Framework of Leasing  Dr Saif Siddiqui Assistant Professor Centre for Management Studies Jamia Millia Islamia (A Central U...
Lease -Defined <ul><li>A lease is a contractual arrangement </li></ul><ul><li>in which a party owning an asset (lessor) </...
Essential elements:  <ul><li>Parties to the contract </li></ul><ul><ul><li>Essentially two parties : lessor and lessee </l...
Essential elements:  cont… <ul><li>Asset  </li></ul><ul><ul><li>The asset is the subject matter of the contract </li></ul>...
Essential elements:  cont… <ul><li>Lease rentals </li></ul><ul><ul><li>So structured as to compensate the lessor for the <...
Classification basis : <ul><li>The lease transaction can differ on the basis of  : </li></ul><ul><ul><li>The extent to whi...
Types of leasing: <ul><li>Finance lease and operating lease </li></ul><ul><li>Sales and lease back and direct lease </li><...
Finance lease and operating lease <ul><li>Finance lease: </li></ul><ul><ul><li>The lessee select the equipment and  negoti...
Finance lease and operating lease <ul><li>Operating lease: </li></ul><ul><ul><li>It is one which is not a finance lease </...
Sale and lease back and  Direct lease <ul><li>Sale and lease back : </li></ul><ul><ul><li>Indirect form of leasing </li></...
Single investor lease and leveraged lease <ul><li>Single investor lease </li></ul><ul><ul><li>Two parties involved :lessor...
Domestic lease and international lease <ul><li>Domestic lease </li></ul><ul><ul><li>If all the parties (lessor, lessee and...
Advantage of leasing to the  lessee  <ul><li>Financing of capital goods </li></ul><ul><li>Less costly </li></ul><ul><li>Ow...
Advantage of leasing to the  lessee  cont… <ul><li>Simplicity  </li></ul><ul><ul><li>Simple to negotiate </li></ul></ul><u...
Advantage of leasing to the  lessor   <ul><li>Full security </li></ul><ul><ul><li>Lessor remain the owner </li></ul></ul><...
thanks
Upcoming SlideShare
Loading in...5
×

Framework of Leasing

6,397

Published on

Published in: Economy & Finance, Business
2 Comments
18 Likes
Statistics
Notes
  • A RELIABLE AND A GENUINE PROVIDER THAT CAN DELIVER BANK GUARANTEE AND OTHER FORM OF BANKING INSTRUMENTS FOR LEASE WHICH ARE MAINLY FRESH CUT.

    Bank instruments which are cash backed can be used as thus; clients looking for loans to finance their businesses also serve as a collateral to get loans from banks in other to engage into any project at hand further details will be emailed upon request.

    Email: mklease.broker@gmail.com
    Skype ID: mklease.broker
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
  • thank you Dr.
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
No Downloads
Views
Total Views
6,397
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
0
Comments
2
Likes
18
Embeds 0
No embeds

No notes for slide

Transcript of "Framework of Leasing"

  1. 1. Framework of Leasing Dr Saif Siddiqui Assistant Professor Centre for Management Studies Jamia Millia Islamia (A Central University) New Delhi - 110025
  2. 2. Lease -Defined <ul><li>A lease is a contractual arrangement </li></ul><ul><li>in which a party owning an asset (lessor) </li></ul><ul><li>provide the asset for use to another party (lessee) </li></ul><ul><li>for a agreed period of time </li></ul><ul><li>in consideration of a periodic payment (rentals). </li></ul><ul><li>At the end of the contract (lease period ), the asset reverts back to the lessor, </li></ul><ul><li>unless there is a provision for the renewal of the contract </li></ul>
  3. 3. Essential elements: <ul><li>Parties to the contract </li></ul><ul><ul><li>Essentially two parties : lessor and lessee </li></ul></ul><ul><ul><li>Both can be individuals, partnerships, joint stock companies </li></ul></ul><ul><ul><li>Joint lessor and lessee , where amount is enormous </li></ul></ul><ul><ul><li>Contract may involve lease financiers , who refinance lessor </li></ul></ul>
  4. 4. Essential elements: cont… <ul><li>Asset </li></ul><ul><ul><li>The asset is the subject matter of the contract </li></ul></ul><ul><ul><li>Asset must be of lessee’s choice , suitable for his business needs. </li></ul></ul><ul><li>Separation of ownership from user </li></ul><ul><li>Term of lease </li></ul><ul><ul><li>The time period for which lease remain operational </li></ul></ul><ul><ul><li>A definite time period is required otherwise , it will be legally inoperative </li></ul></ul><ul><ul><li>The period may stretch over the entire economic life of the asset </li></ul></ul>
  5. 5. Essential elements: cont… <ul><li>Lease rentals </li></ul><ul><ul><li>So structured as to compensate the lessor for the </li></ul></ul><ul><ul><li>investment made in the asset </li></ul></ul>
  6. 6. Classification basis : <ul><li>The lease transaction can differ on the basis of : </li></ul><ul><ul><li>The extent to which risk and reward of ownership are transferred </li></ul></ul><ul><ul><ul><li>Risk refers to possibility of loss for under utilization or technological obsolescence of the equipment </li></ul></ul></ul><ul><ul><ul><li>Reward mean cash flow generated from the usage of equipment and residual value </li></ul></ul></ul><ul><ul><li>No. of parties to the transaction </li></ul></ul><ul><ul><li>Domicile of lessor and lessee </li></ul></ul>
  7. 7. Types of leasing: <ul><li>Finance lease and operating lease </li></ul><ul><li>Sales and lease back and direct lease </li></ul><ul><li>Single investor lease and leveraged lease </li></ul><ul><li>Domestic lease and international lease </li></ul>
  8. 8. Finance lease and operating lease <ul><li>Finance lease: </li></ul><ul><ul><li>The lessee select the equipment and negotiate with manufacturer </li></ul></ul><ul><ul><li>Lessor purchase the equipment and lease </li></ul></ul><ul><ul><li>Lessor retain the title , lessee uses it </li></ul></ul><ul><ul><li>lessor transfer all the risk and reward of the asset </li></ul></ul><ul><ul><li>Involves payment of rental over an obligatory non- cancelable lease period </li></ul></ul><ul><ul><li>Lessor is a financer , not interested in assets </li></ul></ul><ul><ul><li>Lessor recover its investment and earn profit </li></ul></ul><ul><ul><ul><li>Example : ships, aircraft etc. </li></ul></ul></ul>
  9. 9. Finance lease and operating lease <ul><li>Operating lease: </li></ul><ul><ul><li>It is one which is not a finance lease </li></ul></ul><ul><ul><li>It is also known as service lease </li></ul></ul><ul><ul><li>Lessor provides for the services attached as maintenance </li></ul></ul><ul><ul><li>Lessor bears the risk of obsolescence , lessee can cancel the lease any time </li></ul></ul><ul><ul><li>The lease rental is cost of service provided </li></ul></ul><ul><ul><li>Lessor does not depend on single lease to cover its entire cost </li></ul></ul><ul><ul><li>examples: car , computers , charter planes </li></ul></ul>
  10. 10. Sale and lease back and Direct lease <ul><li>Sale and lease back : </li></ul><ul><ul><li>Indirect form of leasing </li></ul></ul><ul><ul><li>Owner sell it to leasing company and take the same on lease </li></ul></ul><ul><li>Direct lease </li></ul><ul><ul><li>Bipartite lease : </li></ul></ul><ul><ul><ul><li>equipment supplier cum lessor and lessee </li></ul></ul></ul><ul><ul><li>Tripartite lease : </li></ul></ul><ul><ul><ul><li>equipment supplier , lessor and lessee </li></ul></ul></ul>
  11. 11. Single investor lease and leveraged lease <ul><li>Single investor lease </li></ul><ul><ul><li>Two parties involved :lessor and lessee </li></ul></ul><ul><ul><li>Leasing company fund the entire investment </li></ul></ul><ul><li>leveraged lease </li></ul><ul><ul><li>Three parties involved : lessor, lender and lessee </li></ul></ul><ul><ul><li>Leasing company buy assets by borrowing </li></ul></ul><ul><ul><li>Transaction is routed through a trustee , who look after interest of lessor and lender </li></ul></ul>
  12. 12. Domestic lease and international lease <ul><li>Domestic lease </li></ul><ul><ul><li>If all the parties (lessor, lessee and equipment supplier) are domiciled in the same country </li></ul></ul><ul><li>International lease </li></ul><ul><ul><li>Import lease </li></ul></ul><ul><ul><ul><li>If equipment supplier is domiciled in different country </li></ul></ul></ul><ul><ul><li>Cross border lease </li></ul></ul><ul><ul><ul><li>If lessor and lessee are domiciled in different countries </li></ul></ul></ul>
  13. 13. Advantage of leasing to the lessee <ul><li>Financing of capital goods </li></ul><ul><li>Less costly </li></ul><ul><li>Ownership preserved </li></ul><ul><ul><li>Equity may dilute ownership </li></ul></ul><ul><li>Avoid conditionality </li></ul><ul><ul><li>Institutional finance come with restrictions like dividend representation on board, etc </li></ul></ul><ul><li>Flexibility in structuring of rentals </li></ul>
  14. 14. Advantage of leasing to the lessee cont… <ul><li>Simplicity </li></ul><ul><ul><li>Simple to negotiate </li></ul></ul><ul><ul><li>Lesser documentation </li></ul></ul><ul><li>Obsolescence risk is averted </li></ul>
  15. 15. Advantage of leasing to the lessor <ul><li>Full security </li></ul><ul><ul><li>Lessor remain the owner </li></ul></ul><ul><li>Higher profitability </li></ul><ul><ul><li>Rate of return is more than the rate of borrowing </li></ul></ul><ul><li>Trading on equity </li></ul><ul><ul><li>Lessor can use substantial amount of borrowed funds </li></ul></ul><ul><li>High growth potentials </li></ul><ul><ul><li>Leasing is done even in recessionary periods </li></ul></ul>
  16. 16. thanks

×