Lease Financing in Bangladesh

Leasing in Bangladesh, like in many of its peer countries, owes its origin to the efforts of the International Finance Corporation (IFC), Washington. At the instance of IFC , the first leasing company in Bangladesh , Industrial Development Leasing Company of Bangladesh Ltd.(IDLC) was set up in 1984 and commenced its operations in 1986 , with a 20% shareholding from Korea Development Leasing Corporation.

For several years, IDLC remained the sole leasing company in Bangladesh. However, the real momentum began in the 1990s. The country’s central bank, Bangladesh Bank, put in place a regulatory mechanism under the Financial Institutions Act 1993 and the Financial Institutions Regulations 1994.

In 1997, there were 15 leasing companies in the country. Besides, some of the banks and financial institutions also added leasing divisions to their existing operations.

LICENSING AND REGULATION:

Who or what is a leasing company?

Leasing in Bangladesh is a “financial business” and cannot be carried on except in terms of a license granted by Bangladesh Bank.

Sec. 4 of the Financial Institutions Act prohibits any person or institution from carrying any “financial business” in Bangladesh except in accordance with a license granted by the Bank.

Sec. 2 (1) defines “financial business” as the business carried on by a financial institution. “Financial Institution” as defined in sec.2 (2) includes a leasing company.

“Leasing company” is defined in sec. 2(17) of the act as a company which carries on its business or part of its business as hiring of plant or equipment, or the financing of such hiring business.

A first look at the definition suggests that even if a company, otherwise engaged in a manufacturing or non-financial activity, carries on a leasing activity as a part of its business, such company would be treated as a “financial institution” under the Act. This, however, could not be intent of the law-maker as demonstrated later. The use of the words “part of its business”...