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Al-Ahram Weekly 16 - 22 December 1999 Issue No. 460 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 16 - 22 December 1999 Issue No. 460
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Debate Focus Profile Living Travel Sports People Time Out Chronicles Cartoons Letters Not quite never never
By Niveen WahishNeed a truck, tractor, piece of equipment or warehouse for your business? You could always head to the nearest bank, apply for a loan, see if the bank approves and if they do, then buy it. Alternatively, you can turn to a leasing company.
Leasing companies rent anything from trucks and tractors to real estate for a fixed period. In the majority of cases, some 10-15 per cent of the sum covered by the contract is paid as a down payment, with the balance collected in monthly rentals. Contracts can also include a purchase option for the lessee. But should the lessee default and allow payments to fall into arrears, then the leasing company can repossess the equipment and rent it on, or else sell it.
"There is an established second-hand market for equipment and it is easy to dispose of in a short time," said one leasing expert -- one reason why leasing companies prefer, for now at least, to deal only in standard equipment -- bulldozers, trucks, generators etc. -- rather than becoming involved with custom made items.
Internationally, anything from televisions to airplanes can be leased. Current Egyptian legislation, however, dating from 1995, restricts the scope of leasing companies' activities to moveable assets or real estate, but only on the condition such items are used in the service or production sectors. The leasing of private homes, motorcycles and passenger vehicles, including buses, is prohibited by the law. The restriction on the leasing of buses is particularly galling to the companies already involved in the business. Many complain that the demand is high, and yet they are prevented, legally, from meeting it.
While limiting the items in which leasing companies are allowed to deal, the law places no restrictions on entry into the leasing business. "The current law does not set limits on the capitalisation of leasing companies and allows them to operate without supervision," said one leasing expert.
The 1995 law allows any existing company with a commercial register to add leasing as one of its activities. As a result, officially at least, there are at present 250 leasing companies. But of these, only five specialise in the business. Three of the five operate a comprehensive service, while the remaining two were set up as the marketing arm of specific manufacturers. The three existing general-purpose leasing companies, Orix Leasing, Incolease and Sogelease, operate as partnerships between foreign lessors, major local and international banks and individual investors.
Despite the shortcomings of the law, leasing experts remain optimistic.
"The industry is new in Egypt and it is natural that faults in the law should be revealed at this early stage," said the leasing expert. But many in the industry remain optimistic that the legal shortcomings will soon be ironed out in an amendment of the applicable legislation, due to be presented in the current session of the Peoples' Assembly.
Whatever the problems faced at the moment, industry insiders are confident of its potential. "Our business has grown three-fold since we first started," said one lessor, who expects demand to continue growing. "It will need time because of the lack of awareness, but we are working on that." He estimates that the industry will mature in 10 to 15 years. Developed countries have been operating leasing companies for at least 40 years.
Experts within the leasing industry are keen to publicise the advantages of their activities. Leasing companies can not only provide in a week what banks would make available in a month, they claim, but will also cover over 75 per cent of the value of the equipment while few banks would be willing to loan more than half the capital cost. Leases are, in addition, tax deductible.
Leasing is also a flexible arrangement -- the lessee can purchase the leased equipment earlier than the completion date of the contract.
One problem the industry does face, however, is the repossession of leased equipment in cases of default.
"The law on ownership of the asset is clear, but the administrative and legal framework lags behind," complained one industry expert. "In the event that people default, you can sue them, but this is not as important as repossessing equipment promptly."
"It is up to us to prove that the equipment belongs to the company. If we can satisfy the court, we should be allowed to repossess the equipment," he said
Demand on leasing companies in Egypt has been growing for two reasons: people are becoming more familiar with leasing, and it presents a way around liquidity problems.
But if limited liquidity means more business for the lessors, it means, too, that they must be twice as careful. Investors themselves are advised to view leasing as an alternative source of financing and not to wait for a crisis to happen. "When a client comes to the leasing company in a position of strength, even to take out a small lease, it will help establish their credibility and track record," explained one source. "For when there is a shortage we will give preference to clients we already know."
