Economy, Business And Markets

Leasing Industry: The Urge to Merge

Leasing Industry: The Urge to Merge Leasing Industry: The Urge to Merge

The Central Bank of Iran and Iran Chamber of Commerce will support the formation of the National Association of Leasing Companies by merging the existing unions to help lift the leasing sector.

The leasing industry is currently being represented by two societies, ‘the Iranian Association of Leasing Companies’ and ‘The Center for Leasing Companies’. However, the lessors’ urge to merge was welcomed by the CBI and Iran Chamber of Commerce, Industries, Mining and Agriculture (ICCIMA) on Sunday.

Hooman Hajipour, ICCIMA deputy for societies’ affairs, appreciated the central bank’s support to improve the industry and said that both sides are firm in their decision to help strengthen the structure of leasing companies’ representation, the Chamber’s public relations office reported.

“The CBI and ICCIMA will fully support the integration,” he said adding that “according to the Article 5 of the Law for Promoting Businesses, the integration will be completed within one month.”

The integration plan includes three phases: increasing member companies, drafting the articles of association and a general election.

Elaborating on the ICCIMA role in the integration process, Hajipour said that the chamber will register the companies, and supervise the vote.

Akbar Bolandkerdar, CBI’s representative, pointed to the integration being welcomed by central bank and said, “Formation of the National Association of Leasing Companies has been ratified by the central bank.”  

Leasing companies had reached an agreement with the CBI to form a unified society on April 2014.

The Iranian Association of Leasing Companies was established in June 2002 at the chamber’s office for societies’ affairs, and currently has 19 companies as members.

The Center for Leasing Companies, with 28 members, was registered on August 2006 in the State Organization of Registrar’s Office for Industrial Property.

 Missing Lessors

Last month the government unveiled a stimulus package to help increase the purchasing power of the low and middle-income groups and help them buy cars and home appliances without the involvement of banks.

However, the incentive formula failed to address the leasing industry’s potential for fostering the business environment. Experts in support of this industry often argue that leasing services are a “proper instrument for providing funds without the involvement of banks.” However, they ignore the key point that the leasing firms charge prohibitive interest rates that most ordinary fixed-wage earners can ill afford.

Lessors are facing two major challenges which stop them from expanding their activities. First, deficiency in value added tax system forces lessors to pay taxes twice, making the leasing contract unattractive both for the people and the lessors.

Secondly, up until this week the CBI had refused to recognize the majority of leasing companies as authorized financial institutions, which made the people think twice before applying for credit from these firms.

While 600 to 1,000 leasing companies are estimated to be active in the market, hardly 35 have CBI approval.

A cursory glance at the leasing services in other countries shows that the sector is potentially capable of doing its share to augment economic growth.

However, the incredibly high interest rates, among other things, have discouraged businesses, industries and the people from approaching the Iranian leasing companies and instead look to other sources of credit, which again are not much affordable than the existing lessors.