1. ADVANCED FINANCIAL SERVICES
PRESENTATION ON
LEASING & HIRE PURCHASING
BY NITESH RUCHANDANI
ROLL NO. 51
L.I.M.E (2011-13)
2. OVERVIEW OF PRESENTATION
LEASING:
• CONCEPT
• IMPORTANCE
• TYPES
• MERITS AND DEMERITS
HIRE PURCHASE:
• CONCEPT
• CHARACTERISTICS
• ADVANTAGES
3. LEASING
CONCEPT
“Leasing is an agreement between landlord and the
tenant that gives the tenant right to use and occupy rental
property for a specific period of time.”
Parties involved:
1. Lessor
2. Lessee
4.
5. IMPORTANCE
• Attractive for financing small and medium enterprises.
• An efficient way to finance investment in capital assets
by new companies and companies with no credit
history.
• A way of broadening the financing options available to
local companies.
6. TYPES OF LEASE
Lease
Agreements
Capital/ Operating Sale and Lease Leveraged
Direct Leasing
Financial Lease Lease Back Lease
7. FINANCIAL LEASING
• Long term, non cancellable lease contracts are known as
Financial lease.
• Contractual period generally equal to expected full economic
life of the equipment.
• Lessor acts as Financer and Lessee takes responsibility of the
maintenance and servicing of equipment .
8. OPERATING LEASE
• Short term and Cancellable.
• Contractual period generally less than the full expected useful
life of the equipment.
• Maintenance and servicing costs borne by the lessor.
• Rentals are far higher than other types of leasing.
9. LEVERAGED LEASE
• 3 parties are involved: Lessor(leasing company), Lessee(user of the
equipment), and the financer.
Lender
Lessor Lessee
Manufacturer
10. SALES AND LEASEBACK LEASE
• A firm may sell an asset which it already owns to another party and lese it
back from the buyer. Lessee receives immediate cash for his assets and
repays the lease rentals over a stipulated period of time.
Seller Buyer
Lessee Lessor
11. DIRECT LEASING
• Under This type, a firm acquires the right to use an asset from
the manufacturer directly. The ownership of the asset leased out
remains with the manufacturer itself .
12. MERITS AND DEMERITS
Merits:
• Funds of lessee are not tied up in fixed assets.
• Assets can be leased at today’s prices rather than at a
higher price in future.
• Beneficial for new companies.
• Lessee gets all the benefits of ownership.
13. Demerits:
• Does not shift the title of ownership.
• Miscellaneous expenses are to be borne by the lessee.
• If the lessee is not able to pay rentals regularly, lessor
would suffer a loss.
• In case of long term and non-cancellable lease, lessee
can hardly transfer danger of obsolescence to lessor.
14. HIRE PURCHASE
CONCEPT:
• Hire purchase is a type of installment credit under
which the hire purchaser, called the hirer, agrees to
take the goods on hire at a stated rental, which is
inclusive of the repayment of principal as well as
interest, with an option to purchase.
15. Characteristics:
• The hirer is required to pay hire purchase installments
over a specified period of time. Installments are
payable monthly.
• The ownership of the asset is transferred after the hirer
has paid the last installment.
• Incase of default in payment of hire charge
(installment), the seller is entitled to take away the
goods.
• The terms and conditions relating to the usage of the
asset, namely its insurance, maintenance, rights and
obligation of parties to the agreement are described in
the hire purchase agreement.
16. ADVANTAGES:
• Low NPA’s and Defaults
• Higher rate of interest
• Banks can effectively recycle the funds recovered.
