Chapter: 1 Introduction

A lease is an agreement allowing one party to use anothers property, plant,or equipment for a stated period of time in exchange for onsideration. Leases ha e !ecome more pre alent as !usinesses and consumers loo" for alternati es to finance the acquisition of fixed assets. A lease agreement in ol es at least two parties # a lessor $such as a !an"#, who owns the property, and a lessee, who uses the property. %he lessor, essentially a creditor in the transaction, is repaid from a com!ination of lease or rental payments, tax !enefits, and proceeds from the sale or re&lease of the property at the end of the lease term.Although leasing is often thought of as a modern day financing technique, indications are that leasing transactions too" place around '((( ).C., when *umerian farmers leased tools from temple priests. %he !asics of leasing ha e changed little since that time. + er the years, the strength of the leasing industry has !een its resiliency and its a!ility to ma"e the most of the changing !usiness en ironment.Leasing is the most widely used method of personal property financing in the ,nited *tates today. -or !an" lessors, leasing is another competiti e product that can satisfy the needs of !an" customers. leases may !e safer than other !an" products !ecause the transactions are secured. and leases are generally

more profita!le than commercial loans !ecause of ad antages inherent in their structure, such as tax !enefits.

OBJECTIVESOF THEREPORT

We have prepared the report for some definite purposes. Those purposes are photographed beneath as, To find out the leasing policies of United Leasing Company (ULC), To evaluate the performance of United Leasing Company (ULC), To give focus of their current cost of fund and focus on reduction of cost of fund To develop any alternate source of funding To recommend specific measures in order to improve leasing strategies of ULC by analyzing the Strength, Weakness, Opportunities and Threats (SWOT) To highlight on the products that can take them on the driving seat in the competition with banks and other financial institutions METHODOLOGY Tabulation system to describe corporate information, different products and features of the company Ordinal level of measurement Graphs- to show the companys ratio analysis LIMITATIONS Lack of information due to the policy of the company of keeping all the information confidential, Inadequate knowledge on contemporary leasing terms of the companys business representatives. Insufficient time due to the congested corporate schedule and exam schedule, Lack of knowledge about the real life leasing business, Insufficient published information and reluctance about providing those by the company.

Chapter:2 Lease Financing:

Lease financing is a very common financing solution for businesses that need to acquire equipment. Repayments are spread over several months and are tax deductible. Lease financing is very simple, especially with CLE Leasing ( ee the steps on our !"R CL#E$% page.& %he purchaser chooses the equipment and the vendor, and fills out a one'page credit application form. ( follow'up is conducted within )* hours, and a final decision is issued shortly thereafter. %here are five main advantages+ ,. ). 0. *. 2. ( simple and quic- financing application and approval process. /rotection of your wor-ing capital (monthly rentals are much lower than the total cost of the equipment, and your line of credit remains intact&. 1our borrowing capacity from ban-s is preserved and can be used for financing that only them can provide. 1our monthly rentals are tax deductible. ales taxes do not apply when acquiring equipment.

Lease is a contract !etween the owner and the user of assets for a certain time period during which the second party uses an asset in exchange of ma"ing periodic rental payments to the first party without purchasing it. ,nder lease financing, the lessee regularly pays the fixed lease rent o er a period of time at the !eginning or at the end of a month, / months, 0 months or a year. At the end of the lease contract the asset re erts to the real owner. 1owe er, in case of long&term lease contracts, the lessee is generally gi en the option to !uy the leased asset or renew the lease contract. %he three ma2or types of leases are the operating lease, financial3capital lease and the

direct financing lease. %he operating lease is a short&term lease contract where the lessor !ears all operating and repairing costs of the asset and the lessee pays periodic rental payments to the lessor, and where the lease is cancela!le, and there is no !argain purchase option. -inancial3capital lease is a long&term lease contract where the lessee !ears all operating, repairing and maintenance costs, and ma"es periodic rental payments to the lessor. %he lease is not cancela!le and the lessee has the option for !argain purchase or renewal of lease contract at the end of the original lease period. In a direct financing lease, the lessor leases the asset !y manufacturing or !y purchasing from the manufacturer to the lessee directly and the lessee ma"es regular rental payments to the lessor. %he lessor holds the ownership of the asset until the end of the lease period and the lessee holds the possession of the asset. In addition to these ma2or types, there are some other types of lease such as sale and lease and le eraged lease. Legally, a leasing company is defined as one ha ing the !usiness of hiring plants or equipment or of financing their hire !y others. %he International -inance Corporation promotes leasing as a method of financing industrial de elopment in the de eloping countries as a part of its capital mar"et de elopment strategies. Lease Classification Criteria -rom the standpoint of the lessor, all leases may !e classified for accounting purposes as follows: a) Capital or financial lease: %o !e a capital lease, it must satisfy one or more of the following four criteria:$1#%he lease transfers ownership of the property to the lessee, $'#%he lease contains a !argain purchase option, $/#%he lease term is equal to 456 or more of the estimated economic life of the leased property, $7#%he present alue of the minimum lease payment $excluding executory costs# equals or exceeds 8(6 of the fair alue of the leased property.$*tamford,Conn. -A*),189(#. +ffice !uilding, :ultipurpose industrial !uilding and e en complete shopping centers are frequently financed with this method. :ost lease !ac"s are on a net&net !asis, which means that the lessee pay all maintenance expense, property taxes, insurance and lease payment . b) Operating lease: +perating leases result in the recognition of only rent expense. ,nder the operating lease each rental receipt !y the lessor is recorded as rental re enue. Leases that do not meet any of the four criteria are classified and accounted as operating Lease. *hort&term cancela!le

lease agreements are called operating lease. Computers, copiers, telephone ser ices, etc. are often o!tained !y operating leases. An operating lease is usually characteri;ed !y the following features: $1#%he lease is cancela!le !y the lessee prior to its expiration. $'#%he lessor pro ides ser ice,maintenance and insurance. and $/#%he sum of all lease payments !y the lessee does not necessary fully pro ide for the reco ery of the asset cost#. c) Sale-leaseback: %he term sale&lease!ac" descri!es a transaction in which the owner of the property $seller&lessee# sells the property to another which is simultaneously leases it !ac" from the new owner. %he use of the property is generally continued without interruption. %he ad antages of a sale lease !ac" from the sellers iewpoint usually in ol e two primary considerations: $1# -inancing < If the purchase of equipment has already !een financed, a sale&lease !ac" can allow the seller to refinance at lower rates, assuming rates ha e dropped. In addition, a sale&lease!ac" can pro ide another source of wor"ing capital, particularly when liquidity is tight. $'# $'# %axes& At the time a company purchases equipment, it may not reali;e that it was going to !e a minimum tax and that ownership might increase its minimum tax lia!ility. )y selling the property, the seller&lessee may deduct the entire lease payment, which is not su!2ect to minimum tax considerations.

Lease Financing in Bangladesh:

)angladesh is a de eloping country, !ut the national calamity and political unrest sluggish the industrial growth as well as economic growth of the country. In spites of all these hindrance the growth of leasing companies is a significant indication of our !right prospects. Lease financing was first introduced in )angladesh in the early 189(s. Industrial =e elopment Leasing Company of )angladesh Ltd. $I=LC#, the first leasing company of the country, was esta!lished in 1890 under the regulatory framewor" of )A>?LA=@*1 )A>A. It was a 2oint enture of the Industrial Bromotion and =e elopment Company of )angladesh Ltd. $IB=C#, International -inance Corporation, and Aorea =e elopment Leasing Corporation. Another leasing firm, the ,>I%@= L@A*I>? C+:BA>C Ltd. started its operations in 1898. %he num!er of leasing companies grew quic"ly after 1887 and !y the year '(((, rose to 10. %he leasing !usiness !ecame competiti e with the increase in the num!er of companies and wider distri!ution of their mar"et share. %here are, howe er, 0 other companies conducting leasing !usiness in the country, although they do not use the word leasing in their names. In terms of money alue, the leasing !usiness in )angladesh increased from %" 71.77 million in 1899 to %" /.10 !illion in '(((. %he leasing companies now operating in the country are Industrial =e elopment Leasing Company of )angladesh, ,nited Leasing Company, ?*B -inance Company $)angladesh#, ,ttara -inance and In estments, )ay Leasing and In estment, Bhoenix Leasing Company, Brime -inance and In estment, International Leasing and -inancial *er ices, ,nion Capital, Dani" )angladesh, Beoples Leasing and -inancial *er ices, )angladesh Industrial -inance Company, ,A@&)angladesh In estment Company, )angladesh -inance and In estment Company, and -irst Lease International. Lease financing, as organi;ed in )angladesh, operates with the following o!2ecti es: $a# to assist the de elopment and promotion of producti e enterprises !y pro iding equipment lease financing and related ser ices. $!# to assist in !alancing, moderni;ation, replacement and expansion of existing enterprises. $c# to extend financial support to small and medium scale enterprises. $d# to pro ide finance for arious agriculture equipment. and $e# to acti ate the capital mar"et !y operating as managers to the issue, underwriters, or portfolio managers.

%he functions of a lease !usiness include lease financing, short&term financing, house !uilding financing, and merchant !an"ing and corporate financing. In this last group of functions, the leasing !usiness in )angladesh mo ed away from regular leasing acti ities and is now in ol ed in stoc"& mar"et related acti ities such as issue management, underwriting, trust management, pri ate placement, portfolio management, and mutual fund operation. )road capital mar"et operations of the lease financing institutions include !ridge financing, corporate counseling, mergers and acquisition, capital restructuring, financial engineering, and lease syndication. Brominent among the sectors of the economy that now recei e lease financing ser ices are textiles, apparels and accessories, transport, construction and engineering, paper and printing, pharmaceuticals, food and !e erage, chemicals, agro&!ased industries, telecommunications, and leather and leather products. Commercial !an"s and de elopment finance institutions $=-Is# ha e !een the traditional lending institutions in )angladesh. In fact, the concept of lease financing is a relati ely new one in the country. Initially, leasing companies had to adopt the role of educators to ma"e )angladeshi entrepreneurs aware of the !enefits of leasing. 1owe er, as =-Is demonstrated poor reco ery and fund recycling performances, leasing got the opportunity to de elop as an alternati e source of funding. A few other factors also contri!uted to de elopment of the leasing !usiness in the country. -or example, the commercial !an"s ha e !een "eener in pro iding trade financing and -+E@I?> @FC1A>?@ dealings rather than long&term loans !ecause of the ris"s in ol ed and their longer gestation period. %he selection of lease proposals is relati ely free from extraneous pressure and is su!2ect to a quality le el appraisal. ,nder lease agreements in the pri ate sector, pro2ects are sanctioned and implemented expeditiously, resulting in !enefits in time and cost sa ings. Bri ate leasing companies also attract clients !y pro iding relati ely !etter ser ices. %he down payments in leasing are not high and the gestation period is low. Also, in case of lease financing, incidental costs incurred in the process of import clearing, installation, and commercial production are capitalised, which su!stantially reduce the initial in estment. Leasing companies, howe er, face some pro!lems in conducting their !usiness in the country. %he relati ely slow growth of the demand side compared to the fast growth of the lease !usiness is one such pro!lem. %his leads many leasing companies to operate in partial capacity. %he culture of

loan default that pre ails in the country is also a deterrent. Leasing companies often find it difficult to raise funds through short& or long&term !orrowing from money and capital mar"ets. %hey are hard pressed to deal with the financial assets !ecause of the present laws of the country, which are also not fully enforcea!le. Leasing !usiness is gaining increased importance in the economy of )angladesh with its gradual transformation from an agrarian to industrial one. %he go ernment periodically re ises the trade and industrial policy to create a li!eral !usiness en ironment !oth for domestic and foreign in estment. Increased in estment in the energy sector as well as in power, transport, telecommunications, water and sanitation, and safe disposal of wastes is expected to !ring further opportunities for leasing industries. %he traditional sources of funds of our country in the financial mar"et are < the Commercial )an"s, =-Is and the stoc" exchange. )ut these sources are not enough to effecti ely meet the growing demand of capital in estments for industriali;ation of the country. And the !ac"drop of such scenario, leasing companies came forward in the 9(s to ser ing as an alternati e source of financing. At present there are 11 leasing companies operating there !usiness. %he name of the leasing companies: 1. Industrial =e elopment Leasing Company of )angladesh Ltd. I=LC '. ,nited Leasing Company /. ,ttara -inance G In estment company Ltd. 7. Bhonenix Leasing company Ltd 5. )ay leasing G In estment Ltd. 0. International Leasing G -inance Company Ltd. 4. ?*B -inance company $)=# Ltd. 9. Brime -inance G In estment Ltd.

Chapter: 3 Practical Aspects

United Leasing Company Limited a joint venture non-bank financial institution engaged mainly in lease finance business and bills discounting. It was incorporated on 27 April 1989 as a public limited company under the companys act 1994 with an authorized capital of Tk 1,000 million. On 31 December 2000, its paid up capital was Tk 70 million, of which foreign and domestic sponsors held 40.29% and 33.57% respectively and the remaining 26.14% was held by institutional shareholders (19.46%) and the general public (6.68%). Foreign sponsors of the company are Asian Development Bank (ADB), Commonwealth Development Corporation and Lawrie Group Plc of the UK. Sponsors in Bangladesh are Duncan Brothers (Bangladesh) Ltd, Shaw Wallace Bangladesh Ltd, National Brokers Limited, Octavius Steel & Co. of Bangladesh Limited and the United Insurance Company Limited. The company is listed with the Dhaka Stock Exchange Ltd. On 31 December 2000, the total assets of the company were valued at Tk 1,482.11 million, 76.98% of which accrued to leased assets. Liabilities of the company included capital and reserve funds Tk 434.22 million, long-term loans from local and foreign sources Tk 867.63 million, and lease deposits Tk 180.26 million. Sources of funds of the company are mainly commercial banks. The company is eligible to receive fund from the World Bank sponsored Financial Institutions Development Project (FIDP) at concessionary interest rates. Number of lease contracts made and executed upto 31 December 2000 was 373 with total monetary involvement of Tk 1,119 million. The company performed relatively well in terms of profitability and it paid dividend @ 30% in 2000. MISSION Devote continuous effort to improve products and services for sustaining competitive edge. Ensure service excellence by leveraging motivated human resource and technology. Manage risks and costs to ensure sound financial performance and adequate return on all investments. VISION To be the leading high quality service provider in the markets we serve. GOALS Customers: Ensure that our service quality exceeds customer expectation in terms of timely delivery, fairness in treatment and value addition.

Risk Management: Proactively manage risks and adhere to international best practices. Shareholders: Maximize growth in earning per share. Employees: Provide a stimulating and challenging yet congenial work environment, invest in training to harness full potential and compensate on performance basis. CORPORATEGOVERNANCE

Our Management Syed Ehsan Quadir M. A. Azim M. Ataul Hoque Avijit Bhattacharjee Jamal Mahmud Choudhury Eva Rahman Mohiuddin Rasti Morshed Quazi Nizam Ahmed Shahidul Islam Mazumder Fahad Rahman Sabrina Mehnaz Md. Abul Ahsan Sharmi Noor Nahar Ashfaque Chowdhury A N Baset Osmany Mahmud Kaiser Khandaker Tanbir Islam Soma Chowdhury Mohammad Neazur Rahman

Managing Director Deputy Managing Director General Manager Head of Accounts Head of Collection & Special Asset Management Head of Channel Financing Head of Corporate & Syndicate Financing Head of Small Enterprises Head of Information & Communication Technology Head of Enterprise Financing Head of Human Resource Head of Credit Head of Board & Secretarial Head of Operation Head of Investment Marketing Head of Treasury Head of Credit Risk Administration Head of Marketing Services Head of Internal Compliance & Control

PERFORMANCEANALYSIS Current ratio: It measures a companys liquidity and short term debt paying ability. United leasing company also needs some liquidity position for operating the business.

Year Currentratio

2008 1.09

2007 1.08

2006 .9

2005 1.39

2004 1.33

The trend of the company shows that current ratio is always in a stable position. Firm always maintain required liquidity. Debt to Equity Ratio: debt to equity ratio measures total debt financing from the creditors relatives to the equity of the firm.

200 200 200 200 200

Debt-equityratio

8 7 6 5 4 6.0 6.2 5.7 5.3 5.9

Here we find that debt is relatively higher in last two years. Return on Equity: Return on equity measures the profitability of the firm from common stock holders view. This ratio show how many taka of net income were earned for each dolled invested by the owner. Return on equity is higher in the beginning of the year and it gradually reducing and in 2008 the ROE is 14%. Expenses Per Taka Profit (profit after tax): Here the expenses for profit is increasing day by day. In year 2004 was only 2.2, but in the year 2008 it become 5.6. Financial Expenses Coverage: Financial expenses coverage ratio shows how many times it needs to recover the financial expenses taken by the firm. Financial expenses coverage ratio is decreasing from 2004 to 2008. That means it takes lower time to cover financial expanses than previous. That is good for the company. Net Asset Value Per Share: The increase of the value of the share shows the good condition of the firm. Increase in net asset value shows that the price of the share is increasing relative to the asset of the firm. The net asset value is increasing yearly which shows good condition of the firm. Earning Per Share: It measures the net income earned on each share of common stock. It is computed by dividing net income by the number of weighted average common shares outstanding during the year. EPS in 2008 is 66 taka which is relatively high in comparison to2007 and 2006 but low in compression to 2005 and 2004. CashDividend: Every year firm provide some cash dividend to its share holderd, which is relatively same over the last 5 years, this cash dividend is an important indicator of the good condition of the firm.

Cashdividend

2008 20

2007 20

2006 20

2005 21.3

2004 20

Debt to Total Asset Ratio: it measures the percentage of the total assets provided by the creditors. We get it by dividing total debt by total assets. This ratio indicates the companys degree of leverage.

2008 33.33%

2007 28.18%

2006 26.65%

2005 25.3%

2004 22.13%

From this graph we see that the debt to asset ratio of the firm is increasing day by day. In every year the ratio is increasing with a significant percentage. so it become more leverage. Financialperformanceoverview Taka in Million

Debt-equity Currentratio Returnon equity(%) Expensesper taka profit after tax (Taka) Financialexpensescoverage(times) Net assetvalueper share EPS(Taka) Cashdividend(Takaper share)

2008 6.0 1.09: 1 14.0 5.6 1.3 496 66

2007 6.2 1.08: 1 14.5 5.1 1.4 484 62 20

2006 5.7 0.9: 1 13.8 4.7 1.4 445 59 20

2005 5.3 1.39: 1 22.6 2.3 1.9 408 85 21.3

2004 5.9 1.33: 1 23.0 2.2 2.2 345 73 20

Stockdividend(Bonusshare) Debtto assetratio (%)

PROGRESSAT A GLANCE SOURCESOF FUND

33.33

10:1 28.18

26.65

2: 1 25.3

1: 1 22.13

1. funds.

Bank Borrowing:The Company can borrow from the following banks its necessary
i. Uttara Bank Limited. ii. Pubali Bank Limited. iii. Trust Bank Limited iv. The City Bank Limited. v. Commercial Bank of Ceylon Plc. vi. Sonali Bank Limited. vii. Standard Chartered Bank. viii. Bank Alfalah Limited. ix. City Bank N.A. x. Basic Bank Limited. xi. Mercantile Bank Limited

2.

PublicDeposit: ULC Ltd. collects public funds as a means of Share Capital.

Composition of Shareholding is as Follow

No. of Shares 2008 462,000 i. Sponsors Foreign

Domestic 559,240

Percentage 2008 20.00

24.21

ii. FinancialInstitutionsandCompanies Foreign

Domestic

210,305
513.825

9.10
22.25

iii. GeneralPublic Domestic Total

564,630 2,310,000

31.35 24.44 100.00

A range distribution schedule of the above shares as at December 31, 2008 is given below as required by Regulation 37 of the listing Regulation of Dhaka Stock Exchange Limited:

No. of Shares Lessthan500 500 to 5,000 5,001to 10,000 20,001to 30,000 30,001to 40,000 40,001to 50,000 50,001to 100,000 100,001to 1,000,000 Total
BracBankLtd.

Total Number of No. of Shareholders Shares 4,903 356,371 179 277,022 5 34,892 3 66,888 1 42,000 5 5,104 1,421,378 2,310,000

Percentage of Total Shares 15.43 11.99 1.51 2.90 1.82 61.53 100.00

The Company subscribed 500,000 redeemable cumulative preference shares @ Tk. 100 per share bearing 9% dividend issued by BRAC Bank Limited as per share subscription agreement made on January 31, 2006 between United Leasing Company Limited and BRAC Bank Limited. EnergypacConfidencePowerVentureLtd. The company subscribed 500,000 redeemable cumulative preference shares @ Tk. 100 per share bearing 12.75% dividend issued by Energypac Confidence Power Venture Limited as per share subscription agreement made on May 29, 2008 between United Leasing Company Limited and Energypac Confidence Power Venture Limited.

3.

Foreign Funding: ULC Ltd. collects fund from foreign investors. Investors from abroad make crucial funding for the company and gives the chance to operate smoothly. 4. Refinancing from Bangladesh Bank: The Company gets refinancing facility from Bangladesh Bank by investing in SME, Women Development Projects and Agricultural Sectors 5. Zero Coupon Bond:Sometimes issue zero coupon bonds for raising necessary funds. As per Trust deed dated February 7, 2005 between United Leasing Company Limited (ULC) and Investment Corporation of Bangladesh (ICB) a Trust in the name of ULC Securitization Trust 2005- A was formed and ULC sold lease receivable of Tk. 400 million to the Trustee (ICB) to issue Asset Backed Zero-Coupon Bonds. Thereafter the Trustee issued 37 Class A and 3 Class B Bonds of Tk.10 million each of which ULC purchased 3 class B Bonds as credit enhancement to secure the interest of class A bond holders. Any loss due to noncollection of lease receivable in respect of class-A bonds held by the investors will be adjusted against the amount of class B bonds held by United Leasing Company Limited. All Class A Bonds have been redeemed by January 2009. The redemption of the Class B Bond starts from February 2009. 6. Asset Backed Security:Formerly ULC Ltd. collected fund from asset backed securities but now it has stopped doing it.
COSTOF FUND WAYSTO REDUCECOSTOF FUND As ULC Ltd. has to maintain CRR of 2.5% with Bangladesh Bank on 100% borrowing and give commission to depository assistance of 13.75-13.85%, it is not easy to reduce cost of fund for the company. Reducing

costs for United Leasing Company Limited. solely depends on the overall conditions of the market. If market runs well that is gives loan in low interest and other conditions of the markets favors only in that time ULC Ltd. can reduce its cost of fund. Except the condition of market the company can reduces costs by following ways

1.

Arbitrage
By arbitraging the company can reduce cost of fund. By definition we know that arbitrage is a discrepancy in relative values that is taking of positions in two or more markets in order to exploit pricing aberration among them. The academic definition of arbitrage demands that the strategy not require any of the arbitragers own funds and that it be entirely risk less. And United Leasing Company makes temporal arbitrage for reducing cost of funds. By this the company involves buying an asset for immediate delivery and selling it for later delivery in order to exploit a price discrepancy between the cash price and the forward price.

2.

LongTermDeposit
By increasing the volume of Long Term deposit and reducing short term deposit volume, it can reduce cost. Because the company has to give more interest for short term deposits than long term.

3.

Refinance
Having increased volume of refinance from Bangladesh bank, the company can reduce cost of funds. Because when the company makes much financing in the SME, Women Development Projects and Agricultural Sectors, it can claim more money as refinance from Bangladesh Bank

4.

LongTermProductDevelopment
ULC Ltd. can reduce cost by increasing the volume of long term product such as introducing MILLIONARIE SCHEME. They are going to offer another scheme called Lakhopoty Scheme. These long term products can reduce their cost. AlternativeSourcesof Funding United Leasing Company Ltd. may make funding from the following sources:

1.

Bond Issue: The company presently does not issue bond expect it has issued zero coupon bond. But it may raise it fund through issuing corporate, perpetual and discounted bond to the general investors of Bangladesh and get necessary fund to make smooth operation. 2. Debenture Issue: The Company may issue debenture for raising fund. In a days debenture has become one of the easiest source of funding for many leasing companies and it is a non collateral long term mechanism to raise necessary fund. So ULC Ltd. may issue debentures to get funds.
Multi Productsto Competewith Banks/FinancialInstitutions United Leasing Company Limited a joint venture non-bank financial institution engaged mainly in lease finance business and bills discounting. It was incorporated on 27 April 1989 as a public limited company under the companies act 1994 with an authorized capital of Tk 1,000 million. On 31 December 2000, its paid up capital was Tk 70 million, of which foreign and domestic sponsors held 40.29% and 33.57% respectively and the remaining 26.14% was held by institutional shareholders (19.46%) and the general public (6.68%). Foreign sponsors of the company are Asian Development Bank (ADB), Commonwealth Development Corporation and Lawrie Group Plc of the UK. Sponsors in Bangladesh are Duncan Brothers (Bangladesh)

Ltd, Shaw Wallace Bangladesh Ltd, National Brokers Limited, Octavius Steel & Co. of Bangladesh Limited and the United Insurance Company Limited. The company is listed with the Dhaka Stock Exchange Ltd. On 31 December 2000, the total assets of the company were valued at Tk 1,482.11 million, 76.98% of which accrued to leased assets. Liabilities of the company included capital and reserve funds Tk 434.22 million, long-term loans from local and foreign sources Tk 867.63 million, and lease deposits Tk 180.26 million. Sources of funds of the company are mainly commercial banks. The company is eligible to receive fund from the World Bank sponsored Financial Institutions Development Project (FIDP) at concessionary interest rates. Number of lease contracts made and executed upto 31 December 2000 was 373 with total monetary involvement of Tk 1,119 million. The company performed relatively well in terms of profitability and it paid dividend @ 30% in 2000. The management of the company is vested in a 9-member board of directors including its chief executive, the managing director assisted by a team of 35 executives. It addition to the head office at Dhaka, the company has a branch in Chittagong. products& servicesof ulc Productsprovidedby unitedleasingcompany 1. LeaseProduct Under Lease finance United Leasing Company provides: Industrial machinery and motor vehicles at concessionary term. Machinery and Furniture for Hospital use. Truck or Bus for Transportation. Equipment or Furniture for Official use. Benefitsfromthe Leaseproduct ConservingCapital: United Leasing Company provide 80%-100% lease financing for a period of 3-5 years. Thereby, customers can avoid capital investment and utilize fund elsewhere. PaymentFlexibility: Customers lease rentals can be structured as monthly, quarterly, semi-annually or annually to match with the cash flow generation. CustomizeService: Lease financing at ULC are customized into number of facilities like, lease local, sale & lease back and lease foreign. That allows customers to lease new or existing asset from local or foreign vendor. OwnershipTransfer: As ULC is providing capital or financial lease, at the termination of contracts customer will have the opportunity to renew the lease or purchase the asset with a minimum transfer price.

PrepaymentFacility: Customers can prepay and adjust full or partial amount with receivable only after adjustment of first six installments. ReducingBalanceMethod: Construction of repayment schedule using this method allows customer to pay lower interest as principal payments are gradually adjusted with receivables. Tax Benefits: Lease rentals are treated as revenue expenditure and are entirely deductible for tax purposes. This provides a greater tax benefit for customers in comparison to borrowing. 2. TermLoan: Term loan services of ULC offers you 3 (three) types of facility; Long Term Loan; is suitable for customer, if cash flow resources are sufficient for longer tenure obligation, profitability and expansion plan. Short TermLoan; enables customers to take advantage of transactions to be completed in short period. RevolvingLoan; enables customer to meet continuous working capital requirement. CollateralFreeTermLoan: Typically small and medium-sized enterprises are unable to raise finance in the conventional way due to lack of security. To meet their requirement United Leasing Company further customizes their facility into collateral free long term loan. Facilities under this service are;

Product Name FocusGroup LoanAmount(up to) RepaymentTerm RepaymentMethod AgeLimit ApplicantsIncome(min) Product Name FocusGroup LoanAmount(up to) RepaymentTerm RepaymentMethod AgeLimit ApplicantsIncome(min)
3. HomeLoan:

Nokshi Woman Entrepreneurs Tk 5.00 lacs 24 months EMI 25-55 years Taka3.50 lakh Agrani SME Tk 6.00 lacs 18-24 months EMI 30-55 years Taka2.50 lakh

Mousumee SME Tk 5.00 lacs 18 months Canbe Structured 30-55 years Taka2.50 lakh Briddhi SME Tk 12.00lacs 18-24 months EMI 30-55 years Taka2.50 lakh

Home loan services of ULC helps customers in: Purchase/construction of house/apartments. Renovation/extension of existing house/apartments (for individual).

 Renovation/extension of existing office chamber/space (for professionals). Construction/purchase of commercial building. Construction of commercially viable project like school, hotel, hospital etc. Construction of industrial building like factory, godown, warehouse etc. LoanInformation LoanAmount: Maximum loan amount is Tk 50 lacs or 70% of the purchase price/cost, whichever is lower. RepaymentTerm: 1. Individual loan:15 years for normal facility and 20 years in case of Bangladesh Bank refinancing scheme, but not beyond the 60th birthday of the applicant. 2. Commercial loan: Maximum term is 7 years. InterestRate: United Leasing Company offer customers a competitive interest rate and low fees on the basis of their financial status, amount borrowed and repayment terms. Repayment: customers will repay the entire loan by Equated Monthly Installments (EMI) comprises of principal and interest calculated on the basis of monthly rests at the rate of interest applicable and is rounded off to the next taka. Disbursement: Loan will be disbursed to customers in one trench or in suitable installments to be decided by ULC with reference to the need or progress of construction/ renovation/ extension of the house. Security: Registered mortgage of the property financed will be the prime security. Other security may also be taken on the discretion of the Management. Prepayment: Customer loan can be prepaid partially or in full, at any time before its maturity date. Insurance: Customer will be vigilant and the property is duly insured against fire, earthquake and other hazards, ULC being the sole beneficiary under the policy, for a value as required by ULC. Premium will be paid by him with loan installment amount. 4. DepositScheme Deposit scheme of ULC offers customers; Annual Term Deposit: A fixed return investment allowing them to withdraw or reinvest profit or principal at maturity.

 Earn Ahead Term Deposit: This scheme offers customer an opportunity to benefit from their investment at the time of opening account. Also allows them to reinvest withdrawal amount for further benefit. Monthly & Quarterly Earner Deposit: This scheme allows them to withdraw profit after each month or each quarter. Cumulative Term Deposit: Under this scheme profit from customers invested amount has been capitalized at the end of each year (after AIT deduction), creating a new principal. Profit for next year will then be calculated on the full amount. Doublemoneyreturn: Due to attractive profit, customers investment becomes double at maturity. Triple moneyreturn: To secure childrens marriage, education, retirement/financial solvency this scheme triples investment at maturity. Benefitsfromthe depositscheme: Safe investment: United Leasing Company determined to deliver the profit and investment of the customers duly. Attractiveprofit: UCL is providing better profit under various savings scheme which will enhance the investment at maturity. Best consumerservice: To serve customer with care is the main principal of UCL. From opening of the account, till maturity UCL always ready to support the customer. Loanfacility: Considering the necessity UCL is providing quick loan facility. Customers can avail loan up to 80%-90% of investment amount. 5. ChannelFinancingServices Channel financing services of ULC offers; 1) Factoring of Accounts Receivable 2) Work Order Financing 3) Distributor Financing 4) Assignment Discounting Benefitsof ChannelfinancingServices: ReducedInvestmentin Receivables:

Customers receive payments right before or after the delivery therefore their funds are no longer tied up in receivables. Expansionof Business: As cash flows improve, customer can increase business by delivering higher volume to existing customers and also expand business to new ones. ] SalesLedgerAdministration: ULC will administer the sales ledger for the assigned customers. Collectionof Receivables: ULC will monitor and collect the receivable on due time from the customers. HighQualityReports: ULC provides detail report on the performance of the customers that will help them direct in sales efforts. Scopefor AdditionalFinancing: When the customer utilizes factoring facility properly, it will help ULC support them with other services. Deposit rate (effective from April 27, 2009)

Investment Type AnnualProfit CumulativeTerm EarnAhead MonthlyEarner MonthlyEarner QuarterlyEarner QuarterlyEarner DoubleMoneyProgram TripleMoneyProgram EasyMillionaireScheme
Conditions:

Tenure 1 year 2 to 5 years 1 year 1 Year 2 years & above 1 year 2 years & above 7 years & 2 months 11 years & 3 months DepositminimumTk5, 000/-every month

Profit Rate 10.50% 10.50% 09.50% 10.00% 10.00% 10.20% 10.20%

1) Minimum investment amount is Tk20,000/- and deposits cannot be encashed before 1 year. 2) The profit is subject to deduction of 10% as Advance Income Tax (AIT). 3) 0.10% higher profit rate will be given on Earn Ahead Scheme, subject to investment of the earned profit to any of Annual Profit, Cumulative Term, Fixed Term Investment Schemes (Double Money, Triple Money and Millionaire Scheme). 4) Senior Citizens (individual aged 57+ years) will get 0.25% higher profit rate under any of the above schemes except Fixed Term Investment Scheme (Double Money, Triple Money and Millionaire Scheme).

Disclaimer: Profit rates are subject to change at any time without prior notice and are not applicable for Banks or Financial Institutions. innovativeproducts

1.

ShipBuildingFinance:
The ship building industry is a thriving business sector of Bangladesh and it has already shown tremendous potential. In this industry, new companies are coming and are trying to position themselves and as the industry is in its infantry level, there are scopes for the financing companies to invest their money here and reap some profits. The start-up advantages here will provide them with huge feedbacks hopefully. The companies which are coming here are mainly from the already-existing and oligopolistic ship-breaking companies. But, if the investment companies show their interest to nurture this sector, then some newbie can feel interested and the company can be a very competitive one and can produce a huge turnover for the whole economy.

2.

PowerandEnergyEmpowering:
Bangladesh is just in the deep whole of energy shortage and this shortage is so substantial that the overall productivity and development of the economy is getting highly hampered. This sector of utility should be scoured and it should be scoured immediately. And in order to do that the private sector should also come forward beside the government enterprises as this is a highly capital intensive sector. The government also permits the private enterprises now. So there is huge scope for the capital intensive and investing companies like ULC. If it alone cant go for a sole companys sponsorship it can go for loan syndication. The profit possibility is high because of its huge demand. There are two broadly definable areas in the energy sector:

a.

RenewableEnergy:
Windmills, solar energy, bio-fuel these sectors are totally administered by the NGOs here as pilot projects. And these projects are already successful and have ensured its future prospect. So now the investment companies can go for huge projects covering a huge area locally and reap profit from operations there.

b.

Non-renewableEnergy:
Gas and oil backed power plants and burges are the sectors here where the companies can go for investment as a private or a conglomerate. The annual report of 2007 shows that the company already invested 2.27% in this sector. Evaluating its possibilities, the company should go for more and more investment in this sector and this can go up to 10%.

3.

CementIndustryFinancing:
This sector is already a highly profitable and established one. The banks are investing a lot here. ULC can go for some share of the capitalization here. But as this sectors investment market is already a very competitive field and the banks are the major players here, so if ULC wants to position itself in the market it must go with some competitive rates and advantages. Once the bond is made strong with the cement companies, they can go for some long term investment decisions and machineries leasing and increase their profits. Here the profit will take times to come but it will surely come.

4.

HouseFinancing
People are no longer to be tenant. They have a dream to own a house. But building of houses is so costly to be borne by the people; mainly middle income people. What could be the solution? One easy way to solve this is to take loan on easy terms and conditions. Commercial Banks hardly pay loan to the people to build house because it is long term. Leasing companies come forward to solve the problem. They, not all, provide long term loan to the customers for the purpose of building houses. ULC, as a leasing company has not yet provide any loan for house building. Moreover, competition among the lease companies yet not so acute. ULC can take the chance to enter in the housing financing sector.

5.

Top Up Loans
This product offers an existing resident customer a loan against the mortgage of the existing property. It helps in encasing the investment in a house without having to dispose it off to fund various needs related to Higher Education, Purchase of Furniture, Business Requirements, etc. The maximum loan amount under this product may be 60 % of the market value of the property less the outstanding loan and is subject to the current loan eligibility.

6.

HomeConversionLoans
Existing borrowers can avail of a Home Conversion Loan to acquire another dwelling unit, through sale of the existing dwelling unit. The existing loan can be transferred to the new property with an increase in loan amount based on the current eligibility.This saves the customer from the hassle of prepaying the first loan and availing of new loan thus saving them prepayment charges and processing charges to the extent of loan conversion.

7.

AdjustableRate-HomeLoan
Loan under Adjustable Rate is linked to comanys Retail Prime Lending Rate (RPLR). The rate on the loan will be revised every three or ,acoording to companys term, months from the date of first disbursement, if there is a change in RPLR, the interest rate on the loan may change. However, the EMI on the home equity loan disbursed will not change*. If the interest rate increases, the interest component in an EMI will increase and the principal component will reduce resulting in an extension of term of the loan, and vice versa when the interest rate decreases. Conditions may be Applied to this loan Fixed Rate Maximum Loan Existing Customers - Balance of 60% of the market value and present loan outstanding New Customers - 50% of the market value of the property (including the cost of the land) Subject to

- Minimum Market Value of the property being Tk.700,000 for Residential property and Tk.10 Lacs for Non Residential Property - Repayment Capacity of the customer Maximum Term

Property Type Residential Non Residential

8. TrancheBasedEMI

Repayment Option EMI Based EMI Based

No. Of Years 15 10

Customers purchasing an under construction property need to pay interest ( on the loan amount drawn based on level of construction) till the property is ready . To help customer save this interest, we have introduced a special facility of tranche Based EMI. Customers can fix the installments they wish to pay till the property is ready. The minimum amount payable is the interest on the loan amount drawn. Anything over and above the interest paid by the customer goes towards Principal repayment. The customer benefits by starting EMI and hence repays the loan faster. 9. FlexibleLoanInstallmentPlan Often customers, parents and their children, wish to purchase properties together. The parent is nearing retirement and their children have just started working. This option helps such customers combine the incomes and take a long term home loan where in the installment reduces upon retirement of the earning parent. 10. AcceleratedRepaymentScheme Accelerated Repayment Scheme offers you a great oppourtunity to repay the loan faster by increasing the EMI. Whenever you get an increment, increase in your disposable income or have lumpsum funds for loan prepayment, you can benefit by: 1) Increase in EMI means faster loan repayment 2) Saving of interest because of faster loan repayment Customers can invest lumpsum funds rather than use it for loan prepayment. The return from the investments also gives you the comfort of paying the increased EMI. regulatoryreform Though United Leasing Company is running quiet well in Bangladesh, it is facing some problems with current leasing facilities of Bangladesh. It is facing some problems in the following sectors: Bindings in Women Entrepreneur Absence of short term fixed deposit facility Bindingsin WomenEntrepreneur

There is a binding of Bangladesh Bank that every leasing company will have to keep a good sum of amount for women entrepreneur in our country. For that case leasing company will get a facility of refinancing from Bangladesh Bank. But it is really difficult for leasing companies to find out real woman entrepreneur. If Bangladesh Bank would change this rule then ULC could invest that amount to any other sector. Absenceof short termfixeddepositfacility There is no facility of short term fixed deposit as Bangladesh bank has a regulation that leasing companies can not take fixed deposit with tenure less than one year. It creates an obstacle of collection of fund. Though lease companies do not provide lease with such short time, if they had the opportunity then they could use that in case of any need. Short term fixed deposit, such as 6 months or 3 months, is a bit expensive. But if there is an option of short term fixed deposit leasing companies can use it in case of shortage of liquidity. majorproblems Sourcesof FundsProblem: Leasing companies collect funds from a wide range of sources including financial instruments, loans from banks, financial institutions, insurance companies and international agencies as well as deposits from institutions and the public. Line of credit from banks constitutes the major portion of total funds for leasing companies. Deposit from public is another important source of fund for them, which has been increasing over the years. Leasing companies are allowed to take deposits directly from the public as well as institutions. According to the central bank regulation, leasing companies has the restriction to collect public deposits for less than one year, which creates uneven competition with banks as banks are also exploring the business opportunities created by leasing companies with their lower cost of fund. Although recent reduction of the minimum tenure of the term deposit from one year to six months for institutional investor has had a positive impact on their deposit mobilization capacity. HighCostof Fund: The structure of cost of fund for leasing companies does not follow any unique trend. Weighted average cost of fund for the leasing companies is always positioned much higher than that of banks. Cost of funds for leasing companies varied between 8.4 to 15.3 percent while that of banks was between 8.5 to 9.5 percent. About 15 percent of the deposit of the banking sector was reported to be demand deposits, which are interest free while 35 percent constituted low cost saving deposits having an average of 4 to 5 percent interest rate and the rest were fixed deposits bearing an average of 9 percent interest rate. Thus the weighted average cost of fund for banks would be at best 7 to 8 percent, which is almost half of that of leasing companies. LowProfit Margincomparedto bankingsector: Leasing companies face comparative disadvantage in collecting funds compared to the banks because they cannot collect short term (less than one year) deposits from individuals due to the central banks restriction, and again deposits in leasing companies are perceived to be less safe to the public. As a result they have to offer higher rates on deposits, which are sometimes as expensive as bank borrowing. Again, excessive dependence on bank loan and deposit has had an adverse impact on the overall industry. Due to the liquidity crisis, when interest rate goes up, the average rate of interest on bank credit lines and deposit rate also increases, which causes significant rise in the cost of fund for leasing companies. The high cost of fund for leasing companies compels them to operate on a relatively low profit margin. Asset-Liability Mismatch:

Asset-liability mismatch is another cause of concern for leasing companies. Demand for funds to meet the increasing lending requirements has increased many times. But the availability of funds has become inadequate as leasing companies are mostly dependent on loan from commercial banks. International Finance Corporation (1996) observed that leasing companies are in a great dilemma while managing the mismatch between their asset and liability. According to IFC, the average weighted life of the companys business portfolio should be less than the average weighted life of its deposits and borrowing in its operating guidelines for a leasing company. Only one company in Bangladesh was successful in maintaining the above guideline which is IDLC Finance Ltd. Investmentin HighRisk Portfolio: It is already mentioned that cost of funds for leasing companies (NBFIs) are higher than that of banks. In order to sustain the high cost of borrowing, they may be inclined to invest in the high return segments, which can expose them to commensurately higher risks. Moreover, fierce competition among competitors may also force many leasing companies to reduce the margin at the expense of quality of the asset portfolio. This strategy may eventually create the possibility of an increase in the non-performing accounts. Unless adequate risk management capabilities are developed, the growth prospects of leasing companies (NBFIs) would not only be hindered but it might also be misapprehended. Lackin ProductDiversification: Leasing companies (NBFIs) emerged primarily to fill in the gaps in the supply of financial services which were not generally provided by the banking sector, and also to complement the banking sector in meeting the financing requirements of the evolving economy. NBFIs are permitted to undertake a wide array of activities and should therefore not confine themselves to a limited number of products only. Leasing, no doubt, presents a good alternative form of term financing. Even in leasing, investments were not always made in the real sector and non-conventional manufacturing sector. Almost all the leasing companies concentrated on equipment leases to BMRE (Balancing, Modernization, Replacement and Expansion) units only. New industrial units were hardly brought under the purview of leasing facilities. This implies that the new customer base has not been created and the growth of industrial entrepreneurship could not be facilitated through NBFI financing packages. Diversifying the product range is a strategic challenge for NBFIs in order to become competitive in the rapidly growing market. Competitionwith Banks: With the advent of new leasing companies (NBFIs), the market share is being spread over the competing firms and the demand facing each firm is becoming more elastic. Active participation of commercial banks in the non-bank financing activities has further increased the level of competition in the industry. Leasing was considered as a non-bank financing activity until recently. But a large number of banks has also shown their interest in the leasing business and has already penetrated the market. For banks, public deposit is one major source of funds which they can collect with relatively lower cost. Thus the business environment for leasing companies (NBFIs) has become more challenging as they have to face uneven competition with banks in terms of collecting funds. Lackof HumanResource: Skilled and trained human resource is considered as an important component for the development of any institution. Due to the recent growth of leasing companies (NBFIs), availability of experienced manpower is a challenge for this industry. The supply shortage of efficient resource personnel has been leading to a significant increase in the compensation package, which is also a cause of concern for NBFIs. The industry experts believe that although there exists enormous growth opportunity the market is still quite small and

scope of work for skilled personnel is very limited compared to that of banks. This makes the competent personnel to switch from leasing companies (NBFIs) to other institutions after a certain period implying low retention rate of skilled human resource. WeakLegal System: Although the default culture has not yet infected NBFIs to any major extent, they face difficulties in recovering the leased assets in case of a default. Moreover delays in court procedures create another cause of concern. The situation cannot be improved only by making the legal system stronger through enactment of new laws rather ensuring proper implementation existing ones is more of concern. Lackof a SecondaryMarket: Even in cases when the defaulted asset is recovered, the disposal of the same becomes difficult because of lack of an established secondary market. For the promotion of a secondary market, NBFIs may consider initiating the concept of operating lease instead of the prevalent mode of finance lease in case of these recovered assets to create a demand for second hand or used machinery and equipment. RECOMMENDATION ExploringAlternativeSourcesof Funds: The finance and leasing companies across the world are using different sources for collecting funds. NBFIs in Bangladesh may also explore the possibilities of gaining access to new sources of funds like issuance of commercial paper and discounting or sale of lease receivables. However, in releasing such new products, some regulatory changes have to be made. Another innovative and promising source of funds may be the securitization of assets. This new instrument emerged as an important tool and added a new dimension in the financial market. The core attraction of this scheme was the tax benefit made available to investors. Competitionand ProductDiversification: Leasing companies in Bangladesh are operating in a highly competitive environment. The competition for leasing companies (NBFIs) is even more challenging as they have to compete with banks. Given the changes in the business environment, the need for product diversification is very important. At present, lease financing constitutes 55 percent of the total long term assets of NBFIs. The remaining part concentrates mainly on term financing and housing finance. Some of NBFIs are primarily engaged in leasing, some are also diversifying into other lines of business like merchant banking, equity financing etc. Currently, 22 NBFIs (out of 29) specialize in lease financing. Leasing companies are permitted to undertake a wide array of activities and therefore should not confine themselves to one or two types of product only. Leasing, no doubt, presents a good alternative form of term financing but NBFIs should also venture into diversified use of their funds such as merchant banking, venture capital financing, factoring, etc. for a healthy growth of the capital market. EnhancingCapital MarketActivities: NBFIs around the world carry out a significant role in the development of the capital market. Strong institutional support is necessary for a vibrant capital market which is the core of economic development in any market based economic system. NBFIs through their merchant banking wing can act in this regard. A total of 30 companies are now listed as merchant banks in Bangladesh, of which 23 are full-fledged, 6 are issue managers, and only one is a portfolio manager. Only nine NBFIs have registered with SEC for performing merchant banking activities. But their activities in the capital market are rather limited. Active participation of merchant banks is essential to accelerate the capital market activities which can expedite the economic growth of the country. The success of merchant banking operations is largely linked to the

development of the security market. So NBFIs should concentrate more on their opportunities in the capital market. Issuesof Taxation The financing mode of lending and leasing are totally different from one another. The concept and procedure particularly the accounting and taxation system are also quite different. So it is advisable not to mix up the two different operations, otherwise it might distort the basic financial norms. As the tax treatment is totally different in leasing business, mixing up of lending and leasing in the same business portfolio might create the possibility of tax evasion. MarketSegmentation It has been discussed earlier that though banks and NBFIs compete with each other they can also perform complementary functions. Banks wishing to enter in the leasing business, which is essentially a core operation of NBFIs, should do so through opening subsidiaries so that a level playing field for NBFIs can be maintained. This is needed as banks have access to lower cost funds compared to NBFIs, which puts the former in an advantageous position. Alternatively, banks can go for joint financing under syndication arrangements with leasing companies on any project proposal. Again, banks can concentrate on working capital finance and foreign exchange operations, which matches more with their asset-liability management. Long term investment like financing capital machineries can be done by NBFIs and in the event when banks want to engage in such activities they can place their funds with an NBFI to extend lease facility for those machineries. This is important for two reasons: first, in case of lease facility, the machineries will remain under the ownership of leasing companies, who will have absolute authority and control on their assets. Second, machineries will be imported in the name of a leasing company and letter of credit will be opened against its name. So, over invoicing or under invoicing may be averted and thereby more transparency will be ensured and tax evasion may be plugged. CONCLUSION United Leasing Company is one of the oldest leasing companies in our country and contributing a lot in economic development by providing lease financing facilities since its inauguration. But like many other leasing companies it faces some problems in providing and extending lease financing. On the basis of our overall analysis we can conclude that ULC can solve the problems it faces in proving lease financing by exploring alternative sources of funds, competition and product diversification and enhancing capital market activities. Moreover the government of Bangladesh has to come forward in facilitating such a prospective financial sector.

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