Sri Lanka (Common Wealth) _As many Sri Lankans are in poor straits as a result of the worst economic crisis in history, with a huge debt burden, increasing cost of living, and many income-generating avenues being restricted, the leasing industry has been seriously impacted owing to customer erosion. People’s financial affordability has reduced as other basic necessities have become available for survival.
After dollars began to enter the country, there has been an economic rebound and growth in the infrastructure sector, making leasing a viable option. Various financial recommendations supported by the IMF would pave the way for abundant growth in the country’s economic environment.
Additional businesses should become actively involved in this industry in order to increase their income and provide additional financial services to the inhabitants of the country. With the expansion of the economy in many areas such as construction, technology, power plants, and shipping, there will be a greater use of equipment in some form, expanding the scope of the leasing industry in the country. Sri Lanka is well-positioned to maintain its position in the global leasing market in the next years.
Despite decades of existence, leasing in Sri Lanka has remained in its infancy, owing mostly to macroeconomic and political concerns limiting the country’s overall growth and development In the past, there have also been reasons that have hampered leasing development, such as an increase in gasoline prices, a scarcity of dollars, a rise in exchange rates, and an expected rise in interest rates. The prohibition on car imports had certain negative consequences for the equipment leasing business.
Another factor for the lack of growth in equipment leasing is the issue of asset repossession.Leasing has been practiced in Sri Lanka since 1977. However, on the proposal of the World Bank, the government of Sri Lanka established the Lanka ORIX Leasing Company (LORC) as a joint venture in 1980. This marked the beginning of the leasing business in Sri Lanka.
Unlike the rest of the world, where operational leases are more commonly used leasing arrangements, practically all leases in Sri Lanka are finance leases, with only a few operating leases available. Furthermore, in terms of asset classifications, car leasing accounts for 95% of overall leasing market transactions.
Leasing in Sri Lanka is governed by the Finance Leasing Act, 2001, which allows both registered finance businesses and banks to engage in leasing. Apart from registered finance businesses, public limited corporations with a minimum capital requirement of 300 million Sri Lankan rupees can also engage in leasing. These businesses are known as leasing companies.
The distinction between finance businesses and leasing firms is typically based on the acceptance of deposits and the types of activities they can perform. A finance firm can receive deposits, but a leasing company cannot. Along with leasing, finance organizations can operate in hire purchase and consumer finance. Leasing firms can provide hire purchase and leasing but cannot provide consumer loans. Furthermore, leasing firms can only solicit deposits from the general public if they get a banking license or register as a finance company.
