. Definitions of leasing differ between countries. The World Leasing Yearbook uses the local definition. The
denominator used to calculate market penetration varies. In the United States, for example, it is total private
nonresidential investment in producers' durable equipment. In many developing countries such series do not exist;
in these cases the denominator used was total private investment, as reported in Trends in Private Investment in
Developing Countries 1994 (IFC).
2. Examples include: 1) step−up/step−down lease, which increases/decreases payments over the lease term to fit
in with the lessee's cash flow; 2) seasonal/skipped payments lease, which is structured to meet seasonal cash flow
constraints; 3) fixed or floating payments; 4) adjustable payment terms: in advance or arrears, and at varying
periods.
3. Often lessors actually provide these services on behalf of their clients for a fee.
4. The tax benefit is thus one of timing , not forgiveness .
2—
IFC's Leasing Experience
In addition to carrying out over 50 technical assistance projects to advise governments on how to introduce or
promote leasing, IFC has invested in numerous leasing companies in developing countries and worked with a
large number of technical partners and other private investors.
Accelerating Approvals
Between its first investment in the Korea Development Leasing Corporation in 1977 and June 1995, IFC's Board
approved US$523 million via 120 transactions to leasing unknown companies (see Table 2.1 and Appendix Tables A2A5
for a full list). These approvals covered 63 Mon, IP : 81.180.68.7
companies in 36 countries—over half of the developing countries that
16 Nov 2009 10:36:27
have leasing industries. IFC supported the growth of many of the companies with several loans and investments
2— IFC's Leasing Experience 25
over time. For example, IFC's Board approved eight investments in Colombia's Leasing Bolivar between 1980
and June 1995.
Table 2.1: IFC Approvals, 1977−June 1995: The Big Picture

Number US$m US$m
Approvals 120 IFC approvals 523 Average approval: 4.4
Companies 63 of which: Debt 6.5
Countries 36 FY77FY90 122 Equity 0.5
FY91FY95 401
Debt 483
Equity 40 Approved for IFC 232
syndication
IFC's average leasing approval was US$4.4 million, well below its overall average of about US$11 million per
project. Even more striking is the small size of the average equity approval of just under US$500,000. This
reflects several characteristics of leasing companies and IFC's involvement in them:
IFC often participates at the start−up stage, which may only require a modest amount of equity and perhaps a
small loan;
Leasing companies are relatively small financial institutions; they raise much of their debt from local financial
markets; and,
Much of their growth is typically financed by internal cash generation.
A frequently observed pattern involves an initial equity investment by IFC in a new leasing company, followed
later by a loan. For example, IFC invested US$0.6 million in Ghana's first independent leasing company in 1991,
invested a further US$0.15 million in 1993, andcontinue
provided a US$5 million loan in mid−1993 to help expand the company's foreign currency lease portfolio.
Much of IFC's financing has occurred during the last five years (Figure 2.1 shows the historical pattern of IFC's
equity approvals since 1977). Over three−quarters of the US$523 million of IFC's leasing financing was approved
during FY91FY95, reflecting:
Industry growth . This relatively young industry is quickly spreading to more countries.
Needs of transition economies and low−income economies . The emerging private sector in transition economies
is finding leasing an increasingly important financing source. And leasing has proven an appropriate and
financially successful way of supporting firms in lower per capita income regions, such as Sub−Saharan Africa.
IFC has been closely involved in promoting leasing industries in both these areas.
Delivered by The
Financial sector stabilization and liberalization World Bank e-library
.unknown
Following severeto:macroeconomic and financial sector
instability during the 1980s debt crisis, many countries have implemented stabilization and liberalization
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Mon, 16 Nov 2009 10:36:27
programs that have allowed leasing industries to flourish.
2— IFC's Leasing Experience 26
IFC focus . As the importance of leasing to new, small− and medium−sized enterprises has become
Table 2.2: IFC Commitments, 1977−June 1995

Number US$m
Commitments 92 IFC commitments 374
Companies 49 of which:
Countries 31 FY77FY90 88
FY91FY95 286
Debt 342
Equity 32
more evident with experience, IFC has promoted the industry more vigorously.
IFC's Commitments
By June 1995, IFC had committed US$374 million to 49 leasing companies in 31 countries (see Table 2.2).1 The
difference between approvals (US$523 million) and commitments is partly explained by the large number of
projects approved in 1994 and 1995, many of which had still not been committed. In addition, about 15% of IFC's
leasing approvals (mostly loans) have been dropped or cancelled. The reasons include declines in local interest
rates which have made foreign loans uncompetitive, and the unwillingness of leasing customers to take on the
foreign exchange−denominated leases,2 business difficulties in some leasing companies, and government−related
problems (slow or revoked approvalscontinue
Figure 2.1:
IFC's Leasing Equity Approvals, FY77FY95
source: IFC

unknown
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IFC's Commitments 27
Figure 2.2:
IFC's Leasing Commitments by Region, 1977June 1995
source: IFC
and inappropriate regulations). In some cases, the approval of IFC's Board for a new leasing project may be used
to help trigger changes in leasing regulations by a government, or to seal commitment by foreign or domestic
partners to the project. Occasionally these follow−up actions do not happen, and IFC is unable to participate in the
project.
Wide Geographic Coverage
In terms of volume, nearly half of IFC's commitments have been to leasing companies in Asia (see Figure 2.2 and
Table 2.3). IFC has helped develop leasing in several Asian countries, including setting up the first company in
Korea, Bangladesh, Sri Lanka, Thailand, and some regions of India, as well as encouraging competition by
financing new entrants in Indonesia, Thailand, the Philippines and India.
IFC's US$94 million of commitments to the Middle East and North Africa region are dominated by loans to
several leasing companies in Pakistan. But IFC has been active throughout the region, financing the first
specialized leasing companies in Jordan, Oman, Pakistan, Tunisia, the Lebanon and, most recently, Uzbekistan.
In Latin America , IFC helped introduce leasing to the Dominican Republic and Peru. IFC also helped the leading
Chilean leasing company to access seven−year finance in the international markets by syndicating half of a
US$30 million loan in 1993.
IFC's involvement in promoting leasing in Sub−Saharan Africa has been substantial. Leasing companies—often
the first in the country—have been financed in Zimbabwe, Botswana, Malawi, Ghana, Senegal, Benin, Tanzania,
Uganda, and Côte d'Ivoire. Reflecting the size of the domestic markets, most of these transactions have been
small and many have involved providing start−up equity, so the region does not stand out significantly in overall
volume terms. IFC's leasing activities have intensified in Sub−Saharan Africa as economic reforms have helped to
improve distressed banking sectors, and governments have recognized the importance of leasing for financing
small− and medium−sized companies.
IFC accelerated its leasing promotion activities in Europe with the fall of the Berlin Wall. Leasing has proven a
particularly appropriate financing source for the emerging private sector in the transition economies, where most
firms have a limited track record, legal difficulties often restrict the use of collateral, and many banks are
undergoing major restructuring programs. IFC has financed leasing companies in the Czech Republic, Romania,
Slovenia, and Estonia, with investments in other transition economies being appraised. In addition IFC drafted the
leasing regulations and supported one of the first companies
unknown in Turkey.
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Wide Geographic Coverage 28
Table 2.3: Regional Distribution of IFC Commitments, 1977−June 1995

(US$ million )
% of Equity Loans Total % of
total (US$m (US$m ) (US$m ) total
Companies )
Asia 18 37 21.6 155.7 177.3 47
LAC 5 10 2.4 58.0 60.4 16
CAMENA 11 22 2.2 91.5 93.6 25
Africa 8 16 2.8 18.2 21.0 6
Europe 7 14 3.0 18.6 21.6 6
Total 49 100 32.0 342.0 373.9 100
Source: IFC.
Mobilization
For each dollar provided by IFC to leasing companies, other sponsors have put in over three dollars. Thus, IFC's
commitments of US$374 million have been associated with total financing of US$1.5 billion. Mobilization rates
werecontinue
higher in Europe and Middle East/North Africa (see Table 2.4).
In practice mobilization rates are significantly higher, at least for the equity that IFC invests, as leasing companies
leverage themselves through borrowing (see Figure 2.3). While a dollar of IFC equity is matched by three other
dollars of sponsor equity, the company will leverage its equity by raising 56 times as much debt. Thus, each dollar
of equity that IFC invests typically enables the leasing company to write over US$20 of leases.
Over the medium term, mobilization is higher still, because most leasing companies have grown rapidly. For
example, a sample of 11 leasing companies that IFC helped start between 1977 and 1988 had an initial
capitalization of US$61 million (that is, about US$5 million apiece). By 1994, the capitalization of those 11
companies totalled US$3.3 billion.3
Leasing Works—Even in Risky Countries with Poor Access to International Capital
IFC has promoted leasing companies in countries with little access to international financial markets—mainly
Sub−Saharan African countries and the transition economies. In fact, as leasing industries have developed in more
countries the proportion of IFC's leasing promotion work in higher risk economies has increased. Figure 2.4
shows country risk scores as measured by the Institutional Investor index at the time that IFC approved each
leasing investment, split into two periods: FY83FY92 (46 approvals) and FY93FY95 (61 approvals). A

unknown
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Mobilization 29
Figure 2.3:
A Leasing Company's Balance Sheet
Table 2.4: Mobilization Rates

Total IFC
project Commitment Mobilization
Region cost(US$m) (US$) rate [1]
Asia 645 177 2.6
CAMENA 521 94 4.6
Latin 177 60 1.9
America
Europe 130 22 5.0
Africa 71 21 2.4
All 1,544 374 3.1
projects
Source : IFC.
Note : [1] Total project size, less IFC financing, divided by
IFC financing.
lower score equates to higher country risk.4 The average score fell from 36.7 to 33.4 between the two periods.
Although IFC invested in several high−risk countries in the 1980s (for instance, the Dominican Republic,
Zimbabwe, Pakistan, Bangladesh, and Malawi), during the past two years it has sponsored large companies in
countries with low international credit ratings (including Senegal, Romania, Slovenia, Benin, Tanzania, Uganda,
Estonia, Côte d'Ivoire, Lebanon, and Uzbekistan). Several of IFC's leasing investments have been among the first
transactions for IFC in these countries.
Low Volume Masks Significance
In volume terms, IFC's leasing investments are not large. The cumulative total of US$32 million of equity
committed in all leasing companies since 1977 compares with, for instance, US$50 million invested by IFC in a
single project—the Global Power Fund—in Delivered1994.
by The However, the high
World Bank e-library to: development impact of leasing means that it
unknown
features in IFC's activities in a way that is wholly disproportionate
IP : 81.180.68.7 to the volume of financing approved. Four
measures illustrate this point: Mon, 16 Nov 2009 10:36:27
Low Volume Masks Significance 30
Technical assistance . IFC's capital markets staff spend roughly a quarter of their time on technical assistance to
governments. Thus, IFC staff may advise a government on legal and regulatory changes neces−soft
sary to promote a leasing industry, but may not finance a project if there are no appropriate sponsors. Between
1971 and 1994, IFC staff undertook 46 formal technical assistance assignments specifically on leasing and many
more where the subject was covered as part of a financial sector review.
Equity focus . Reflecting its institution−building aims, IFC invests equity in leasing companies more frequently
than in its industrial sector financings. In most cases IFC is a founding shareholder and a proactive promoter of
the project. Over two−thirds of all of IFC's leasing approvals have been for equity, and 70% of the 40 companies
in IFC's leasing portfolio at June 30, 1995, were equity holdings. This compares to an equity investment rate of
about 50% in IFC's overall portfolio at that date (498 out of 938 companies).
Significant equity stakes . IFC takes higher percentage equity stakes in leasing companies than in many other
companies. IFC's 15% average share in new leasing companies (see Table 2.5) compares, for example, to an
average of 9% for the 78 greenfield investments made by IFC in nonfinancial companies in FY92FY94.5 In
addition to taking a significant equity position, IFC typically takes a board seat on the leasing companies in which
it invests, and is often responsible for identifying foreign technical
Figure 2.4:
More Projects in Riskier Countries
Source: Institutional Investor
Table 2.5: Equity Shares in Leasing Companies at

Time of IFC's Entry
Other Local Local
IFC foreign (private) (public)
Region No. (%) (%) (%) (%)
Asia 14 13 23 49 15
Africa 8 19 42 34 5
CAMENA 5 11 19 51 19unknown
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Europe 5 18 39 23 Mon, 16 20 Nov 2009 10:36:27
Low Volume Masks Significance 31
LAC 4 14 20 63 4
Total 36 15 29 44 12
Source : IFC.
partners. Table 2.5 also illustrates that IFC takes a proportionately larger equity stake in regions where other
private investors may be wary, such as Africa and parts of Eastern Europe.
High number of transactions . In FY95, for example, over 10% (21 out of 182) of IFC's financing approvals
involved leasing companies.
Debt−Equity Ratios
The leasing companies that IFC has financed have been conservatively leveraged at a debt−equity ratio of about
5:1 (see Table 2.6), although the spread around this average ranges from about 12:1 to under 2:1. The average is
slightly lower than the ratio that might be considered "efficient" for a mature leasing company (about 6 to 8:1),
because it includes companies that
are young and have not yet mobilized much debt.
have evolved from being pure spread−based leasing firms into offering a wider range of financial products,
which typically involves reduced leverage.
It also partly reflects the conservative operating policies that IFC requires of the leasing companies that it
supports; to have maximum debt−equity ratios of 10 to 12:1.break
Table 2.6: Average Debt−Equity Ratios,

19911995
Average D−E No. of
Ratio Companies
1991 5.7 21
1992 5.9 25
1993 5.4 29
1994 4.4 24
1995 4.8 22
Source : IFC, Annual Supervision Reports.
Foreign Sponsors and Technical Partners
Foreign technical partners have been involved in about two−thirds of the leasing companies that IFC has financed.
The technical partner has often also been the main foreign shareholder (see Box 2.1). Many of the companies
have been joint ventures between local financial institutions and a foreign leasing company, with IFC often
participating as a founding shareholder. This by
Delivered structure
The Worldhas proven
Bank e-libraryuseful
to: in addressing the mix of risks involved in
introducing leasing to a market: unknown
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The foreign leasing firm brings capital and expertise.
Debt−Equity Ratios 32
The local partner's familiarity with the domestic financial environment and its client base helps with marketing
and meeting regulatory requirements.
IFC's presence and expertise as a neutral broker helps to build trust between the parties.
More recently, some of the original leasing companies that IFC supported have in turn sponsored (and/or acted as
technical partners in) leasing companies in other developing countries. These have usually been regionally based.
Thus, Edesa, the main sponsor in Zimbabwe's udc, has been the technical partner and sponsor in leasing
companies set up in Malawi, Botswana and Tanzania. And Korea's KDLC, IFC's first leasing project, has
sponsored projects in Bangladesh, Thailand and Indonesia (see Box 2.1).
Although commonly used, foreign sponsors or technical partners are not always essential, especially if the
domestic financial market is already fairly well devel−soft
Box 2.1: Examples of Technical Partners in IFC Leasing Investments

Technical Partners Investee Country Project
From developed
countries
Japan Orix Corporation Korea KDLC
Thailand Thai Orient
Leasing
Sri Lanka Lanka Orient
Leasing
Chile Leasing Andino
India IL&FS
United States US Leasing Colombia Leasing Bolivar
International
Jordan Jordan Leasing
Co
France GIEFCA Senegal Sogeca
France Sogelease Peru Sogewiese
Turkey IsGen Leasing
Czech Republic OB Sogelease
From developing
countries
Côte d'Ivoire Bici−Bail Benin Equipbail
Zimbabwe Edesa/udc Botswana ulc Pty
Malawi LFCM
Delivered by The Tanzania
World Bank e-library to: ulc Tanzania
unknown
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Pakistan Orix Leasing Pakistan
Mon, 16 NovOman
2009 10:36:27 Oman Leasing
Debt−Equity Ratios 33
Korea KDLC Bangladesh IDLC

Thailand Ayudhya Leasing
Indonesia KDLC Bali
Source : IFC.
oped. Several leasing companies in which IFC has invested in India, for example, have been entirely domestically
managed and owned—although this partly reflects the fact that until fairly recently the Government of India did
not permit foreigners to own equity in financial institutions. An IFC review of the performance of a successful
Philippine leasing company concluded that the company's strong management and good connections within the
country's financial sector were a major source of its competitive advantage.
IFC's Portfolio
Reflecting the sharp rise in approvals, IFC's leasing portfolio has grown rapidly since the early 1990s, both in
absolute terms and as a percentage of IFC's total portfolio. Between June 1992 and June 1995, IFC's leasing
portfolio more than quintupled, from US$51 million to US$281 million (see Figure 2.5). By 1995 it accounted for
3% of IFC's overall portfolio, up from 0.8% in 1992.
The number of leasing companies in IFC's portfolio increased more slowly, from 18 to 40 over the same period.
As a result of increased lending, IFC's average exposure to each leasing company rose from US$3 million to
US$7 million. Leasing companies account for nearly 6% of all the companies in which IFC has equity, although
the average holding of US$1 million is much smaller than IFC's overall mean (see Table 2.7).
Table 2.7: IFC's Leasing Portfolio, June 1995

Loans Equity Total
Leasing portfolio (US$)
characteristics
Leasing portfolio 252.2 28.7 280.9
Average company 8.7 1.0 7.0
exposure
Leasing as a share of IFC's overall portfolio
(%)
Leasing/IFC total portfolio 3.6 1.2 3.0
Leasing cos./All IFC 4.6 5.9 4.4
companies
Source : IFC.
Regional Split
Asian leasing companies account for over half of IFC's portfolio. Large loans made to companies in India, the
Philippines, Thailand and Indonesia account for much of the recent increase. Similarly loans to several Pakistan
unknown
IP : 81.180.68.7
leasing companies explain the sharp rise inMon,
IFC's Middle
16 Nov East and North Africa portfolio.
2009 10:36:27
IFC's Portfolio 34
The expansion of the Corporation's portfolio in Europe reflects IFC's promotion of several new leasing companies
in transition economies. In contrast, the US$20 million increase in IFC's exposure to Latin American leasing
companies is due to increased lending to existing companies in Colombia, Chile and Peru. Economic reform has
led to increased demand for leases and enabled them to hedge their foreign currency borrowings.break
Figure 2.5:
Sharp Growth: IFC's Leasing Portfolio, 19921995
Source :IFC.
In 1992, Sub−Saharan African countries accounted for 16% of the dollar amount of IFC's leasing portfolio; by
1995 this share had fallen to 4% (see Table 2.8), despite increased IFC activity in the region. The main reason is
that the bulk of IFC's commitments to African leasing companies have been equity. Relatively few clients of
leasing firms in Africa (generally exporters) can afford to take foreign exchange risk on dollar−denominated
leases, so there is low absorptive capacity for dollar−denominated loans from IFC. To address this problem, IFC
has developed the concept of local currency guarantees (see Box 2.2).
Performance Indicators
The leasing companies in which IFC has invested have, on average, proven relatively profitable and efficient (see
Table 2.9). There are data caveats: the sample sizes are small, several of the companies are new and thus exhibit
different performance profiles, and a few companies have no provisions for bad debts but write them off as they
occur. Nevertheless, the relative consistency across different years (a few new companies enter IFC's portfolio
each year and old ones leave), suggest that the figures are broadly indicative.
The consistent average profitability of the companies is notable. The average return on equity of well over 20%
Table 2.8: Regional Distribution, 19921995

June 92 June 95 % of
(US$m) (US$m) total
1995
Asia 27 144 51 by The World Bank e-library to:
Delivered
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CAMENA 5 82 IP : 81.180.68.7
29 Mon, 16 Nov 2009 10:36:27
Performance Indicators 35
Europe 1 16 6
LAC 10 30 11
Africa 8 9 3
Total 51 281 100
Source : IFC.
is backed up by IFC's portfolio experience.6 The relatively low provisioning rates compared to bank lending
suggest that leasing is less vulnerable than lending to default. Given that much of the market of leasing companies
is composed of SMEs (generally considered a high−risk group by banks), this is significant. This reflects in part
the stronger security position of leasing companies: because they legally own the asset, physically recovering it in
the event of a default may not be as difficult as for a bank trying to obtain possession of collateral. Furthermore,
since leasing companies tend to undertake more detailed assessments of a potential borrower's cash flow than
banks, they know the specific asset they are financing and can monitor its use.break
Box 2.2: Mobilizing Local Finance For a Leasing Company in Côte

d'Ivoire
Contrary to perceptions, sources of long−term, private, domestic financial

savings do exist in some Sub−Saharan African countries, in the form of
assets held by life insurance companies. Often, however, they are not
intermediated efficiently due to regulatory distortions and weak financial
institutions. Liberalization of regulations can offer opportunities for IFC
to assist with mobilizing these resources.
In 1995, new regional regulations for insurance companies in the CFA

zone in West Africa provided such an opportunity. Insurance companies
were required to invest between 15% and 50% of their reserves in assets
issued or guaranteed by 1) a CFA zone government; or 2) a development
financial institution; or 3) a public international financial institution (such
as IFC). IFC was thus able to offer local currency guarantees to two
leasing companies in Côte d'Ivoire to enable them to borrow from local
insurance companies. There are four benefits to this approach:
• By accessing longer term financing, the leasing company will be able to

extend the duration of its leases—so benefiting its lessees.
• The leasing company will be able to expand its volume of local

currency leasing without exposing the company to foreign exchange risk
(as would have been the case if it had borrowed externally).
• The insurance companies can invest in a high−quality asset.
• Local capital markets will be boosted by the introduction of

medium−term corporate paper issued by the leasing company.
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Performance Indicators 36
Financial Performance of IFC's Portfolio
Equity
IFC's equity investments in leasing companies have performed well. The overall average nominal return7 has
ranged between 16% and 24% over the last five years, well above the 12%13% average for IFC's total equity
portfolio. Furthermore, these figures do not simply reflect very good performance by one or two large
investments: returns were over 10% for the majority of the companies.8
As of June 1995, only four companies in which IFC had invested for over four years yielded IRRs below 5
percent:
• A leasing company in the Middle East was affected by 1) the refusal of the government to register it as a
financial institution, thereby constraining it from raising retail deposits; 2) a deteriorating economic environment;
and 3) weak management (it had no foreign partner).
• A company in a Southeast Asian country experienced severe portfolio problems partly because the initial
managers did not adhere to exposure guidelines. The foreign technical partner did not match expectations.
• Poor performance at another Middle Eastern company resulted from the high turnover of managers supplied by
the technical partner, doubtful management decisions (for instance, purchasing real estate), increasing
competition, and more recently, a worsening economic environment, including rapid devaluation.
• A company in southern Africa suffered from competition and funding constraints as it was the only leasing
company in the country not affiliated with a financial institution.
Loans
Since IFC made its first loan to a leasing company in 1977 there have not been any defaults, and none have shown
arrears to date. Furthermore, all except one of the 28 leasing companies on IFC's portfolio as of June 1995
Table 2.9: Good Overall Performance

Performance indicator 1991 1992 1993 1994
Return on equity (%) 29.5 27.8 26.7 24.6
Return on average assets (%) 3.7 4.0 4.8 4.2
Provisions as % of lease 1.5 1.2 1.0 1.3
receivables
Admin. expenses as % of 3.2 2.4 1.0 3.1
average assets
Source : IFC, Annual Supervision Reports.
Note : Unweighted averages from all of the leasing companies in
IFC's portfolio—between 15 and 25 companies in each year.
have the highest possible portfolio rating score, suggesting that portfolio performance is unlikely to worsen
sharply in the short−term. unknown
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Financial Performance of IFC's Portfolio 37
Lessons from IFC's Experience
Within this broadly positive picture, several lessons have emerged from IFC's 30 years of leasing experience:9
· Technical partners should have a substantial equity stake (20%40% ). Although foreign technical partners have
played an important role in the majority of the leasing companies that IFC has sponsored, they have not always
proven effective for various reasons, including unfamiliarity with the market, cultural differences, and lack of
interest. Technical partners with an investment in the company are more likely to contribute effectively.
· Careful portfolio management pays . Many of the problems that arose in leasing companies sponsored by IFC
resulted from overly concentrated portfolios by client or sector. Companies reduced their risks of default and
helped maintain profitability by adhering to policy statements limiting exposure to single companies and
enterprises; building up their portfolios cautiously; seeking extra security for riskier or large leases; maintaining
good management information systems; and, visiting clients regularly.
Leasing companies are vulnerable to adverse macroeconomic changes . A worsening of the macroeconomic
climate usually affects small−and medium−sized firms quickly. Such firms often form a high percentage of
leasing customers. Furthermore, if credit is tightened leasing companies may suffer from financing constraints or
term mismatches.break
Leasing companies benefit substantially from foreign exchange convertibility and reduced tariffs on imported
machinery and equipment . Leasing companies in developing countries often require foreign exchange to
purchase imported equipment, but prefer to denominate their leases in local currency (because of the nature of
their client base). Without foreign exchange convertibility leasing companies write mostly foreign currency leases
to match their loans to finance imported equipment, which restricts their market to exporters.
Stand−alone leasing firms tend to compete more vigorously for markets and to focus on their portfolios . For this
reason IFC usually prefers to finance stand−alone companies, although such firms can be at a disadvantage when
competing with leasing subsidiaries of commercial banks—which can tap low−cost depositors' funding from their
parents, sometimes with a cross−subsidy.
Difficulties in mobilizing domestic financing are often one of the most serious constraints to expansion. This is
one of the key roles that local partners can bring to a new leasing company, as well as knowledge of local markets
(although IFC is careful not to choose local partners that restrict themselves to a narrow segment of the potential
leasing market, such as a vehicle distributor for a specific manufacturer).
More Impressive Than the Numbers Suggest . . .More Impressive Than the Numbers Suggest . . .
The portfolio performance of IFC's leasing companies has been better than most other regional or sub−sectoral
Box 2.3 High Costs: Introducing Leasing to Senegal
A US$400,000 investment and US$1.8 million loan to a leasing company

in Senegal cost IFC about US$200,000 to put on the books. IFC's costs
were incurred in: identifying and assessing an almost moribund existing
hire−purchase company, bringing together two strong partners to enable
the company to expand into financial leasing, setting out the business
unknown
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plan and preparing the Articles of Incorporation.
Mon, 16 Nov 2009 10:36:27
Lessons from IFC's Experience 38
classifications in IFC's portfolio. It is particularly impressive when considering that many of the companies are:
new start−ups, often managed by a mix of foreign and local partners;
introducing a new product to the local market;
lending relatively high proportions of their funds to new, small and medium companies; or
located in low−income countries with poor access to international capital.
. . . But Returns are Lower Than the Numbers Suggest
Despite their good financial performance, the overall financial return to IFC of undertaking many leasing
transactions is quite low. The reason is size. The fixed costs of putting a leasing investment on IFC's books are
high relative to the financing provided, particularly if there has been a significant amount of preparatory work,
such as assessing the regulatory environment and identifying sponsors (see Box 2.3). Small equity investments
make it difficult to recoup these up−front costs, although a good proportion of the projects do lead to larger
lending operations later. Nevertheless, as examined in the next section, IFC takes a very proactive stance toward
promoting leasing, because it offers such high developmental returns.break
1 . All parties sign the commitment agreement and IFC funds its obligations at this point.
2 . IFC's policy is not to let the leasing companies which it finances take foreign exchange exposure. Hard
currency loans are only made if the company can swap them into local currency or issue them as dollar leases.
That said, leasing companies will have some exposure inasmuch as lessees might default if they cannot service
foreign currency denominated leases.
3 . A significant share of this growth was accounted for by one company, KDLC in Korea, which grew from
US$9.3 million in 1977 to US$2.7 billion in 1994. However, the capitalization of the other 10 companies
increased on average by over five times between start−up and 1994.
(footnote continued on next page)
(footnote continued from previous page)
4 . Twice a year, Institutional Investor polls 75100 international banks to grade countries on a scale of 0 to 100,
with 100 representing the least chance of default. The responses are weighted to give more importance to
responses from banks with greater worldwide exposure and more sophisticated country analysis systems.
5 . In this sample the other sources of equity were: other foreign investors 40%, local private investors 38%, local
publicly owned investors 7%, and internal cash generation 6 percent.
6 . Most of the return on equity figures are drawn from accounts stated in US dollars.
7 . All currently active and closed out investments.
8 . Developmentally, this matters. IFC's limited

Delivered funds
by The Worldyield
Bank ae-library
development
to: impact if the companies that it
supports succeed—and thereby encourage moreIPprivate unknowninvestors. Companies that fail yield no development
: 81.180.68.7
impact (and possibly even have a negative Mon,
impact,
16 Novif 2009
their10:36:27
example deters other private investors). So two
moderately successful companies are likely to yield more development impact than a combination of one very
. . . But Returns are Lower Than the Numbers Suggest 39
profitable company and one failure.
9 . Reviews undertaken by IFC's Operations Evaluation Unit include: Support for SMEs Through Financial
Intermediaries (August 1995), and An Evaluation of IFC's Experience with Financial Institutions That Assist
Private Enterprise (June 1992).
3—
IFC's Role in Promoting Leasing
Financing Small− and Medium−Sized Enterprises
Private small− and medium−sized enterprises (SMEs) are an important engine of growth and employment in
many developing economies.1 They are hard for IFC to reach directly, although the Corporation has several
special programs that provide advice and financing to SMEs.
In the long run, IFC's most important and effective approach to financing SMEs is indirect— through the
promotion of domestic financial institutions that target small and new firms. Specifically, IFC:
sponsors leasing companies ;
makes loans to banks for on−lending to SMEs ; and
promotes venture capital companies , which provide SMEs with equity and management advice (see Figure 3.1).
Building these institutions enables a sustainable flow of locally sourced financing to reach SMEs, as they all
primarily mobilize domestic financing (which is particularly appropriate for SMEs, which are not usually
prepared to take foreign exchange risk). Working through such institutions, IFC can ultimately reach far more
SMEs and at much lower costs than under its complementary direct financing programs.break
Figure 3.1:
Financing SMEs Through Building Local Financial
Delivered Institutions
by The World Bank e-library to:
unknown
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3— IFC's Role in Promoting Leasing 40
Figure 3.2:
IFC's Specific Roles in Promoting Leasing Companies
IFC's Proactive Approach to Leasing
With most of its investment activities, IFC responds to financing requests from private investors. In much of its
capital markets work, however, IFC takes the initiative. Leasing is a prime example. IFC initiates concepts,
undertakes feasibility studies, sounds out potential technical partners, helps draft business plans and operating
policies and mobilizes funding (see Figure 3.2). More broadly, IFC seeks to extend the leasing industry to more
countries and to promote vigorous, competitive leasing industries in countries where it already exists. IFC's
proactive approach is best illustrated by a series of questions that it asks when introducing leasing to a new
market.
Are Regulatory Barriers Preventing the Development of Leasing?
Leasing cannot develop without an enabling regulatory environment (Box 3.1 lists areas of interest to a potential
foreign sponsor of a leasing company). Recognizing this, governments often request IFC to review their country's
regulatory environment for leasing. In several countries, IFC has followed up diagnostic assessments with
assistance in drafting leasing legislation. In Turkey, for example, leasing legislation enacted in July 1985
represented the culmination of four years of IFC technical assistance. This was followed by IFC financing of one
of the first Turkish leasing companies in late 1987. By 1993, Turkey had the 25th largest leasing industry in the
world, with leasing volume of about US$1 billion financing 6% of private investment.
Leasing laws enacted in one country often provide models for governments considering policy changes to
promote leasing. Several Asian countries have examined South Korea's pathbreaking 1973 Leasing Industry
Promotion Act , which was drafted with IFC assistance. And the leasing regulations promulgated in 1994 by
Mozambique after IFC advice are being referred to by other governments considering changes, such as Cape
Verde. In Francophone West Africa, IFC assessed the regulatory framework for leasing in 1993 in the whole
common monetary area (see Box 3.2). This has been followed by leasing projects in Senegal, Benin, and Côte
d'Ivoire.
Specialized leasing laws may not be necessary, providing existing regulations designed to deal with other
financial institutions and credit relationships do not discriminate against the industry. For example, IFC has been
active in developing the leasing industry in India, in the absence of specific leasing regulations. In retrospect, this
may have been beneficial: leasing wasDelivered
one ofbyfew
Theparts
World of the
Bank Indian
e-library to: financial system that was not burdened at the
unknown
time by heavy government regulations and stateIPintervention and was thus able to develop rapidly.
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IFC's Proactive Approach to Leasing 41
IFC's technical assistance to governments is independent of whether the Corporation decides to make a leasing
investment. Thus, in several of the countries IFC has advised in recent years (for instance, Algeria, Madagascar,
Costa Rica, Lesotho, Nigeria, and others) there had been no follow−up investment by IFC by end−1994, either
because the Corporation was unable to identify appropriate sponsors, or because the government was still
considering how to implement recommended changes. For countries with constraints in civil servicecontinue
Box 3.1: Developing a Favorable Regulatory Environment for Leasing

Banking regulations Recommended to promote leasing industry
Licensing Recognize existence of leasing. Restricting leasing to
licensed institutions (and requiring commercial banks to set
up separate subsidiaries to write leasing contracts) may help
the industry to develop aggressively. Leasing companies
allowed to mobilize only term deposits.
Prudential requirements Minimum capital requirements may be lower than for many
other financial institutions. Other prudential requirements
may be less strict than for deposit−taking institutions.
Legal framework
Lessor's ownership Should be clearly stated, with simple, effective and timely
procedures for reposession if lessee and repossession right
defaults
Lessee's rights Should be clear: uninterrupted use of leased asset for the
lease period if lease payments are current.
Tax treatment
Lessor Allowed to depreciate asset; lease payments taxed as
income; asset depreciation com−puted over life shorter than
or equal to lease contract.
Lessee Lease payments treated as an expense for tax purposes.
Sales tax Post−contract sale of the asset is exempt from sales tax.
Capital allowances Given to lessor or lessee. Equal treatment compared to other
financing.
Foreign investment
regime
Convertibility of Free convertibility to a foreign currency deposit.
institution's paid in capital
Corporate tax treatment Comparable to other financial institutions.
Restrictions on payments Free transferability, possible exemption from withholding
by company (for instance, tax.
dividends)
Capital equipment imports Receive Delivered by The World Bank e-library to:
same customs and tax treatment as if imports
unknown
(to be on−leased) undertaken directly by end users.
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IFC's Proactive Approach to Leasing 42
administrative capacity, the ability to digest and implement the large number of changes recommended by
external advisors is limited; leasing regulations are not always perceived as a priority. Although unfortunate from
an economic perspective, politically this is not surprising: potential beneficiaries of leasing (new firms and SMEs)
typically do not represent a powerful political interest group.
In several cases, IFC has continued to provide technical assistance on leasing to governments as the market has
developed. In the Philippines, for example, IFC approved financing for the All Asia Capital Leasing Corporation
in 1980 in the absence of specific leasing laws. The government indicated that existing laws and regulations
covering finance companies would allow leasing companies to operate, but would be amended to covercontinue
Box 3.2: Identifying Constraints to Leasing in West Africa
In 1993 IFC, together with a regional development bank and the central
bank in the West African Monetary Union (UMOA), conducted a study to
identify impediments to the development of leasing in the region. The
study found that the central bank treated leasing companies similarly to
commercial banks when setting prudential liquidity requirements. As
leasing companies are not deposit takers, the study recommended that
leasing companies be subjected to lower liquidity requirements.
leasing explicitly. IFC assisted in drafting new regulations for the industry that were promulgated in 1986.
Can IFC Catalyze the Industry by Sponsoring a Leasing Company?
If the regulatory environment is adequate, the next task is to identify the possible market (see Box 3.3) and the
most appropriate vehicle for IFC support. The most frequently used approach has been to set up a new,
independent leasing company with a mix of foreign sponsors, a technical partner (usually the largest foreign
shareholder) and local partners. IFC has, however, also supported existing leasing companies and helped set up
companies with purely local sponsors.
IFC's special position—as a perceived "neutral" partner—allows it to intermediate between the sponsors and the
government, and between the different sponsors. This has enabled it to start the leasing industry from scratch in
about half of the 30−plus countries in which it has undertaken leasing transactions. Furthermore, many of IFC's
leasing investments are pioneering in other ways: as the first leasing company in a region of a major country
(India, for example), as the first independent leasing company not affiliated to another financial institution, or as
the first company focusing on a particular sector (see Table 3.1). Several investments have been near−firsts: after
advising on the legal and regulatory framework, IFC financed the second leasing joint venture with a foreign
partner in the Czech Republic and the second private leasing company in Indonesia.
Identifying the right sponsors is essential. Foreign sponsors should offer technical expertise, capital and
Box 3.3: Assessing the Market
IFC has financed several feasibility studies to analyze the potential

market for leasing. In 1996, after sponsoring several
Delivered by The Worldleasing companies
Bank e-library to: in
southern African countries, IFC is going a step further. Financed by
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Italian trust funds, IFC is undertaking a study
Mon, of the 2009
16 Nov potential
10:36:27market for a
regional leasing company that would write large and medium−ticket
Can IFC Catalyze the Industry by Sponsoring a Leasing Company? 43
leases. The study involves assessing demand for medium and big−ticket
leases and assessing the legislative and regulatory environments
necessary for this type of leasing.
long−term commitment—and be willing for the proposed company to operate within the conservative operating
policies that IFC insists on as a condition of participation. For example, IFC has turned away potential sponsors
who wanted to leverage equity 1518 times—IFC's operating guidelines for leasing companies usually stipulate a
maximum of 1012 times, and only then after several years of operation. As well as commitment, local sponsors
need to bring access to local funding (crucial for leasing companies), marketing channels, and the contacts in the
local financial system necessary to do business.
In many cases IFC has helped broker negotiations between the foreign partner, domestic sponsor and government
by taking a minority equity stake. A 40/40/20 structure (foreign/local/IFC) has been used in several countries,
such as Estonia and the Czech Republic. This gives each partner a large enough stake to ensure full commitment.
IFC has focused on establishing and supporting specialized , independent 2 leasing companies, rather than
encouraging existing financial institutions to expand into leasing (although in the early 1980s IFC supported
incorporation of leasing activities into existing financial institutions in several smaller countries such as Uruguay,
Cyprus, and Fiji). The rationale is that the managers of specialized financial institutions are likely to be more
focused, flexible and aggressive in their business strategies and that operations are easier to monitor and control
than those of multipurpose institutions. This in turn should stimulate more competitive services and contribute to
the development of capital markets, although it does not always work out as expected (see Box 3.4).
Even where a leasing company is wholly owned by a single shareholder (usually a bank), having a separate
subsidiary enables management to focus on the particular sector. In May 1994, IFC provided a loan to a Slovenian
leasing company wholly owned by a state−owned bank that was being privatized. The rationale for choosing this
company, rather than one of the six others in the country (including some that are privately owned), was that it
was the only one with the inclination, skills and capability to provide financing for a wide range of industrial
equipment, rather than focusing on cars and other consumer durables.break
Will the Leasing Company Be Able to Mobilize Medium−Term Local Debt?
Obtaining sufficient medium−term local financing is the main problem faced by leasing companies in developing
countries. Many lessees are unwilling to take the foreign exchange risk associated with foreign currency leases,
particularly companies that are new, small, or sell their goods in the domestic market. These are the potential
sources of domestic financing:
Banks or finance houses.
Term deposits from institutional savers, such as pension funds and insurance companies.
Domestic capital markets , via bond issues.
External borrowing . In a few countries, such as India, leasing companies can swap their foreign currency
borrowings into local currency.break
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Will the Leasing Company Be Able to Mobilize Medium−Term Local Debt? 44
Table 3.1: Pioneering the Leasing Industry

First
company
Technical in country Other
Date Country assistance ? first ?
FY77 South Korea Yes Yes —
FY79 Thailand — Yes —
FY80 Sri Lanka — Yes —
FY81 Jordan — Yes —
FY82 Peru Yes Yes —
FY82 Brazil Yes — Agro−industrial
leasing
FY83 India (IEL) Yes — In region (S. India)
FY83 Portugal Yes — Private leasing
company
FY83 Dominican — Yes —
Rep.
FY84 Pakistan Yes Yes —
FY84 Tunisia Yes Yes —
FY84 India (ILD) — — In region (N. India)
FY85 Bangladesh — Yes —
FY86 Malawi — Yes —
FY88 Turkey Yes — Joint venture
company
FY88 Botswana — — Independent leasing
company
FY90 India — — Specializing in
(IL&FS) infrastructure
FY92 Ghana — — Independent leasing
company
FY93 Oman — Yes —
FY94 Senegal — — Financial leasing
company (vs
hire−purchase)
FY94 Romania Yes Yes —
FY94 Benin Yes Yes —
FY94 Tanzania Yes Yes unknown—
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FY95 Uganda Yes Mon, 16 Nov 2009
Yes —10:36:27
FY95 Uzbekistan — Yes —

Source : IFC.
Box 3.4: Uneven Progress: The Right Conditions Make a Difference
IFC's strategy of supporting the creation of new independent leasing

companies with strong technical partners does not always work the first
time.
In 1982, IFC financed the sixth entrant to the Indonesian leasing industry.
This company, however, has had a checkered history, with two periods of
rapid growth followed by severe portfolio problems—the last of which in
1991 wiped out nearly all the company's equity. The problems were
related to poor management: inadequate credit evaluation, unreliable
financial information on lessees, poor documentation, lack of credit
monitoring, overexposure to particular clients, and weak procedures for
authorizing leases. These inadequacies occurred both during the original
period when a foreign technical partner was assisting the company, and
after the technical partner was changed. New management put in place
with the 1992 restructuring is nurturing the company back to health.
By 1993 there were 140 companies in Indonesia with licenses to

undertake leasing, although only about 50 were active. However, only a
few were well−managed and strongly capitalized, and leasing remained a
relatively undeveloped part of the financial sector, partly because of
difficulties in accessing term local finance. In late 1993, IFC helped
establish a new joint−venture leasing company, with a high−quality local
sponsor partnering the largest Korean leasing company, which has
successfully developed leasing companies in several other countries. This
company has performed well to date.
Retail deposits . In a few countries leasing companies are licensed to take deposits directly from the public, but
this is not generally an important source of finance, as being a deposit−taking institution involves much stricter
supervision and regulation from the monetary authorities.
The lease period for the industrial and transport equipment that most of IFC's leasing companies finance is 35
years, so financing for this term is required to avoid funding mismatches.
Domestic banks are an important source of finance for leasing companies. One way to reduce the risk that a
leasing company will not be able to access local debt is for a local bank to be one of the main shareholders in the
company, so it will have a direct interest in providing financing. This device has been used in leasing companies
in Indonesia, Turkey, the Czech Republic, India, Jordan, Slovenia, and Estonia, among other countries.
Where government controls have distorted financial markets, domestic banks may not be able to provide funds
beyond very short term loans. Some leasing
Deliveredcompanies
by The World have addressed
Bank e-library to: this problem by obtaining
unknown
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Box 3.5: Accessing Local Finance and Marketing Channels: Romania
In 1994, IFC approved financing for the first leasing company in

Romania, Romlease. The choice of local partners aimed to maximize the
potential for mobilizing local finance and marketing. The main local
partner, the Romanian Bank for Foreign Trade (RBFT), agreed to provide
the company with either a dollar or local currency loan, to match leases
written (expected to be foreign−currency leases in the early stages, then
more local currency leases). RBFT also identifies qualified local staff for
the company and refers customers.
Another shareholder, the Bucharest Private Ownership Fund (POF), is

one of five funds created as a result of Romania's privatization program;
through them, Romanian individuals hold 30% of the shares of the
country's state−owned enterprises. POF has agreed to provide a
medium−term local currency loan to Romlease, and with shares in 1,250
companies, POF should also be an important source of business referrals.
financing from institutional sources . For example, one of the shareholders in the ulc leasing company in
Botswana is a major local insurance company, and the company has raised some of its finance from pension
funds. The ownership of the first leasing project in Romania was structured to help access local funds and
marketing networks (see Box 3.5).
As well as assisting with structuring the ownership of leasing companies, IFC has helped underwrite local
currency issues by leasing companies. In Sri Lanka, IFC partly underwrote a four−year bond issue for SL Rs
100m (about US$3.85 million) in 1986 by the Lanka Orix Leasing Company. It was the first bond issue of a
publicly traded private company to be made in several years. In 1989, with IFC's assistance, a Tunisian leasing
company floated a TD 1.5 million bond on the domestic market—the first such issue by a Tunisian company in
the country. But sometimes conditions in local markets have proved too difficult for domestic issues to succeed
(see Box 3.6).
Can the Leasing Company Use Foreign Currency Loans?
In economies where it is difficult for leasing companies to obtain medium−term domestic financing, it may still
be possible for the leasing industry to start by writing foreign−denominated leases for exporters—who in turn
need to import capital equipment to expand their businesses. In these circumstances, IFC can assist fledgling
leasing companies by providing them with medium−term foreign currency loans. For example, a 1991 IFC equity
investment in the Ghana Leasing Company was supplemented in 1993 by a US$5 million loan. This was aimed at
helping the company expand a lease portfolio that already included a range of capital equipment, including trucks,
computers, buses, industrial equipment and earthmoving machinery. Sometimes IFC provides the loan facility at
start−up. For example, in 1994 IFC approved a US$0.16 million equity investment and US$0.75 million loan for a
proposed new leasing company in Benin.
IFC also provides dollar loans in countries where leasing companies are already writing a mix of local and
dollar−denominated leases and have the institutional capacity to write more leases, but are constrained from doing
so because they lack access to medium−term funds (see Box 3.7).break
IFC's largest leasing company operation to date provides an example: approval in 1994 of a US$70 million credit
line to six privately owned leasing companies in Pakistan.
unknown The US$55 million portion provided directly by IFC
will carry a 10−year tenor, while the US$15 millionIP : of syndicated loans would have a shorter 35 year repayment
81.180.68.7
Mon, 16 Nov 2009 10:36:27
period. The IFC operation will enable, for the first time, the companies to tap the international bank syndicate
Can the Leasing Company Use Foreign Currency Loans? 47
market without a government guarantee. It will also enable the leasing companies to continue their aggressive
rates of expansion, while leveraging other lenders. Each of the companies has other lenders committed to provide
loans equal to or greater than IFC's contribution. SMEs are expected to be the major beneficiary of the expanded
leasing capacity: the average lease size of the companies in September 1993 ranged from US$17,000 to
US$150,000 equivalent.
How Best to Foster Sustainable, Competitive Leasing Companies?
In addition to addressing leasing companies' financing needs, IFC promotes competition and advises companies to
implement prudent operating and financial policies . These guidelines, typically embodied in policy statements
adopted by companies' boards of directors, are similar in most IFC leasing projects. They include high standards
of credit appraisal, portfolio supervision and
Box 3.6: A Local Currency Issue That Failed: Botswana
Facing difficulty attracting enough local financing, ulc, a Botswana

leasing company supported by IFC, ulc, launched an issue of Transferable
Certificates of Deposit (TCDs) in 1991. TCDs give investors a higher
interest rate but at the same time allow investors to trade them. The
company requested IFC to partially guarantee the principal and interest
obligations on the TCDs to enhance their creditworthiness and
attractiveness to investors.
The issue failed, however, for two reasons: the concept proved difficult to
market in the relatively unsophisticated capital market in Botswana, and
the central bank issued its own CDs to mop up excess liquidity in the
market. These were attractively priced and made ulc's TCDs
uncompetitive.
equipment monitoring, and exposure limits to any one lessee, industry and class of equipment. Financial policies
include limits on leverage and guidelines to avoid maturity mismatches. Typically IFC has been closely involved
in preparing business plans and drafting shareholders agreements and the agreed statement ofcontinue
Box 3.7: Providing Dollar Financing to a Chilean Leasing Company
In 1990, IFC loaned US$10 million to Chile's leading leasing company,

Leasing Andino (LASA). The leasing market in Chile had expanded at
over 30% per annum since 1986. LASA had financed its expansion
through retained earnings, lines of credit from banks and issuing bonds. It
had, however, exhausted its borrowing capacity, because the banks had a
single borrower limit of 5% of their capital and local bond market
regulations restricted issues in excess of twice net worth. IFC's loan
enabled LASA to increase its dollar leases to exporters.
In 1993, IFC loaned LASA US$15 million and syndicated another US$15
million. This was the first time that the company
Delivered by Thehad
Worldaccessed 7−year
Bank e-library to:
money in the international markets. During the same period, leasing has
unknown
IP : 81.180.68.7
financed an increasing share of capital goods Mon,imports.
16 Nov 2009 10:36:27
How Best to Foster Sustainable, Competitive Leasing Companies? 48
Leasing Imports of capital Leasing as % of

contracts (US$m ) goods (US$m ) capital goods
Year imports
1989 214 1,917 11%
1990 280 1,450 19%
1991 399 1,840 22%
1992 707 2,571 27%
1993 1,077 3,280 33%
Source: World Leasing Yearbook , 1995.
Box 3.8: Typical Operating Guidelines for a Leasing Company
Borrowing Limits
Maximum debt−equity ratio of 10:1
Financial expenses coverage ratio of not less than 1.25:1 (earnings before
taxes and financial expenses divided by debt service charges)
Maximum foreign currency liabilities = 20% of total debt.
Exposure Limits
Maximum commitment to any single company and its affiliates shall not
normally exceed 15% of the company's paid−in capital and surplus
(including shareholders' loans).
Asset/Liability Matching
The average weighted life of the company's portfolio should be less than
the average weighted life of its deposits and borrowings.
Capital Adequacy
A total capital to risk−weighted assets ratio of 8 percent.
Liquidity
Internal requirement that 20% of public deposits be maintained in liquid
assets.
operational policies. This has applied even where IFC has not taken an equity stake. For example, IFC's US$70
million credit line to six Pakistani leasing companies was approved only after IFC had reached agreement with
each company on the adoption of an operational policy statement.
IFC's involvement has been much more hands−on for leasing companies than in many other sectors because the
novelty of the product means that it is doubly important that good operating standards are set by key
"demonstration" companies. Leasing is probably the sector where IFC has gone furthest in initiating projects,
defining operating standards and preparing documentation. Box 3.8 lists typical operating guidelines for a leasing
company.
unknown
IFC's involvement is not limited to setting guidelines at the start of a project.
IP : 81.180.68.7 IFC has generally taken a seat on the
Mon, 16 Nov 2009 10:36:27
boards of the leasing companies in which it has an equity stake and has participated in pressing management to
How Best to Foster Sustainable, Competitive Leasing Companies? 49
adhere to operational policies. For example, IFC's board representative of the Ghana Leasing Company voted
against a management proposal to concentrate its portfolio more narrowly and proposed guidelines for an
executive committee to review lease proposals considered large enough to warrant inspection but below the size
worthy of full board examination. IFC has also used conditions specified in its investment agreements as a lever
to ensure that companies maintain prudent financial policies. For example, IFC used its investment agreement
conditions to counter a suggestion by the Korea Development Leasing Company's management to increase its
debt−equity ratio. In addition, IFC has helped provide comments on leasing companies' periodic strategic reviews,
as with a Zimbabwean leasing company in 1993.
Sometimes IFC has helped leasing companies overcome temporary difficulties. In 1983, in the face of a
deteriorating credit standing on its international debt, the Philippines Central Bank cancelled the authority of an
IFC−sponsored leasing company to use its dollar account. This left the company facing a serious mismatch in its
dollar assets and liabilities (a dollar loan to repay, but no demand for dollar−denominated leases, and a
depreciating exchange rate). IFC helped the company arrange a swap of its dollar assets into Pesos, via a
long−term lease for power generating equipment to the National Power Corporation.3
Where possible, IFC has sought to promote competition with existing leasing companies. In 1988 IFC supported
the establishment of a leasing company in Botswana to provide competition in an oligopolistic financial sector.
By 1993, in addition to the financially successful IFC−sponsored company and the previous leasing companies,
two aggressive foreign banks had set up local leasing entities, and spreads had fallen sharply. Box 3.9 describes
how IFC helped in setting up two Thai leasing companies in short succession in 1991.break
Are the Leasing Company's Assets and Liabilities Matched?
Unlike deposit−taking institutions, which "transform" short−term deposits into longer−term loans, leasing
companies need to broadly match their assets and liabilities (a leasing company that borrows six month funds
cannot write a three year lease without incurring refinancing risk). Mismatches can occur in several ways: term ,
interest rate or exchange rate . Domestic financial markets often provide leasing companies with relatively
short−term financing, meaning that there is a danger of a leasing company mismatching the average term of its
assets (outstanding leases) and liabilities (its borrowings). Longer−term IFC loans can help address this problem,
providing the company can address the foreign exchange risk in borrowing dollars and leasing in local currency.
IEL, an Indian leasing company that IFC helped to establish in 1983, relied for its funding on annually renewable
bank loans and public deposits with an average maturity of two years—against an average lease maturity of 35
years. It was thus vulnerable to liquidity squeezes and interest rate changes. To reduce its dependence on
short−term funding, in 1992 IEL secured a US$3 million 7−year loan from IFC (which it swapped into rupees to
eliminate foreign exchange risk). This loan also enabled IEL to diversify its activities into leasing more
sophisticated capital equipment.
On a larger scale, IFC has financed several operations with India's Infrastructure Leasing and Financial Services,
including a US$25 million loan in March 1994 to help the company reduce an asset−liability mismatch: the
weighted average of its financial assets was 39 months, compared to 28 months for its borrowings. And a US$30
million partly syndicated loan to Chile's Leasing Andino in 1993 helped the company stretch the maturity of its
term leasing from four to seven years.
Can the Product Line of Existing Leasing Companies Be Widened?
In several cases IFC's participation has enabled

Delivered established
by The World Bankcompanies
e-library to: to broaden their range of leased products or
to extend leasing to new sectors. A loan to a Colombian unknownleasing company enabled it to address fastgrowing
IP : 81.180.68.7
demand for dollar−denominated leases. Financing
Mon, 16 Novprovided to 20th Century Finance Corporation in India led to it
2009 10:36:27
provide lease finance for larger, more sophisticated plants and equipment. 20th Century has also expanded its
Are the Leasing Company's Assets and Liabilities Matched? 50
merchant banking activities. India's Infrastructure Leasing and Financial Services (IL&FS) has used term loans
from IFC to provide lease finance to major infrastructure projects, including, in 1991, a petroleum pipeline, a
small port facility and a downstream petrochemicals project. This experience has enabled it to broaden its
activities beyond leasing. For example, in late 1994 IL&FS was given the mandate to solicit proposals,
recommend an operator and arrange financing for a build−operate−transfer concession to supply water and
drainage services in Tirupur, Tamil Nadu.4 break
Box 3.9: Competition and Growth in Thailand's Leasing Industry
In 1978, IFC invested in the first specialized leasing company in

Thailand. Although the company was profitable, the country's
unfavorable tax treatment of leasing at the time meant that it grew
slowly. IFC sold its equity stake in 1985, yielding an annualized 8.9%
rate of return in dollar terms.
In early 1991 IFC provided technical assistance to the government on

leasing, and in May 1991 new regulations were approved, removing
the fiscal bias against leasing. Shortly afterward, to stimulate
competition in the expected rejuvenation of the industry, IFC
approved investments in two new Thai leasing companies. By 1994,
both were reporting healthy growth and profits. Between 1989 and
1993 the industry expanded sharply:
1989 1990 1991 1992 1993
No. of leasing companies 9 14 16 19 20
Volume of lease 80 161 291 298 560
financing (US$m)
Source : World Leasing Yearbook, 1995.
Note : In late 1993, finance companies were allowed to enter the
leasing industry. Furthermore, the 1995 World Leasing Yearbook
reports that Thai commercial banks have also been turning toward
leasing as a way of accessing small− and medium−sized companies to
compensate for the loss of business from larger firms, which are
increasingly mobilizing funds directly from the stock market instead
of through bank borrowing.
Increased experience helps. The Leasing and Finance Company of Malawi (LFCM) started operations in 1986
with a staff of four, which expanded to 22 by 1992, all of whom had been on training courses at the technical
partner's Zimbabwean headquarters. In 1993, LFCM began offering other financial services apart from leasing,
including discounting and factoring.
Can IFC Help to Promote Greater Private and Local Ownership?
Occasionally IFC has helped reduce the extent of public ownership in existing leasing companies, or helped
protect private owners from government takeover.
Delivered Infrastructure
by The World Leasing
Bank e-library to: and Financial Services Ltd was
established in 1988, with 50.5% ownership from unknown
the Central Bank of India. This majority public sector holding
IP : 81.180.68.7
conferred certain benefits in terms of accessing
Mon, 16local deposits.
Nov 2009 10:36:27Nevertheless, in 1990 IL&FS decided to begin a
move toward majority private control. To allow time for adjustment, IFC approved an investment of US$2 million
Can IFC Help to Promote Greater Private and Local Ownership? 51
in cumulative convertible preference shares. In March 1993 IL&FS undertook a major restructuring, converting
IFC's shares into common stock, expanding its capital further, and inviting a major Japanese leasing company to
be its technical partner. The company thus became privately controlled and has started to benefit from its
technical partner's international experience and capital.
IFC's 1984 investment in udc, a Zimbabwean leasing company, involved a major change of ownership structure,
with the proportion of local ownership rising from zero to 20 percent. Nevertheless, in the late 1980s the
government put pressure on udc to localize further and suggested that it might take a stake itself. This pressure
manifested itself in a refusal to approve a rights issue for udc in 1989 and refusal to allow udc to invest in a
proposed new leasing company in Botswana. Eventually, IFC helped develop a compromise solution whereby the
government dropped its requirement to take a direct stake in the company and reduced the local ownership
stipulation to 60% (from 85%) and udc made a public offering to increase local ownership.break
1 . This is even more the case in the transition economies, where economic growth is being driven mainly by
newly formed enterprises, many of which are relatively small.
2 . Or a separately operated and constituted subsidiary of an existing financial institution.
3 . NPC provided the leasing company with cash collateral equal to 110% of the leases outstanding.
4 . Financial Times , December 1994.
4—
Evaluation of IFC's Leasing Experience
Sponsoring leasing companies has yielded good financial returns for IFC and other investors. What about the
development impact? Although patchy data makes it difficult to provide definitive answers, IFC's empirical
evidence strongly suggests that leasing industries have yielded significant development benefits. A chain of
related effects can be identified, each with increasing and wider importance:
After the introduction of an adequate regulatory environment, the entry of leasing companies enables more firms
—particularly new, small− or medium−sized firms —to access financing for equipment investment .
As lessors gain experience, and potential borrowers come to understand leasing, many developing countries have
witnessed rapid growth of the leasing industry (leasing volumes, number of companies).
Over time, increased competition between leasing companies, and between leasing and other forms of equipment
financing, has stimulated new product development (leasing to new sectors, cross−border leases and so forth )
and sometimes reduced spreads .
Private investment in capital equipment has increased in many countries that have developed leasing industries.
Some leasing companies have been active users of domestic capital markets to meet their financing requirements
and have thus facilitated the development of local financial markets . They have also contributed to the deepening
of the formal financial sector by introducing small businesses that previously relied on informal and internal
financing sources to the formal sector .
unknown
This chapter examines each contention in turn. IP : 81.180.68.7
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4— Evaluation of IFC's Leasing Experience 52
Leasing Companies Do Lend to New, Small− and Medium−Sized Enterprises
In 1994, 16 of IFC's leasing companies wrote over 10,000 new leases worth over US$2 billion. Average lease size
varied enormously between countries and companies, ranging from one company that wrote over 2,700 leases
worth an average of US$18,000 each to another that wrote a similar number of leases averaging US$580,000
each.
There are no consistent figures on the share of leasing business going to new firms and SMEs, but the relatively
low average lease size of most IFC−financed leasing companies suggest that many have targeted new firms and
SMEs as an important part of their market. In somecontinue
Figure 4.1:
Size Distribution of Korean Leasing Company's Leases, 1993
Source: IFC.
markets a large number of lessees are involved: in 1993 the Slovenian leasing company that IFC supported had
over 1,125 leases averaging US$13,000 each (the World Leasing Yearbook reports that the market penetration of
leasing in Slovenia is 32%, one of the highest rates in Europe). Different companies concentrate on different
segments of the market: the six Pakistani leasing companies to which IFC extended a credit line in 1994 each had
between 300 and 3,000 outstanding leases, averaging between US$17,000 (clearly small enterprises) and
US$150,000 (medium−sized lessees in Pakistan).
Lease sizes need to be put within the context of the local economy. Average lease sizes for two new Thai leasing
companies that IFC helped start in 1991 ranged between US$250,000 and US$340,000 in 1994—relatively small
in the country context and well below IFC's direct financing threshold. A 1993 IFC assessment of Bangladesh's
IDLC (nine years after the company was set up) found that about half of its leases were extended to firms with
less than US$0.75 million in assets (the government's definition of an SME).
Many leasing companies explicitly target both new firms and SMEs and larger enterprises. Although they offer
higher risks, new firms and SMEs have few alternative financing options, so leasing can be very profitable,
providing the lessor assesses the risks properly. Leasing to larger companies may offer lower risks but may also
provide lower margins. The pattern ofDelivered
a largebynumber
The World ofBank
small leases
e-library to: to new firms and SMEs, combined with a
unknown
few leases to larger clients, means that the median lease size is often smaller than the mean. For example, while in
IP : 81.180.68.7
1993 the average lease size for South Korea'sMon,KDLC
16 Nov 2009 10:36:27
in 1994 was about US$650,000 (not large in the South
Leasing Companies Do Lend to New, Small− and Medium−Sized Enterprises 53
Korean context), the median lease was under US$200,000 (see Figure 4.1). A 1988 IFC review of a Philippine
leasing company identified that over half of its leasing portfolio (by number of leases) was devoted to SMEs, but
that this represented under 20% of financing volume.
In uncertain macroeconomic or regulatory environments, and in the initial start−up period, leasing companies are
more likely to concentrate on medium−sized rather than small companies. Thus, the average size of the first 20
leases written by the Ghana leasing company after its inception in 1992 was just over US$100,000, with a range
from US$50,000 to US$500,000. By 1994 this had fallen to about US$80,000. Nevertheless, this is still not large.
To put it in context, the average approval size for IFC's special facility for small projects in Sub−Saharan Africa
(the African Enterprise Fund) was over US$650,000 in FY95.
Gauging the "additionality" of leasing companies (that is, how many enterprises do they lease to which would not
otherwise have been able to access the formal financial system) would require data on the proportion of leases
written to new businesses or SMEs without requiring collateral beyond the leased asset itself or third−party
guarantees—these are what banks demandcontinue
Box 4.1: KDLC and the Development of Korea's Leasing Industry
In Korea the leasing industry has expanded each year since it started in
1972 (apart from 1992), both in volume and market share. By 1994
leasing volume of US$13 billion had made Korea the world's fifth largest
leasing industry, and leasing's 23% market share was higher than in most
OECD countries. One of the first leasing companies in Korea—KDLC
(and currently the largest)—was first financed by IFC in 1977. KDLC's
lease portfolio has grown each year and the company has consistently
been profitable. Leases to manufacturing companies accounted for over
half of its portfolio.
Korea's leasing regulations stipulate that 50% of each leasing company's

business be provided to firms employing less than 300 people. About a
third of KDLC's leases in FY93 were for amounts below US$1.25
million, with another half for amounts between US$1.25 million and
US$6.25 million. The 31 leasing companies have become an important
source of longer−term capital for Korean industry. In FY93 about 85% of
KDLC's leases were provided for periods of 37 years.
Private investment in Korea has also risen in the last 15 years—from

21%24% of GDP in the early 1980s to 26%29% of GDP in the early
1990s.
and many SMEs cannot provide. Although this data is not readily available, both the rapid market penetration of
leasing, and the speed at which leasing companies can arrange a lease suggest that a high proportion of their
leases are unsecured by extra collateral or third parties. For example, a Sri Lankan leasing company that IFC
supported would not be able to arrange a lease in a week (its average turnaround time) if it had to obtain extra
collateral.
Leasing Has Grown Rapidly in Most Countries

unknown
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Section 1 described the rapid growth of leasing inNov
Mon, 16 both volume
2009 10:36:27and
market share in most of the economies in
which it has been introduced. This has applied particularly in countries with a favorable economic and regulatory
Leasing Has Grown Rapidly in Most Countries 54
environment (Box 4.1 describes the experience in South Korea), but also in some countries with more volatile
macroeconomic environments. In Turkey, the 1987 board report prepared for IFC's financing of the country's first
leasing company forecast that the leasing market would grow to about US$300 million by 1992. In fact, new lease
receivables in 1992 were 75% higher, at US$522 million, and nearly doubled in 1993 to stand at just under US$1
billion, equivalent to about 6% of private investment. Furthermore, total private investment rose to 12%13% of
GDP over 199093, compared to 8%9% during the early to mid−1980s. This took place during a period of
macroeconomic imbalances driven by fiscal deficits. The range of equipment financed by leasing also broadened:
in 1988, 67% of all leased assets were vehicles, whereas by 1992 this had fallen to 22% and "other machinery and
equipment" accounted for 48%, up from 9% in 1988.
These outcomes have not been restricted to middle−income countries. When IFC participated in establishing
Malawi's first leasing company in 1986, it expected the volume of new leasing business to rise to US$3.6 million
after five years. In fact, its net new business in 1991 was over double this level at US$7.5 million, and two new
competitors entered the market. Leasing volumes continued to rise strongly in 1993 and 1994.
Because leasing companies have to broadly match their lease terms to the financing they can secure, they respond
quickly to macroeconomic changes that affect the term of domestic financing. Their leasing exposure tends to
"unwind" if term financing dries up, and equally they are able to recover relatively quickly if financing prospects
improve. Box 4.2 describes IFC's experience in Peru. Leasing companies are thus much more flexible than
deposit−taking institutions. Nevertheless, sudden shocks can affect lessors adversely, especially in an inadequate
regulatory environment. For example, in the early 1980s, Brazilian leasing companies were required by law to
write lease contracts with a minimum of two years. A sudden crisis in domestic financial markets in 1984 meant
that the term of domestic financing shortened to under six months so most Brazilian leasing companies simply
stopped writing leases. Large devaluations meant that it was impossible for leasing companies to borrow
longer−term funds in foreign exchange.break
Box 4.2: Riding the Roller Coaster: Leasing in Peru, 19811993
In 1981, IFC assisted the Peruvian government in designing leasing

regulations and invested in the first leasing company in the country,
Sogewiese, after identifying a suitable foreign technical partner and
organizing a strong group of domestic sponsors. The company grew in
line with expectations and was profitable. IFC sold its stake in 1987 at a
profit, following widespread nationalization.
Nationalization was followed by several years of serious macroeconomic

disruption. After peaking at annual disbursements of US$107 million in
1987, the leasing industry contracted sharply in 19881989, falling to a
low of new leases written of just US$16 million in 1989. It started
recovering in 1990, but debt overhang meant that the country had no
access to international lenders. In 1992, IFC approved an equity
investment and US$10 million syndicated credit line to Sogewiese to help
it rebuild its business. This was the first international financing to the
Peruvian private sector since the start of the debt crisis.
By 1993 Peru's leasing market had expanded to US$250 million, as

macroeconomic stabilization and privatization took hold. Sogewiese
unknown
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expanded rapidly and profitably. Mon, 16 Nov 2009 10:36:27
Leasing Has Grown Rapidly in Most Countries 55
The demonstration effect of seeing leasing companies grow rapidly and achieve good profits has spurred more
entrants and the growth of the industry in nearly every country in which IFC has invested. Even in the rare cases
where the specific company in which IFC invested did not perform well, the leasing industry has continued to
develop. In 1983, IFC started the leasing industry in the Dominican Republic by financing the first company. Due
to problems with the technical partners and local sponsors, the company did not perform as IFC had expected and
it sold its stake in 1992 at a small profit. Nevertheless, by this stage there were 20 leasing companies in the
country.
Competition and Private Investment Are Increasing
In virtually every country in which IFC has financed leasing companies, competition has increased following its
investment. Even in countries with small markets and where IFC helped establish the first independent leasing
company (Malawi, Botswana, Tunisia, and others) competitors have entered the market within 35 years.
Sometimes IFC has stimulated competition directly by supporting new entrants (or the first specialized leasing
company in a market). In Botswana the new leasing company captured 25% of the market within its first year. In
other markets such as India, Pakistan, Thailand and Indonesia, IFC has financed several leasing companies, partly
to stimulate competition and partly to improve the availability of term lending to new firms and SMEs.
Several countries (among them, India, Colombia and the Dominican Republic), have encouraged competition by
amending existing legislation to allow banks to undertake leasing. Banks often have access to cheaper sources of
funds than independent leasing companies, and so are able to enter the market aggressively (although this can be a
double−edged sword, if the banks use their funding advantages to drive down rates so far that the independents
are driven out).1
Increased competition has been manifested in several ways: reduced spreads (see Table 4.1), an increased range
of goods that can be leased, and a wider variety of products (for instance, cross−border leases, foreign currency
leases). Comparing spreads between leasing companies and banks or between leasing companies in different
countries can be misleading because leasing companies achieve their return through a combination of the
financing charge, the price charged for the leasedcontinue
Table 4.1: Falling Spreads Ascribed to Increased

Competition
Leasing spreads fell:
Country Period from (%) to (%)
Sri Lanka 198289 20 9
Turkey 199093 1520 1015
Portugal 198485 14.8 12.9
Botswana late 1980s1994 over 10 5 and
under
Pakistan 199192 8.4 5.7
India 199194 around 5 about 3
Source : IFC annual supervision reports.
Note : Spreads relate to domestic currency leases.
unknown
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Competition and Private Investment Are Increasing 56
asset (sometimes higher than if it had been purchased outright) and service charges. Thus, a lower spread might
be offset by a higher capital cost or service charges.2 Nevertheless, a reduction in leasing spreads over time in the
same country suggests increased competition. IFC−financed leasing companies have reacted to competitive
pressures by seeking cheaper sources of financing, cutting administrative costs, developing more profitable niche
markets, branching into new forms of leasing and expanding into nonleasing activities.
Effective competition has not increased as rapidly in some countries as might be surmised by looking at the
number of registered leasing companies. In economies characterized by weak legal systems, such as Bangladesh
(see Box 4.3) and Indonesia, the significant risks and uncertainties faced by lessors mean that they charge high
spreads and sometimes demand third−party guarantees. Nevertheless, leasing companies that operate in these
environments tend to have lower arrears and write−offs than local banks.
Box 4.3: Legal Difficulties
A leasing company in Bangladesh has faced some difficulties in

collecting arrears. This is partly due to losses sustained by clients after a
cyclone, and partly the result of a "culture of default" encouraged by the
willingness of some previous governments to forgive loans made by state
banks. But it is also the product of a legal system that favors debtors.
Although the government set up loan courts in 1991 to deal with loan
defaults, the appeals process can take several years.
Despite these problems, the leasing company's collection rate is higher

than that of the state−owned commercial banks and development finance
institutions. It has protected itself partly by negotiating third−party
guarantees issued by insurance companies and banks, in addition to the
security on the leased assets themselves.
Table 4.2: Market Share of Leasing Industry Versus Private Investment,

19881993
1988 1989 1990 1991 1992 1993
Private investment as % of GDP
in countries where leasing accounts
for . . .
over 5% of private 17.4 17.8 16.2 16.9 16.4 16.2
investment
under 5% of private 13.4 14.2 15.3 14.4 14.2 14.9
investment
Number of countries in each group
over 5% market share 4 4 8 7 8 9
under 5% market share 14 14 10 11 10 7
Source: World Leasing Yearbook . IFC.Delivered by The World Bank e-library to:
unknown
Note : The 18 countries included in this assessment are: South Korea, Colombia,
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Venezuela, Indonesia, Brazil, Chile, Turkey,Mon,Malaysia,
16 Nov 2009Mexico,
10:36:27 Pakistan, Sri
Competition and Private Investment Are Increasing 57
Lanka, Morocco, Peru, Thailand, Philippines, Nigeria, India, and Ecuador.
There is a correlation between the market share of leasing and private investment as a share of GDP (Table 4.2
and Appendix Table A7 show figures for 18 countries for which both sets of data exist). Most developing
countries that have promoted leasing have witnessed increases in capital investment. The two are closely linked:
promoting a successful leasing industry requires both an enabling regulatory and macroeconomic
environment—which in turn encourages private investment.
It cannot be claimed, however, that it is absolutely essential to develop a leasing industry to improve private
capital investment rates, as shown by countries such as Thailand and Argentina, which have created the
conditions for increased private investment without large leasing industries. But it can help, as illustrated by
Pakistan (see Box 4.4) and Chile—countries where leasing has grown rapidly in recent years. In Chile, the market
share of leasing nearly tripled between 1989 and 1993, from 3.5% to 8.2% of total investment. During the same
period private investment rose from 19.3% to a record of 21.8% of GDP.
Leasing Helps Mobilize Savings and Develop the Financial Sector
Leasing companies help to develop capital markets in two ways. First, on the asset side they introduce small−and
medium−sized businesses that were previously relying on informal financing, supplier credit and internal cash
generation to formal financial markets. They also increase financing options for larger companies. Box 4.5 shows
hypothetical financing options for two enterprises, with and without a leasing industry.break
Box 4.4: Financial Liberalization Encourages Investors in Pakistan
Starting in the early 1990s, Pakistan has progressively liberalized and

privatized its financial sector. Interest rates have been liberalized,
prudential regulations have been tightened, two commercial banks have
been privatized, 10 new private banks have been established, and the
number of nonbank financial institutions has increased sharply. The
effects on the real sector have been noticeable.
Leasing companies have played a key part in the development of the

nonbank financial sector. In 1984 IFC assisted the Government of
Pakistan in framing leasing regulations and it then helped finance the first
leasing company. By 1994 there were over 50 specialized leasing
companies. New leases written in 1993 totaled about US$260 million,
equivalent to 5% of private investment. This share is expected to continue
rising for several years, and IFC is in the process of approving a series of
operations designed to give Pakistani leasing companies access to
medium−term financing.
Private investors have responded to the liberalization. Private investment

rose from 7.7% of GDP in 1987 to 9.8% in 1993, and the private share of
total investment rose from 46.5% in 1987 to 53.1% in 1993.
Second, the way leasing companies finance themselves (their liabilities ) helps to deepen and broaden domestic
capital markets. Lessors need medium−term funding to write medium−term leases. Several stages of development
unknown
can be identified for mobilizing debt : IP : 81.180.68.7
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Leasing Helps Mobilize Savings and Develop the Financial Sector 58
• Initially, leasing companies borrow from banks and finance houses . In countries with reasonably developed
pension funds and insurance companies , these institutions can provide longer−term finance. Leasing company
demand thus broadens the term lending options for all of these institutions. For contractual savings institutions
such as pension funds, this can mark an important shift away from relatively limited options of investing in
government securities and real estate. In some countries contractual savings institutions have asked IFC to
promote a leasing company, so that they can broaden their investment portfolio.
• A second stage is for a leasing company to issue bonds or other marketable instruments . This broadens the
choice and liquidity of instruments on domestic capital markets. Leasing companies often enhance the security of
the bond by giving purchasers a claim to the underlying basket of lease receivables. This makes the bond
attractive to a wider range of potential buyers. In their search for financing, several of the leasing companies
which IFC has supported have innovated in their domestic bond markets. In Korea, KDLC's W20 billion
nonguaranteed corporate bond, issued in May 1986, was the first domestic securities issue by a Korean leasing
company. A 1989 bond issue by a Tunisian leasing company was the first such issue by a Tunisian company in
the country. The successful issue enabled the company to reduce its cost of funds by 2%, as well as set a market
precedent.break
Box 4.5: Financing Options: With and Without a Leasing Industry

Small enterprise Larger enterprise with
without assets to assets (land) to pledge as
pledge as collateral collateral
Without a leasing industry Friends/relatives Bank loan
Suppliers' credit Suppliers' credit
Moneylenders Capital markets
Internal funds Internal funds
With a leasing industry Leasing for equipment Leasing for equipment
purchase purchase, especially if
company has tax capacity
Any of above
for working capital Above sources in addition
The third stage is for leasing companies to securitize their lease receivables. By taking some assets off the
balance sheet, leasing companies can achieve higher leverage and/or better capital returns—and it adds another
tradeable instrument to the capital markets. Securitization is a major source of funding for leasing companies in
developed markets. IFC is working on securitizing lease receivables for some of its leasing companies.
On the equity side, several IFC−sponsored leasing companies have contributed to the development of stock
markets by floating shares. The stable cash flows generated by leasing companies makes them suitable for public
listings. IFC has invested in leasing companies that had already listed (for instance, in Sri Lanka, and several in
India) and has supported others in which it had stakes to issue shares publicly (for instance, in Korea, Portugal,
Pakistan, and Zimbabwe).
Some leasing companies have also contributed to domestic capital market development as they have evolved into
more diversified financial institutions. For example, the part played by a Philippines leasing company, AACT, in
the development of the country's capital markets since the late 1980s has been significant (see Box 4.6).
unknown
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There is some cross−country evidence (see Table 4.3) that the deepening of leasing in an economy is associated
Leasing Helps Mobilize Savings and Develop the Financial Sector 59
with a greater degree of monetary depth (M2 as a percentage of GDP). However, as with the correlation between
leasing and private investment, this does not prove any direction of causation.
Checklist for Successful Leasing Companies
IFC's experience suggests that six factors enable leasing companies to flourish:
Management . A high standard of cash−flowbased credit analysis and supervision of clients (lessees) and
equipment, complemented by well defined follow−up and equipment insurance procedures are critical to a lessor's
success.
Competent partners . In many markets where leasing is being introduced, however, it is important to have an
active, committed and competent foreign technical partner. The technical partner should have enough equity to
ensure active participation. The technical partner should: establish and monitor standards and procedures; train
local staff in leasing practices and techniques and in management; providecontinue
Box 4.6: Leasing to Merchant Banking: Developing the Philippine

Capital Markets
IFC first invested in All Asia Capital and Trust Corporation (AACT) in
1979. Despite facing difficult conditions in the country during the
mid−1980s, the company grew by 1988 to become a profitable, sizable
player in the leasing industry, with an estimated 15% market share. In
addition, it pioneered the leasing of industrial and heavy transport
equipment and dollar−based leases.
In 1988 AACT decided to diversify. Its strategy has proved highly

successful. After five years, AACT had transformed itself from a mainly
asset−based firm into a trading and fee−based institution which is a major
player in the Philippines financial sector. In 1989, AACT's loan and lease
operations accounted for over 70% of its income. By 1993 its asset−based
earnings had fallen to 17% of income, with AACT's new activities
contributing the balance: money market operations (7%), stockbroking
(14%), corporate finance advisory fees (12%), underwriting (8%),
insurance (4%), and property income (4%). Effectively, AACT has
become a fully−fledged predominantly fee−based merchant bank.
AACT's close contacts to many industrial firms (resulting from both its
leasing activities and the composition of its board) have enabled it to
contribute significantly to the development of local capital markets.
Several industrial firms have used AACT to tap the commercial paper
market for the first time. AACT has become the country's third largest
stockbroker and has a 20% share of IPO underwriting business. These
advantages are helping it bring more new companies to the stock market
(less than 200 of the Philippines' 1,000 largest companies are listed). In
addition, the company has helped close two power generation projects
(providing corporate advice and placing private equity), and structured a
container port project and several industrial projects.
unknown
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Checklist for Successful Leasing Companies 60
Table 4.3: Market Share of Leasing Industry Versus Monetary Depth ,

19881993
1988 1989 1990 1991 1992 1993[1]
Broad money (M2) as % of GDP
in countries where leasing accounts for:
over 5% of private 41.8 42.8 35.0 37.3 38.6 49.8
investment
under 5% of private 33.8 32.7 36.2 32.1 36.6 39.7
investment
Number of countries in each group [2]
over 5% market share 4 4 8 7 7 4
under 5% market share 12 12 9 10 9 3
Source : International Financial Statistics , IMF. World Leasing Yearbook .
Note : [1] 1993 figures were not available for several countries.
[2] The countries included in this assessment are: South Korea, Colombia,
Venezuela, Indonesia, Chile, Turkey, Malaysia, Mexico, Pakistan, Sri Lanka,
Morocco, Peru, Thailand, Philippines, Nigeria, India, and Ecuador.
advice on lease pricing, marketing strategies and administrative systems; and often should second the first general
manager of the company. As IFC strives to create local independent companies, special emphasis is given to
training local management to take over when sufficiently prepared. Even where foreign partners are used, the
choice of local joint venture partners is also key, usually to assure local currency funding and distribution outlets.
Funding . The main obstacle to the growth of IFC's investee leasing companies is access to term local currency
funds. Term deposits from insurance companies or pension funds or access to a local bond market or the use of
innovative products, such as lease participations sold to institutions, help overcome this problem. Some IFC
investees have used government−sponsored credit line programs, but IFC usually discourages governments from
providing these as they tend to distort markets, slow the development of private sector funds mobilization, and not
promote the same market discipline as borrowing from private institutions.
Asset−liability matching (ALM ). The ability and will to follow ALM guidelines can make or break a company.
The company must match fixed−rate leases with fixed−rate term funding or, if only floating rates are available
(locally or internationally), it needs a regulatory framework that allows periodic adjustments of lease rates.
Attractiveness to lenders . Given their high debtequity ratios, leasing companies must remain attractive to
lenders. Security sharing agreements that establish equal rights to a pool of collateral for senior lenders are often
used in IFC agreements. Also, IFC gives guarantees or direct loans to investees in some markets, particularly to
new companies that have not yet established credit histories that allow them to borrow locally.
Regulatory framework . Leasing companies need a regulatory, legal, and fiscal environment that at least provides
equal treatment compared with other sources of capital investment financing. Clear, simple and effective legal
procedures are important to reclaim assets if the terms of the lease agreement are breached.
Conclusion Delivered by The World Bank e-library to:

unknown
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The rapid emergence and growing significance ofNov
Mon, 16 leasing in developing
countries has until recently remained
2009 10:36:27
largely unappreciated by policymakers in many countries. This has been reflected by the conditions that:
Conclusion 61
new and small−to medium−sized enterprises partly served by leasing companies have a low political profile; and
policymakers' attentions have been focused on the larger and more visible institutions in financial sectors, such as
banks.
Despite this lack of attention—and in some countries because of it—IFC has succeeded in promoting leasing
regulations and financing new leasing companies in overcontinue
half of the developing countries that have a leasing industry today. In regions such as Sub−Saharan Africa and
Eastern Europe, IFC has been the primary driving force in introducing leasing to many new countries. In most
countries the industry has grown rapidly in terms of leasing volumes, number, and size of companies and
products.
The financial performance of the companies in which IFC has invested has been good in absolute terms (both in
terms of rate of return on equity and loan repayment rates), and better than the overall average for all IFC
investments. However, the relatively small size of many of IFC's leasing transactions, combined with the
time−intensive advisory and structuring requirements, means that the overall financial return to IFC has been
lower than the good financial performance of the companies themselves might suggest.
The development impact of IFC's leasing promotion work has been large. Thousands of SMEs are now being
financed each year just from the companies that IFC has promoted. Demonstration effects have been rapid: most
countries have seen new leasing companies enter the market quickly after the initial "demonstration" was seen to
be successful. Several successful leasing companies that IFC supported have in turn become investors and
technical partners to new leasing companies in other developing countries. And there is increasing evidence of
leasing companies helping to develop domestic financial markets through their fund mobilization efforts.
Future IFC Work to Promote Leasing
Given the suitability of leasing for financing new and small firms, even in difficult legal environments, promoting
leasing industries will continue to form a key part of IFC's efforts to build domestic financial markets. This
support is expected to take several forms, according to the state of the leasing industry in each country:
Advising governments , locating international technical partners and investing in new leasing companies , in
countries where the industry does not exist, or is still nascent;
Helping leasing companies raise domestic financing , through credit enhancement mechanisms such as
guarantees on local bond issues;
Supporting the securitization of leasing receivables by leasing companies;
Promoting cross−border leasing ;
Promoting big−ticket leasing for sectors such as infrastructure, where appropriate;
Helping leasing companies access new markets such as very small firms ("micro−leasing"), where demand
exists; and,
Helping more mature leasing companies access financing
unknown through securities issues.break
IP : 81.180.68.7
Mon, 16 Nov 2009 10:36:27
1. This kind of pressure has been serious for an independent leasing company promoted by IFC in Botswana.
Future IFC Work to Promote Leasing 62
2. Leasing companies often handle the complex procedures associated with importing capital equipment for their
customers and reflect this in their service charges or capital cost.
Appendix Tables
Box A1: Worked Example Using International Accounting Standards
Under the recommended International Accounting Standards (IAS) practice, if a

lease qualities as a finance lease, the fair value of the leased equipment, net of tax
credits receivable by the lessor, or, if lower, the present value of minimum lease
payments (discounted at the interest rate implicit in the lease), is recorded by the
lessee at the beginning of the lease term. In practice, for a full−payout lease, the
present value of the minimum lease payments would always be equal to the fair
value of the leased equipment (net of tax credits), since the presumption is that
the lessor recovers the full cost of the equipment at a yield that covers its cost of
funding and a reasonable profit.
At the inception of a finance lease, the equipment and the liability for future
rentals are recorded in the balance sheet of the lessee at the same amounts. The
equipment is then depreciated on the same basis that the lessee would depreciate
equipment it has purchased directly and for which it holds legal title.1 Rental
payments are allocated between interest expense and the repayment of principal,
using a method which produces a constant yield on the outstanding balance of the
liability. Since the depreciation charges and the portion of the lease payment
allocated to repayment of principal are not likely to be equal during the lease's
term, the equipment value, net of depreciation, will diverge from the recorded
value of the remaining liability under the lease contract.
Under International Accounting Standards for the lessor, the lease receivable is
also recorded in the balance sheet at the lower of the fair market value of the
equipment, net of tax credits to the lessor, or the present value of the minimum
lease payments discounted at the rate implicit in the lease. Consistent with the
lessee's accounting treatment described in the last paragraph, in the case of the
lessor, each rental payment is allocated between finance charges (income for the
lessor) and a reduction of the lease receivable balance (principal repayment) using
a method that will produce a constant yield on the outstanding receivable balance.
Therefore, in a finance lease with level payments, the early payments will have a
larger proportion of the rental related to the payment of interest and later
payments will have a greater amount related to the repayment of principal.
The following example illustrates these points. Assume a lease is negotiated with
the following:
Equipment Acquisition Cost US$100,000
Lease Term 3 years
Useful life of equipment 5 years unknown
IP : 81.180.68.7
Depreciable life of equipment 5Mon,
years
16 Nov 2009 10:36:27
Appendix Tables 63
Depreciation method Straight line

Payment frequency Quarterly, payable in advance
Payment amount US$9,263
Purchase option price at end of lease US$100
term
The purchase option in this case is a bargain purchase option because it can be
reasonably assumed that the lessee would purchase equipment with an original
cost of US$100,000 with two years of remaining life for US$100. Given that the
lessee is likely to purchase the equipment at the end of the lease term, it can be
inferred that the lessor would recover the entire cost of the equipment through the
periodic lease payments and the final payment of US$100, plus earn an interest
rate on the transaction that would cover its cost of financing and provide a
reasonable profit. This is a fullpayout fixed−rate finance lease .
(text box continued on next page)
(text box continued from previous page)
The interest rate implicit in the lease can be calculated as the internal rate of return of the cash flows, consisting of the qua
payment of US$100. That calculation would yield an implied interest rate earned by the lessor and paied by the lessee of 2
interest for the life of the lease could be determined according to the table below.
Liability/
receivable
Beginning Payment
date (US$) (US$)
Begin 100,00 9,263
End of Q1 90,737 9,263
[2]
Q2 83,289 9,263
Q3 75,691 9,263
Q4 67,941 9,263
Q5 60,036 9,263
Q6 51,973 9,263
Q7 43,750 9,263
Q8 35,362 9,263
Q9 26,805 9,263
Q10 18,079 9,263
Q11 9,178 Delivered by The World Bank e-library to: 9,263
unknown
IP : 81.180.68.7
Q12 98 Mon, 16 Nov 2009 10:36:27 100
Appendix Tables 64
Notes :[1] Since the payments each quarter are in advance, the first payment is entirely principal because no period has ela
[2] Quarter 1.
[3] The interest in each quarter is determined by multiplying the beginning balance outstanding by the quarterly interest ra
Day 1. Therefore, the interest charges for the first quarter shall be based on the outstanding principal multiplied by quarter
Equipment Cost−Rental × Quarterly Interest Rate = Interest Charges

US$100,000 − 9,263 × 0.2 = US$1,815.
[4] The principal repayment in each period is the balance of the payment remaining after the interest portion.
Lessee's accounting treatment . At the inception of the lease, the leasee would record equipment at a value of US$100,00
the table: the payment at the end of the first quarter would include interest expense of US$1,815 and a reduction of the bal
at a rate of US$5,000 per quarter, corresponding to a five year useful life using straight line depreciation. At the end of the
would have remaining on its books equipment with an original cost of US$100,000 and accumulated depreciation of US$6
Lessor's accounting treatment . At the inception of the lease, the lessor would record a lease receivable of US$100,000.
the lessee. For example, the payment the end of the first quarter would include interest income of US$1,815, and a reducti
not be recorded in the books of the lessor, and, therefore, there would be no depreciation charges.
1 . In a finance lease which does not include either a bargain purchase option or an automatic transfer of ownership to the
depreciation over the lease term if it is shorter than the depreciable life for tax purposes.
Table A1: Leasing Volume and Market Share, 19881994

(US$ billion and percent; ranked by 1994 US$ billion)
1988 1989 1990 1991 1992 1993 1994
Income
Country Group $bn % $bn % $bn % $bn % $bn % $bn % $bn %

United H 112.7 32 122.4 33 120.3 32 123.9 32 120.3 32 125.0 32 140.2 30
States
Japan H 53.7 10 53.9 10 61.6 8 64.4 8 62.8 8 59.9 8 73.7 9
Germany H 15.6 15 18.3 18 21.5 16 25.1 14 31.7 17 26.5 16 28.3 16
Great Britain H 16.3 20 20.3 24 21.8 20 22.4 23 12.3 19 12.8 19 13.4 16
Korea M 3.9 13 3.1 11 6.8 16 9.5 22 8.4 20 9.1 23 13.2 26
France H 15.8 17 19.9 19 21.5 17 18.5 17 14.2 15 10.4 13 10.9 13
Italy H 9.5 13 12.1 15 20.3 21 21.0 16 12.8 12 7.8 11 9.3 13
Brazil M 1.9 4 1.2 1 1.1 1 2.0 4 4.1 8 6.6 10 8.1 20
Australia H 7.0 33 7.3 30 4.7 25 3.7 20 3.9 20 4.5 20 5.6 21
Canada H 3.9 10 3.9 9 3.2 9 4.1 10 4.8 11 4.5 13 4.6 14
South M 2.7 — 2.7 — unknown
3.3 — 3.8 — 4.4 — 5.1 — 4.5 —
Africa* IP : 81.180.68.7
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Netherlands H 2.3 12 3.4 17 4.1 8 3.8 9 4.1 11 3.3 9 3.9 13
Appendix Tables 65
Hong Kong H 1.5 — 2.0 — 3.1 — 3.1 — 3.0 — 4.2 — 3.7 13

Spain H 7.9 26 9.9 28 10.8 28 10.0 17 6.4 18 3.8 18 3.5 14
Mexico* M 0.4 1 0.5 2 1.9 6 2.0 5 2.5 4 3.0 5 3.2 5
Sweden H 4.4 27 3.4 20 4.8 15 4.9 22 4.2 26 2.0 20 2.0 20
Indonesia* L 0.9 6 1.5 8 1.9 9 2.0 9 1.8 8 3.2 14 2.7 7
Switzerland H 1.1 7 1.4 10 1.9 9 1.7 12 2.0 11 2.0 13 2.6 16
Austria H 1.5 13 1.9 13 2.4 14 3.3 18 2.8 17 2.5 17 2.5 13
Belgium H 1.1 7 1.7 8 2.3 9 2.5 7 2.0 7 1.6 7 1.8 11
Ireland H 0.7 19 1.0 28 1.2 28 1.2 28 1.2 32 1.3 43 1.4 46
Portugal M 0.8 10 0.9 10 1.5 10 1.7 21 1.9 20 1.6 24 1.4 19
Colombia* M 0.1 1 0.1 2 0.2 6 0.3 9 0.6 15 1.0 21 1.3 18
Taiwan, H 0.5 4 0.6 4 0.5 — 0.7 — 0.8 11 1.0 13 1.1 13
China
China (PR) L 1.2 1 2.0 2 1.8 2 1.5 1 1.9 1 1.0 4 1.1 4
Hungary M 0.3 — 0.3 — 0.3 6 0.3 8 0.7 18 0.6 18 1.1 19
Czech M — — — — — — 0.2 13 0.6 18 0.7 16 1.0 20
Repub
Norway H 0.8 8 0.4 4 0.4 4 0.5 4 0.5 5 0.5 6 0.9 8
Chile* M 0.1 4 0.2 4 0.3 5 0.3 5 0.5 7 0.8 8 1.5 15
Thailand* M 0.0 0 0.1 0 0.1 0 0.3 1 0.2 1 0.6 1 0.8 2
Malaysia M 0.5 10 0.5 7 0.6 7 0.8 7 0.7 5 0.7 5 0.8 5
Denmark H 0.8 8 1.2 11 1.5 12 1.4 7 0.8 11 0.6 11 0.8 9
Venezuela M 0.9 12 0.4 12 0.2 8 0.7 15 0.9 16 0.8 15 0.7 20
India* L 0.5 2 0.5 1 0.6 1 0.5 2 0.5 1 0.4 1 0.7 5
Finland H 0.8 7 0.9 3 0.8 2 0.6 6 0.4 7 0.4 9 0.5 9
Turkey* M 0.1 1 0.2 2 0.3 2 0.3 2 0.4 3 1.0 6 0.4 2
New H 0.1 — 0.1 — 0.4 — 0.3 — 0.3 — 0.4 — 0.4 —
Zealand
Israel H 0.4 — 0.4 — 0.1 — 0.1 — 0.2 — 0.2 — 0.3 5
Pakistan* L 0.0 1 0.1 2 0.1 2 0.2 4 0.3 5 0.3 5 0.3 6
Philippines* M 0.1 1 0.1 1 0.1 1 — — 0.1 1 0.1 1 0.3 2
Poland M — — 0.1 — — — 0.1 2 0.1 3 0.1 0.3 4
Peru* M 0.1 — 0.1 — — — 0.1 3 0.1 2 0.1 2 0.2 3
Greece M 0.1 3 0.1 3 unknown
0.1 6 0.2 5 0.3 4 0.2 4 0.2 4
IP : 81.180.68.7
Morocco* M 0.1 2 0.1 Mon,316 Nov0.1 2
2009 10:36:27 0.2 5 0.2 5 0.2 4 0.2 6
Appendix Tables 66
Singapore H 0.2 — 0.3 — 0.4 — 0.3 — 0.3 — 0.2 — 0.2 —

(table continued on next page)
Table A1 (cont.): Leasing Volume and Market Share, 19881994

(US$ billion and percent))
1988 1989 1990 1991 1992 1993 1994
Income
Country Group $bn % $bn % $bn % $bn % $bn % $bn % $bn %

Luxembourg H 0.1 8 0.2 9 0.2 — 0.2 — 0.2 — 0.1 10 0.2 10
Sri Lanka * L 0.0 3 — — 0.0 4 — — 0.1 4 0.1 4 0.1 5
Slovenia M — — — — — — — — — — 0.1 — 0.1 —
Slovakia M — — — — — — — — — — — — 0.1 9
Malawi * L — — — — 0.0 — — — — — 0.1 — 0.0 18
Zimbabwe L — — 0.1 — 0.2 — 0.2 — — — — — — —
USSR M — — 0.4 — — — — — — — — — — —
Nigeria * L 0.0 3 0.1 5 0.1 4 0.1 3 0.1 3 — — — —
Iran M 0.0 — — — — — — — — — — — — —
Ecuador * M 0.0 2 — — 0.1 6 0.1 8 0.1 9 — — — —
Bulgaria M 0.2 3 0.1 2 0.1 3 0.1 4 — — — — — —
Botswana M — — 0.1 — 0.1 — 0.1 — 0.1 — — — — —
Bangladesh L — — — — — — — — — — 0.1 7 — —
*
Argentina * M 0.0 0 — — — — — — — — — — — —
Total 59 273.7 9 302.5 10 331.7 10 331.7 10 323.3 11 312.8 12 357.0 13
Source: World Leasing Yearbook , 19881994; Trends in Private Investment in Developing Countries , IFC.
Note : *Denominator used to derive market share was the private investment figure from IFC's Trends in Private
Investment .
Table A2: IFC's Leasing Project Approvals, 1977June 1995

(U$$ thousands; ranked by approval date)
App− IFC
roval IFC guar− IFC IFC Synd.
Country Project Name FY date loan antee equity total loans Notes
Korea Devt Leasing Revised laws;
Korea Corp. I 77 3/77
Delivered by The 5,000 —e-library to:372
World Bank 5,372 10,000 1st lease co.
unknown
Thailand Thai Orient Leasing 79 9/78 IP : 81.180.68.7
— — 150 150 — 1st lease co.
Mon, 16 Nov 2009 10:36:27
Co.
Appendix Tables 67
Korea Korea Devt Leasing 79 12/78 — — 247 247 —

Corp. II
Philippines All Asia Capital & 80 7/79 2,000 — 152 2,152 3000 Revised laws
Leasing I
Sri Lanka Lanka Orient 80 5/80 — — 249 249 — 1st lease co.
Leasing Co. I
Colombia Leasing Bolivar I 81 9/80 3,000 — 171 3,171 6,000
Jordan Jordan Leasing Co. 81 9/80 — — 290 290 — 1st lease co.
Ecuador Compania 81 4/81 — — 200 3,200 6,000
Ecuatoriana de
Leasing
Peru Sogeweise Leasing 82 12/81 3,000 — 137 3,200 — Revised laws;
SA I 1st lease co.
Indonesia PT Saseka Gelora 82 12/81 2,000 — 300 2,300 2,000 Revised laws
Finance I
Philippines All Asia Capital & 82 12/81 2,000 — — 2,000 8,000
Leasing II
Brazil Planibanc (f.k.a. 82 5/82 10,000 — 450 10,450 20,000 1st lease co.
Agrileasing) I in sector
Portugal Sofinloc I 83 10/82 — 311 311 — Revised laws;
1st lease co.
India India Equipment 83 4/83 5,000 — 450 5,450 —
Leasing I
Dom.Rep. Comp. Dominicana 83 6/83 3,000 — 150 3,150 — 1st lease co..
de Leasing SA
India Leasing Corporation 83 6/83 5,000 — 462 5,462 —
of India Ltd.
Zimbabwe udc Limited I 84 3/84 2,000 — 336 2,336 — Revised laws
Sri Lanka Lanka Orient 84 4/84 — 90 90 —
Leasing Co. II
Pakistan National Devt 84 5/84 4,060 — 450 90 — Revised laws;
Leasing Corp. I 1st lease co.
Tunisia Tunisie Leasing I 84 6/84 — 571 571 — Revised laws;
1st lease co.
Portugal Sofinloc II 84 6/84 3,000 — 480 3,480 9,000
India India Lease 84 6/84 5,000 — 409 5,409 —
Development I
Indonesia PT Saseka Gelora 84 6/84 1,000 2,000 63
3,063 4,000
Finance II unknown
IP : 81.180.68.7
Mon, 16 Nov 2009 10:36:27
Colombia Leasing Bolivar II 85 10/84 — — 29 29 —
Appendix Tables 68
Bangladesh Industrial Devt 85 11/84 1,800 — 200 2,000 — 1st lease co.
Leasing Co. I
Philippines All Asia Capital & 85 1/85 — — 61 61 —
Leasing III
Sri Lanka Lanka Orient 85 4/85 — 3,960 — 3,960 —
Leasing Co. III
Swaziland Finance Corporation 85 5/85 1,500 — 130 1,630 —
of Swaziland
Malawi Leasing & Finance 86 9/85 500 — 86 586 — 1st lease co.
Co., Malawi I
Tunisia Tunisie Leasing II 86 2/86 2,500 — — 2,500 —
Zimbabwe udc Limited III 87 11/86 — — 223 223 — Revised laws
Colombia Leasing Bolivar III 87 12/86 5,000 — — 5,000 2,000
Corp. III
Turkey Is Genel Finansal 88 11/87 — — 640 640 — Revised laws;
Kiralama I 1st lease co.
Zimbabwe udc Limited III 88 4/88 10,000 — — 10,000 —
Botswana ulc (Proprietary) 88 5/88 — — 423 423 — 1st
Ltd. I specialized
lease co.
Colombia Leasing Bolivar IV 89 12/88 — — 29 29 —
Leasing IV
Zimbabwe udc Limited IV 89 6/89 — — 349 349 —
Malawi Leasing & Finance 90 9/89 — — 108 108 —
Co., Malawi II
Corp. Iv
Chile Leasing Andino I 90 1/90 5,000 — — 5,000 —
Indonesia PT Saseka Gelora 90 1/90 — — 70 70 —
Finance III
India India Lease 90 3/90 3,500 — 446 3,946 —
Development II [1]
Leasing V
unknown
IP : 81.180.68.7
Mon, 16 Nov 2009 10:36:27
Appendix Tables 69
Table A2 ( cont .): IFC's Leasing Project Approvals, 1977−June 1995

(US$ thousands ; ranked by approval date )
App− IFC
roval IFC guar− IFC IFC Synd.
Turkey Is Genel Finansal 90 4/90 — — 228 228 —
Kiralama II
India Infra Leasing (IL & 90 6/90 15,000 — 1,950 16,950 —
FS) I [1]
Colombia Leasing Bolivar V 91 6/90 — — 20 20 —
Indonesia PT Saseka Gelora 91 12/90 5,000 — — 5,500 15,000
Finance IV
Pakistan Pakistan Industrial 91 1/90 5,000 — 500 5,500 —
Leasing Co. I
Thailand Ayudhya Devt 91 4/91 — — 236 236 —
Leasing I
Ghana Ghana Leasing I 92 9/91 — — 600 600 — 1st
independent
lease co.
Colombia Leasing Bolivar VI 92 9/91 — — 23 23 —
Thailand Krung Thai IBJ 92 9/91 — — 353 353 — Revised laws:
Apr 91
Botswana ulc (Proprietary) Ltd. 92 9/91 — 1,450 — 1,450 —
II
Czech OB Sogelease AS 92 4/92 — — 577 577 — 2nd with
Rep. foreign
partner
Peru Sogeweise Leasing 92 4/92 5,000 — 1,500 6,500 5,000
SA II
Botswana ulc (Proprietary) Ltd. 92 4/92 — — 387 387 —
III
India Nicco−Uco Financial 92 5/92 3,000 — 250 3,250 —
Services
India 20th Century Finance 93 7/92 7,200 — 800 8,000 10,000
Corp.
Indonesia Dharmala Finance 93 8/92 5,000 — — 5,000 10,000
Turkey Is Genel Finansal 93 8/92 5,000 — 150 5,150 —
Kiralama III
Thailand Ayudhya Devt Delivered
93 by The World
9/92 — Bank e-library
— to: 356 356 —
unknown
Leasing II IP : 81.180.68.7
Mon, 16 Nov 2009 10:36:27
Turkey 93 11/92 — — 429 429 —
Appendix Tables 70
Is Genel Finansal
Kiralama IV
India Infra Leasing (IL & 93 11/92 — — 3,300 3,300 —
FS) II
India India Equipment 93 12/92 3,000 — — 3,000 —
Leasing II
Colombia Leasing Bolivar VII 93 12/92 — — 310 310 —
[1]
Ghana Ghana Leasing II 93 3/93 — — 150 150 —
Oman Oman National 93 3/93 5,000 — 520 5,520 — 1st lease co.
Leasing Company
Morocco Maghrebail 93 4/93 10,000 — — 10,000 10,000
Morocco Sogelease−Maroc 93 4/93 10,000 — — 10,000 10,000
Morocco Union Bail 93 4/93 5,000 — — 5,000 5,000
Morocco Wafabail 93 4/93 10,000 — — 10,000 10,000
Ghana Ghana Leasing III 93 6/93 5,000 — — 5,000 —
Indonesia PT Saseka Gelora 93 6/93 1,520 — — 1,520 —
Finance V
Chile Leasing Andino II 94 7/93 15,000 — — 15,000 15,000
Senegal Societe Generale de 94 10/93 1,800 — 430 2,230 — Introduction
Credit Autos of leasing
Indonesia KDLC Bali Finance 94 11/93 15,000 — 1,178 16,178 —
Pakistan BRR Modaraba I 94 12/93 10,000 — — 10,000 —
India India Equipment 94 1/94 — — 144 144 —
Leasing III
Pakistan Pakistan Industrial 94 2/94 10,000 — — 10,000 2,200
Leasing Co. II
Pakistan National Devt 94 2/94 12,500 — — 12,500 3,300
Leasing Co. II
Pakistan Orix Leasing Pakistan 94 2/94 12,500 — — 12,500 3,300
Ltd
Pakistan Atlast BOT Lease Co 94 2/94 10,000 — — 10,000 2,200
Paksitan Pak Industrial Comm. 94 2/94 5,000 — — 5,000 —
Leasing
Pakistan First Leasing 94 2/94 5,000 — — 5,000 —
Corporation
Philippines All Asia Capital & 94 2/94
Delivered — Bank e-library
by The World — to: 368 368 —
unknown
Leasing VI IP : 81.180.68.7
Mon, 16 Nov 2009 10:36:27
Romania Romlease 94 3/94 5,000 — 450 5,450 — 1st lease co.
Appendix Tables 71
Turkey Tekfen Investment 94 5/94 7,000 — — 7,000 —

Bank
Turkey Garanti Leasing 94 5/94 7,000 — — 7,000 —
Table A2 ( cont. ): IFC's Leasing Project Approvals,

1977 − June 1995 (US$ thousands ; ranked by approval
date )
App− IFC
roval IFC guar IFC IFC Synd.
India India Lease 94 5/94 — — 299 299 —
Development III
Slovenia LB Leasing 94 6/94 2,975 — — 2,975 2,975
Benin Equipbail 94 6/94 750 — 160 910 — Revised
laws; 1st
lease co.
Tanzania ulc Tanzania leasing 94 6/94 5,000 — 970 5,970 — Revised
laws; 1st
lease co.
India Infra Leasing (IL & 94 6/94 25,000 — — 25,000 —
FS) III
Colombia Leasing Bolivar VIII 94 6/94 10,000 — — 10,000 —
Philippines All Asia Capital & 94 6/94 25,000 — — 25,000 — Revised
Leasing VII laws; 1st
lease co.
Uganda Uganda Leasing 95 8/94 — — 375 375 — Revised
Company laws; 7th
lease co.
Estonia Estonia Leasing 95 11/94 2,000 — 240 2,240 —
Company
Pakistan Pakistan Industrial 95 12/94 — — 540 540 —
Leasing Co. III
Pakistan First Grindlays [2] 95 3/95 15,000 — — 15,000 15,000
Pakistan BRR Modaraba II [2] 95 3/95 5,000 — — 5,000 5,000
Pakistan Al−Mali Modaraba 95 3/95 5,000 — — 5,000 5,000
[2]
Pakistan First UDL [2] 95 3/95
Delivered 10,000
by The World — to: —
Bank e-library 10,000 10,000
unknown
Pakistan First Crescent [2] 95 3/95IP : 81.180.68.7
5,000 — — 5,000 5,000
Mon, 16 Nov 2009 10:36:27
Pakistan First Grindlays 95 3/95 — — 160 160 —
Appendix Tables 72
Pakistan BRR Modaraba II 95 3/95 — — 270 270 —

Pakistan Al−Mali Modaraba 95 3/95 — — 60 60 —
Pakistan First UDL 95 3/95 — — 70 70 —
Pakistan First Crescent 95 3/95 — — 50 50 —
Indonesia Bunas Finance 95 3/95 10,000 — — 10,000 6,000
Côte SAFCA/SAFBAIL 95 4/95 — 9,230 — — 9,230 Local
d'Ivoire currency
guarantee
Indonesia Panin Finance 95 5/95 — — 2,000 2,000 —
Philippines All Asia Capital & 95 5/95 — — 1,690 1,690 —
Leasing VII
Peru Sogeweise Leasing 95 6/95 10,000 2,000 — 12,000 —
SA III
Lebanon Lebanese Leasing 95 6/95 7,500 — 740 8,240 7,510 1st lease co.
India India Equipment 95 6/95 — — 330 330 —
Leasing IV
India SRF Finance 95 6/95 15,000 — 5,000 20,000 —
Bangladesh IDLC II 95 6/95 — 3,000 — 3,000 —
Uzbekistan ULCL 95 6/95 5,000 — 600 5,600 — 1st lease co.
Totals 461,605 21,640 39,738 522,983 232,485
Source : IFC.
Notes : [1] Quasi−equity classified as equity.
[2] Quasi−equity classified as debt.

Roman numeral after project name signifies number of approvals made to company (e.g., II=2 approvals)
Table A3: Summary of IFC's Leasing Project Approvals

(US$ thousands )
Number of IFC
Number of new IFC loan equity IFC Syndicated
transactions companies approvals approvals guarantee loans
By Financial Year
1977 1 1 5,000 372 0 10,000
1978 0 0 0 0 0 0
1979 2 1 0 397 0 0
1980 2 2 2,000 401 0 3,000
1981 2 2 3,000 461
0 6,000
unknown
1982 5 4 20,000 1,087
IP : 81.180.68.7 0 36,000
Mon, 16 Nov 2009 10:36:27
1983 4 4 13,000 1,373 0 0
Appendix Tables 73
1984 7 4 15,060 2,398 2,000 13,000

1985 5 2 3,300 420 3,960 0
1986 2 1 3,000 86 0 0
1987 3 0 5,000 458 0 2,000
1988 3 2 10,000 1,063 0 0
1989 3 0 0 663 0 0
1990 8 2 23,500 3,975 0 5,000
1991 4 2 10,000 756 0 15,000
1992 8 4 8,000 3,690 1,450 5,000
1993 16 7 66,720 6,015 0 55,000
1994 22 13 184,525 3,999 0 28,275
1995 23 12 89,500 12,125 14,230 53,510
Total 120 63 461,605 39,738 21,640 232,485
By Region
Africa 18 10 26,550 4,727 10,680 0
Asia 45 19 162,020 24,207 8,960 68,000
CAMENA 29 20 169,060 4,281 0 93,510
Europe 12 8 31,975 3,504 0 11,975
LAC 16 6 72,000 3,019 2,000 59,000
Total 120 63 461,605 39,738 21,640 232,485
Source : IFC.
Table A4: >IFC's Leasing Project Commitments, 1977−June 1995

Country Project name FY Commitment IFC IFC IFC
date loan equity total
Korea Korea Devt Leasing 1977 10−Jun−77 5,000 373 5,373
Corp. I
Thailand Thai Orient Leasing 1979 15−Oct−78 — 147 147
Co.
Korea Korea Devt Leasing 1979 15−Jan−79 — 248 248
Corp. II
Philippines All Asia Capital & 1980 15−Jan−80 2,000 152 2,152
Leasing I
Sri Lanka Lanka Orient Leasing 1980 15−Jun−80 — 249 249
Co. I unknown
IP : 81.180.68.7
Colombia Leasing Bolivar I 1981Mon, 16 Nov 2009 10:36:27
15−Dec−80 3,000 171 3,171
Appendix Tables 74
Jordan Jordan Leasing Co. 1982 15−Sep−81 — 290 290

Peru Sogeweise Leasing 1982 15−Dec−81 3,000 137 3,137
SA I
Indonesia PT Saseka Gelora 1982 15−Mar−82 2,000 315 2,315
Finance I
Brazail Planibanc (f.k.a. 1982 15−Jun−82 10,000 450 10,450
Agrileasing)
Portugal Sofinloc I 1983 15−Nov−82 — 311 311
Philippines All Asia Capital & 1983 15−May−83 3,155 — 3,155
Leasing II
Dominican Comp. Dominicana 1984 15−Sep−83 3,000 150 3,150
Rep de Leasing
Sri Lanka Lanka Orient Leasing 1984 15−Apr−84 — 90 90
Co. II
Tunisia Tunisie Leasing I 1985 15−Sep−84 — 471 471
Portugal Sofinloc II 1985 15−Oct−84 3,000 433 3,433
Zimbabwe udc Limited I 1985 30−Oct−84 2,289 193 2,482
Pakistan National Devt 1985 15−Nov−84 5,494 367 5,861
Leasing Corp. I
Indonesia PT Saseka Gelora 1985 07−Mar−85 1,000 56 1,056
Finance II
Colombia Leasing Bolivar II 1985 15−Apr−85 — 24 24
Bangladesh Industrial Devt 1985 26−May−85 3,024 150 3,174
Leasing Co. I
Sri Lanka Lanka Orient Leasing 1985 15−Jun−85 3,000 — 3,000
Co. III
India India Lease 1986 14−Sep−85 5,000 351 5,351
Development I
India India Equipment 1986 31−Jan−86 2,500 305 2,805
Leasing I
Malawi Leasing & Finance 1986 29−Apr−86 742 76 818
Co., Malawi
Tunisia Tunisie Leasing II 1986 15−Jun−86 3,467 — 3,467
Zimbabwe udc Limited II 1987 15−Dec−86 — 223 223
Colombia Leasing Bolivar III 1987 15−Mar−87 4,000 — 4,000
Korea Korea Devt Leasing 1987 17−Apr−87 — 241 241
Corp. III Delivered by The World Bank e-library to:
unknown
Turkey Is Genel Finansal 1988 10−Dec−87
IP : 81.180.68.7 — 478 478
Kiralama I Mon, 16 Nov 2009 10:36:27
Appendix Tables 75
Zimbabwe udc Limited III 1988 15−Jun−88 9,363 — 9,363

Philippines All Asia Capital & 1989 15−Jun−89 — 278 278
Leasing IV
Colombia Leasing Bolivar IV 1990 10−Jan−90 — 23 23
Korea Korea Devt Leasing 1990 16−Jan−90 — 892 892
Corp. IV
Botswana ulc (Proprietary) Ltd. 1990 16−Feb−90 — 423 423
I
Malawi Leasing & Finance 1990 16−Mar−90 — 110 110
Co., Malawi
Philippines All Asia Capital & 1990 16−May−90 — 263 263
Leasing IV
Turkey Is Genel Finansal 1990 06−Jun−90 — 228 228
Kiralama I
Chile Leasing Andino I 1990 07−Jun−90 5,000 — 5,000
Colombia Leasing Bolivar V 1991 22−Sep−90 — 19 19
India India Lease 1991 09−Jan−91 3,500 435 3,935
Development II
Pakistan Pakistan Industrial 1991 07−Feb−91 5,000 — 5,000
Leasing Co. I
India Infra Leasing (IL & 1991 21−Mar−91 15,000 1,810 16,810
FS) I
Thailand Ayudhya Devt 1992 30−Sep−91 — 236 236
Leasing I
Thailand Krung Thai IBJ 1992 13−Oct−91 — 353 353
Table A4 ( cont. ): IFC's Leasing Project Commitments, 1977June 1995

Commitment IFC IFC IFC
Country Project name FY date loan equity total
Colombia Leasing Bolivar VI 1992 10−Dec−91 — 20 20
Turkey Is Genel Finansal 1992 11−Apr−92 5,000 59 5,059
Kiralama I
Peru Sogeweise Leasing 1992 15−Apr−92 5,000 1,430 6,430
SA II
Botswana ulc (Proprietary) Ltd. Delivered
1993 by The World Bank e-library
21−Aug−92 — to: 387 387
unknown
III IP : 81.180.68.7
Mon, 16 Nov 2009 10:36:27
OB Sogelease AS 1993 29−Sep−92 — 577 577
Appendix Tables 76
Czech
Republic
India Nicco−Uco Financial 1993 14−Oct−92 3,000 250 3,250
Services
Thailand Ayudhya Devt 1993 22−Oct−92 — 356 356
Leasing II
Turkey Is Genel Finansal 1933 04−Nov−92 — 167 167
Kiralama I
Ghana Ghana Leasing I 1933 30−Nov−92 — 600 600
India India Equipment 1933 27−Jan−93 3,000 — 3,000
Leasing II
Indonesia Dharmala Finance 1993 17−Feb−93 5,000 — 5,000
India Infra Leasing (IL & 1993 29−Mar−93 — 3,106 3,106
FS) II
Ghana Ghana Leasing II 1993 23−Apr−93 — 150 150
India 20th Century Finance 1993 10−Jun−93 8,000 — 8,000
Corp'n
Oman Oman National 1993 27−Jun−93 5,000 522 5,522
Leasing Co.
Chile Leasing Andino II 1994 03−Aug−93 15,000 — 15,000
Indonesia PT Saseka Gelora 1994 19−Aug−93 1,520 — 1,520
Finance V
Ghana Ghana Leasing III 1994 29−Oct−93 5,000 — 5,000
Senegal Societe Generale de 1994 01−Feb−94 — 164 164
Credit A
India India Equipment 1994 04−Feb−94 — 143 143
Leasing III
Pakistan BRR Modaraba I 1994 29−Apr−94 10,000 — 10,000
Indonesia KDLC Bali Finance 1994 29−Apr−94 15,000 1.142 16,142
Pakistan Atlast BOT Lease Co 1994 05−May−94 10,000 — 10,000
Pakistan First Leasing 1994 05−May−94 5,000 — 5,000
Corporation
Pakistan National Devt Leasing 1994 05−May−94 12,500 — 12,500
Corp. I
Pakistan Orix Leasing Pakistan 1994 05−May−94 12,500 — 12,500
Ltd
Pakistan Pak Industrial 1994 05−May−94 5,000
— 5,000
Commercial Leasing unknown
IP : 81.180.68.7
Philippines All Asia Capital & 1995Mon,05−Jul−94
16 Nov 2009 10:36:27
— 385 385
Appendix Tables 77
Leasing VI
India India Lease 1995 29−Jul−94 — 299 299
Development III
India Infra Leasing (IL & 1995 22−Aug−94 25,000 — 25,000
FS) III
Romania Romlease 1995 28−Sep−94 — 450 450
Philippines All Asia Capital & 1995 05−Oct−94 25,000 — 25,000
Leasing VII
Colombia Leasing Bolivar VIII 1995 13−Oct−94 10,000 — 10,000
Pakistan Pakistan Industrial 1995 31−Oct−94 10,000 537 10,537
Leasing Co. II
Uganda Uganda Leasing 1995 19−Dec−94 — 328 328
Company
Pakistan Pakistan Industrial 1995 22−Dec−94 — — 0
Leasing Co. II
Estonia Estonia Leasing 1995 17−Jan−95 — 272 272
Company
Indonesia Bunas Finance 1995 10−Apr−95 10,000 — 10,000
Côte SAFCA/SAFBAIL 1995 15−May−95 — — 0
d'Ivoire
Indonesia Panin Finance 1995 16−May−95 — 1,926 1,926
Benin Equipbail 1995 18−May−95 820 123 943
Philippines All Asia Capital & 1995 22−May−95 — 1,718 1,718
Leasing VII
Slovenia LB Leasing 1995 08−Jun−95 3,599 — 3,599
Turkey Garanti Leasing 1995 16−Jun−95 7,000 — 7,000
Lebanon Lebanese Leasing 1995 22−Jun−95 7,500 — 7,500
India India Equipment 1995 28−Jun−95 — 335 335
Leasing IV
India SRF Finance 1995 29−Jun−95 15,000 5,000 20,000
Total 341,973 31,967 373,940
Source :
IFC.

unknown
IP : 81.180.68.7
Mon, 16 Nov 2009 10:36:27
Appendix Tables 78
Table A5: Summary of IFC's Leasing Commitments

US$ thousands)
New IFC Loan IFC equity
Transactions companies commitments commitments
By Financial Year
77 1 1 5,000 373
79 2 1 0 395
80 2 2 2,000 401
81 1 1 3,000 171
82 4 4 15,000 1,192
83 2 1 3,155 311
84 2 1 3,000 240
85 8 4 17,807 1,694
86 4 3 11,709 732
87 3 0 4,000 464
88 2 1 9,363 478
89 1 0 0 278
90 7 2 5,000 1,939
91 4 2 23,500 2,264
92 5 2 10,000 2,098
93 12 6 24,000 6,115
94 12 7 91,520 1,449
95 20 11 113,919 11,373
Total 92 49 341,973 31,967
By Region
Africa 14 8 18,214 2,777
Asia 39 18 155,699 21,604
CAMENA 15 11 91,461 2,187
Europe 11 7 18,599 2,975
LAC 13 5 58,000 2,424
Total 92 49 341,973 31,967
Source : IFC.

unknown
IP : 81.180.68.7
Mon, 16 Nov 2009 10:36:27
Appendix Tables 79
Table A6: IFC's Leasing Project Droppages and Cancellations

(US$ thousands; ranked by approval FY )
Loan
for
Approval IFC IFC
Country Project name FY loan Syndication equity Outturn and explanation
Ecuador Ecuatoriana de Leasing FY82 3,000 6,000 200 Dropped, Falling interest rates
made IFC's A loan
uncompetitive, and lack of
interest in syndication due to
worsening LAC debt situation.
Indonesia PT Saseka Gelora FY82 2,000 2,000 300 Loan cancelled at request of
Finance I company due to fall in interest
rates
Philippines All Asia Capital & FY82 2,000 8,000 — Loan was not disbursed, partly
Leasing II due to difficulties in syndicating
the B loan. Restructured and
resubmitted for approval in
1986.
Brazil Planibanc (f.k.a. FY82 10,000 20,000 450 Partial loan cancellation.
Agrileasing) I Disruption in financial markets
led to merger with another
leasing company in 1984.
Undisbursed portion (US$4m of
the A loan and US$17m of the B
loan) were cancelled.
India India Equipment Leasing FY83 5,000 — 450 Due to delays in securing Govt
I approvals project was only
established in 1986. Company
requested cancellation of IFC
loan in July 1987.
Dominican Comp. Dominicana de FY83 3,000 — 150 Loan cancelled in May 1985 due
Republic Leasing SA to inability of company to use
dollar funds at the applicable
terms.
India Leasing Corporation of FY83 5,000 — 462 Project dropped. Delays in start
India up due to problems with
securing govt approvals,
followed by falls in interest rates
and weakening market.
India India Lease Development FY84 5,000 — 351 Loan cancelled. Local interest
I rates fell, making IFC loan
unattractive.
Indonesia PT Saseka Gelora FY84 IP :unknown1,000 —
81.180.68.7
71 Loan cancelled at request of
Finance II Mon, 16 Nov 2009 10:36:27 company due to difficult
Appendix Tables 80
business prospects after losses in

1984.
Sri Lanka Lanka Orient Leasing Co. FY85 3,000 — — Company requested cancellation
III of loan because i) availability of
local funds at relatively low
rates; ii) perceived increase in
foreign exchange risk; and iii)
weakening market due to civil
disturbances.
Swaziland Finance Corporation of FY85 1,500 — 130 Project dropped due to sharp fall
Swaziland in local interest rates.
Table A6 ( cont .): IFC's Leasing Project Droppages and Cancellations

(US$ thousands; ranked by approval FY )
Loan
Approval IFC for IFC
Country Project name FY Loan Syndication equity Outturn and explanantion
Malawi Leasing & Finance FY86 500 — 76 Loan cancelled, undisbursed, in
Malawi I April 1990 because of
difficulties in marketing long
term foreign currency leases to
local customers.
Colombia Leasing Bolivar III FY87 5,000 1,000 — US$1.5m of loan cancelled in
Dec 1988 at request of company.
Customers unwilling to take
foreign exchange risks
associated with
dollar−denominated leases.
Balance of US$0.65m cancelled
in June 1990.
Zimbabwe udc Limited IV FY89 — 349 Equity investment cancelled
because Govt revoked approval
of udc's planned capital increase.
Indonesia PT Saseka Gelora FY91 5,000 15,000 — Loan and syndication cancelled
Finance III by IFC due to emergence of
financial problems at the
company.
Botswana ulc (Proprietary) Ltd. II FY92 1,450* — — Cancelled due to: i) concept
proved difficult to market in
Botswana's unsophisticated
Delivered by The World Bank e-library to: market; ii) Bank of Botswana
unknown
IP : 81.180.68.7 issued attractively priced CD's
Mon, 16 Nov 2009 10:36:27 which made ulc's Transferable
Appendix Tables 81
Certificates of Deposits
uncompetitive.
Indonesia Dharmala Finance FY93 5,000 10,000 — Syndication failed, due to doubts
about the enforeability of
security (IFC has a partial
guarantee for the same reason).
Morocco Maghrebail FY93 10,000 10,000 — Dropped in June 1994. Project
was
Morocco Sogelease−Maroc FY93 10,000 10,000 — predicated on assurances from
Govt of i)
Morocco Union Bail FY93 5,000 5,000 — move to current account
convertibility of
Morocco Wafabail FY93 10,000 10,000 — Moroccan Dirham and ii) leasing
companies' ability to maintain
foreign exchange denominated
accounts for their customers
earning foreign exchange. While
(i) was implemented, (ii) was
not. This meant that the leasing
companies could not prudently
borrow foreign exchange.
Total droppages and cancellations 92,450 — 1,149
Source : IFC.
Note : * guarantee.
Table A7: Leasing Market Share, Private Investment, and Broad Money, 19881993
% change
from 8890
Country 1988 1989 1990 1991 1992 1993 to 9193
Leasing as % of total private investment
Korea 12.5 10.9 16.1 21.5 20.0 23.0 8.3
Colombia 1.4 2.5 5.8 9.4 15.3 20.6 11.9
Venezuela 11.7 12.2 7.9 15.1 16.3 15.1 4.9
Indonesia 6.0 8.5 9.1 9.2 8.0 13.7 2.4
Brazil 3.5 1.4 1.4 3.6 7.8 9.7 5.0
Chile 4.3 3.5 5.1 5.3 6.6 8.2 2.4
Turkey 0.7 2.4 2.2 2.0 3.1 5.9 1.9
Malaysia 9.6 7.3 6.7 7.0 5.2 5.2 −2.0
Mexico 1.5 1.9 5.7 by The World
Delivered 4.7 Bank e-library
4.5to: 5.0 1.7
unknown
Pakistan 0.6 2.1 1.9 IP : 81.180.68.7
3.6 4.8 4.8 2.9
Mon, 16 Nov 2009 10:36:27
Sri Lanka 2.6 — 3.6 — 4.4 4.4 0.8
Appendix Tables 82
Morocco 2.3 3.0 2.4 4.9 4.7 4.1 2.0

Peru — — — 2.8 2.3 2.2 2.4
Thailand 0.2 0.4 0.5 0.9 0.5 1.5 0.6
Philippines 0.9 1.0 0.8 — 1.1 1.3 −0.1
Nigeria 3.1 5.1 3.7 3.4 3.4 — −1.7
India 1.5 1.4 1.3 1.5 1.5 — −0.4
Ecuador 1.6 — 6.3 8.4 8.6 — 3.0
Private investment as % of GDP
Korea 24.1 25.9 29.6 29.5 27.3 26.1 1.1
Colombia 12.7 11.1 10.2 7.7 8.5 10.1 −2.6
Venezuela 12.4 7.9 4.9 8.2 8.9 9.0 0.3
Indonesia 17.7 18.7 19.2 18.5 17.7 16.1 −1.1
Brazil 17.9 21.1 17.6 14.4 13.9 15.5 −4.3
Chile 14.7 18.6 19.3 17.0 19.3 21.8 1.8
Turkey 12.6 12.4 12.8 12.3 8.5 10.1 −2.3
Malaysia 15.4 18.5 20.9 24.1 23.2 20.6 4.4
Mexico 15.2 13.3 13.7 14.9 16.6 16.4 1.9
Pakistan 8.3 8.9 8.9 9.1 10.0 9.8 0.9
Sri Lanka 10.7 10.9 13.8 14.1 16.3 17.5 4.2
Morocco 11.8 13.2 14.6 13.2 13.4 13.3 0.1
Peru 15.5 13.1 12.2 11.8 12.4 13.5 −1.0
Thailand 25.6 29.6 34.2 34.0 31.2 31.0 2.3
Philippines 14.9 17.3 18.9 15.9 16.0 18.8 −0.1
Nigeria 4.0 4.4 6.1 6.0 4.6 0.3 −1.2
India 11.5 13.0 13.4 12.4 12.5 — −0.2
Ecuador 12.7 11.6 11.8 13.1 12.0 — 0.5
Table A7 ( cont .): Leasing Market Share, Private Investment, and Broad Money, 19881993
% change
from 8890
Country 1988 1989 1990 1991 1992 1993 to 9193
Broad money as % of GDP Delivered by The World Bank e-library to:
unknown
IP : 81.180.68.7
Korea 37 39 38Mon, 16 Nov392009 10:36:27 40 42 2.3
Appendix Tables 83
Colombia 19 — 19 18 21 — 0.5
Venezuela 34 29 33 34 29 28 −1.7
Indonesia 30 35 43 44 46 — 9.0
Brazil — — — — — — —
Chile 39 40 40 40 39 41 0.3
Turkey 36 36 33 — — — —
Malaysia 66 68 66 69 78 88 11.7
Mexico 11 18 24 28 30 — 11.3
Pakistan 41 39 39 39 43 45 2.7
Sri Lanka 32 30 29 30 31 32 0.7
Morocco 48 50 54 56 49 — 1.8
Peru 23 19 21 13 16 — −6.5
Thailand 61 65 70 73 76 — 9.2
Phillippines 29 32 34 35 36 42 6.0
Nigeria — — — — — — —
India 46 46 46 47 48 — 1.5
Ecuador 21 17 17 17 17 — −1.3
Sources : Leasing markets: World Leasing Reports , 19881993.
Private investment as % of GDP: IFC Economics Department.

Broad money as % of GDP: IMF International Financial Statistics.
Bibliography
Euromoney (1996), "World Leasing Yearbook."
Financial Times, December 1994.
Glen, Jack D. and Sumlinski, Mariusz A. (1995) "Trends in Private Investment in Developing Countries," IFC
Discussion Paper No. 25.
IFC (1995) "Support for SMEs Through Financial Intermediaries," (August).
IFC (1992) "An Evaluation of IFC's Experience with Financial Institutions that Assist Private Enterprise," (June).
IMF, International Financial Statistics .

unknown
IP : 81.180.68.7
Mon, 16 Nov 2009 10:36:27
Bibliography 84

BM Leasing in Emerging Markets

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Leasing in Emerging Markets

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Leasing in Emerging Markets

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Leasing in Emerging Markets 1

Library of Congress Cataloging−in−Publication Data

IFC has pursued its capital markets objectives by:

providing technical assistance to helpDelivered

first of their kind in a country;

encouraging financial institutions to reach under−served business segments —especially small−and

Executive Summary link

Wide Geographic Coverage link

Leasing Has Grown Rapidly in Most Countries link

Box 3.5: Accessing Local Finance and Marketing Channels: link

Table 2.4: Mobilization Rates link

Table 2.8: Regional Distribution, 19921995 link

TCD Transferable certificates of deposit

Consider three entrepreneurs seeking financing:

Delivered by The World Bank e-library to:

What Exactly Is Leasing?

A Large, Growing Industry

Why Has Leasing Grown so Fast?

Although leasing is a high−spread business it offers potential advantages to the lessee:

What Exactly Is Leasing? 10

Leasing companies also benefit SMEs:

Industry growth . The industry is quickly spreading to more countries.

Lessons from IFC's Experience

What Is IFC's Role?

Sponsoring leasing companies ; Delivered by The World Bank e-library to:

Lessons from IFC's Experience 12

What Is the Development Impact?

Leasing companies help develop capital markets

What Is the Development Impact? 13

mobilize debt by:

What Makes Successful Leasing Companies?

What Makes Successful Leasing Companies? 14

Box 1.1: Leasing Definitions

Financial leases are an alternative to bank loan financing of equipment

Operating leases are not a means of financing equipment purchase.

Hire−purchase is a hybrid instrument that provides an alternative to

1— Development of Leasing Worldwide 15

losing it through payment default. Some companies in which IFC invests

Table 1.1: Top 50 Leasing Markets,

1— Development of Leasing Worldwide 16

Developing Markets Driving Leasing Industry Growth

Developing Markets Driving Leasing Industry Growth 17

countries in the top 50 leasing markets every year since 1989.

Table 1.2: Private Investment Financed by Leasing ,

Box 1.2: Leasing Development in Korea and Thailand

In 1973 the Korean government, drawing on IFC advice, enacted a

Developing Markets Driving Leasing Industry Growth 18

constrained. Being less tightly regulated than banks, leasing companies

Thailand's first leasing company started in 1978, with IFC participation.

Why Has Leasing Grown so Fast?

Leasing: Important to SMEs 19

Table 1.3: Finance Raised by Korean Firms ,

Some observers consider leasing to be tax driven and thus without

Leasing: Important to SMEs 20

Most countries use tax incentives to promote capital investment, through

The existence of a leasing industry thus may allow a mismatch in tax

Box 1.4: Competitive Advantage for a Lessor: Processing ,

company found that it was facing competition from two

Leasing and Financial Sector Development