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Leasing in Russia (Policy paper)

Leasing in Russia
(Policy paper)
Place and year of publication
Moscow , 2001
Author
Policy paper produced under Tacis project SMERUS9803 «Support to development of small entrepreneurship», implemented by NEI as contractor. Author: Hans Vershoor
No of pages
36 pages
Views
5387. Downloads: 1156.
Document ID
3610

Download:

9864.doc 9864.doc 268,00 Kb 10.10.2017

Summary:

Aim of the study

The Policy Paper, based on a study, was prepared under the Tacis project
SMERUS 9803 Support to the Development of Small Entrepreneurship aimed at strengthening the RF Ministry for Antimonopoly Policy and Support to Entrepreneurship
(MAP) as an effective policy adviser.
The general objective of this policy paper on leasing is to
compile relevant information on the history, present practice and future
perspective of leasing as a tool for SME finance. The specific objective is to
make recommendations, based on field investigations and document studies and on
what stakeholders in this financing instrument have contributed on the basis of
their involvement, whether theoretical, political or practical. The
recommendations offer normative and pragmatic contributions to creating a
better enabling environment, that will, when indeed implemented by policy and
law makers and embraced by both financial parties and SMEs, lead to the
establishment of leasing in the Russian Federation as a fully fledged SME financing instrument.

SMEs generally finance their operations from three main sources: internally generated cash, bank loans and capital markets. In the Russian Federation however, capital markets are relatively undeveloped, while banks
prefer to lend to larger, well-established businesses that have a profitable track record and can offer strong security. Internally generated cash is often the only source of working capital.

Improved access to leasing helps SMEs
circumvent two common barriers to obtaining outside finance: the prevailing
prohibitive interest rates –both on domestic and on foreign currency loans- and
the prohibitive collateral requirements of conventional bank financing. Also,
leasing provides finance for longer periods than commercial banks in the Russian Federation (or for that matter in
most underdeveloped or emerging markets) can or will provide. What is more,
leasing will often be the only outside finance available to SMEs and the only
way to acquire the use of vital assets.

As is the case with all longer term financing instruments in the Russian Federation, leasing suffers from a lack of funding on the supply side. On the demand side there is already major demand involved with replacing the obsolete asset base of Russian industry, while demand for expansion will follow
macroeconomic growth. One of the specific aims of this policy paper is to
enhance the standing of leasing in order to attract more finance to it, from
both internal and external sources.

Leasing allows SMEs to acquire the new equipment and technology they need to update and expand their operations. Leasing is based on the proposition that profits are derived from the use of assets,
rather than from their ownership. This also implies that outsiders to the
business can be the owners of the leased assets and that the cash flows
generated through the use that SMEs make of them inside their businesses are
the owners’ primary source of repayment. Leasing is focused on the lessee’s
ability to generate cash flows from business operations to service lease
payments, because the lessor-financier retains ownership of the assets during
the term of the lease. If they were not capable of borrowing money at
acceptable conditions and neither of generating their own capital from retained
earnings or venture capital, SMEs would not be able to grow without leasing.

The paper considers two kinds of lease: Operating
lease and Finance lease. Operating lease is basically a form of “rent” of
standard equipment (e.g. computers, photocopiers, and cars), with the leasing
company taking care of maintenance also. Finance lease involves three parties
(seller of the assets, lessee and lessor). The leasing company buys the assets
for delivery at the premises of the enterprise, while the lessor owns the
assets until ownership is legally transferred to the lessee. This eventual
transfer of the ownership is typical of finance lease.

Small and medium-sized enterprises (SMEs) play a crucial role in facing today’s economic and social challenges and in creating employment. A strong entrepreneurial culture is essential for the
future competitiveness of the Russian economy and for generating economic
growth. SMEs can create many jobs within a short period of time, increase the
tax base, add to the growth of national income, and may provide substitutes for
imported goods. In modern economies, the SME sector is the most important
“engine” of economic growth. Developing an enabling environment for SME
development is hence crucial for both the SME sector and for the economy as a whole.





















Table of contents:

Table of Contents

List of abbreviations
Acknowledgement
Executive summary
1. Introduction
1.1 Framework of the SMERUS project
1.2 Objectives, general and specific
1.3 Approach of this paper
2. The leasing instrument as a source of SME finance, a broad overview
2.1 Leasing as a new source of financing
2.2 Definition and nature of leasing
2.2.1 Operating lease
2.2.2 Finance lease
2.3 Why leasing can be particularly favourable to SMEs
3. The current status of the leasing industry in the RF
3.1 Leasing as an accepted concept in the Russian Federation
3.2 The penetration of leasing among SMEs in the Russian Federation
3.2.1 Equipment leasing
3.2.2 Real estate leasing
3.3 Some experiences gathered from interviews with existing leasing companies
3.3.1 Ministry of Economy of the Russian Federation
3.3.2 Federal Fund for Small Business Support
3.3.3 Rosleasing; Russian Association of leasing companies
3.3.4 Rosagrosnab
3.3.5 Moscow Leasing Company
3.3.6 International Finance Corporation
3.3.7 UNDP
3.3.8 Raiffeisenbank Austria
3.3.9 Joosten Products
4. Law, regulation and taxation in the leasing sector
4.1 Legislation pertaining to finance in general
4.2 Legislation pertaining to leasing
4.3 Legal implications for SMEs when using leasing as a means to work with imported machinery
4.4 Leased property insurance
4.5 Overview of the rules and regulations that have to be taken into account when establishing a leasing company
4.5.1 Required legal format of a leasing company
4.5.2 Applying for a license to perform leasing activities
4.6 The depreciation regime applied to capital goods leased
4.7 On lease payments
4.8 Some comments on the proposed Draft Law "On Amendments and Additions to the Federal Law "On Leasing"
4.9 On the restrictions to combining the functions of creditor and lessee
5. Recommendations

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