Leasing in Sri Lanka

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• LEASING MARKET IN SRILANKA
• LEASING LAW IN SRILANKA
• REQUIREMENT OF HIRE-PURCHASE AGREEMENTS
• TAXATION OF LEASES IN SRILANKA
• GOODS AND SERVICES TAX PROVISIONS
• ACCOUNTING FOR LEASES

Leasing in Sri Lanka, like in many of its peer countries, owes its origin to the efforts of the International Finance Corporation ( IFC), Washington. The first leasing company in Sri Lanka, the Lanka Orient Leasing Company (now Lanka Orix Leasing Company) was set up in 1980 with IFC's equity participation, technical partnership from the Orient Leasing Co of Japan and domestic equity from the Bank of Ceylon. The company got going in January 1981. This is almost the time when leasing was taking roots in other developing Asian markets. In India, for example, the First Leasing Company was started in 1973, but the real leasing boom came only in 1983 when IFC decided to invest in a few leasing companies. From this viewpoint, Sri Lankan leasing is no younger than in India.

The success of the first comer soon attracted fresh entry. Mercantile Llyods Leasing Ltd. entered the scene in 1983, when development financial institutions set up by the State also undertook leasing and project financing.

In 1997, there were 19 leasing companies (members of the Equipment Leasing Association) in the country. Besides, some of the banks and financial institutions also added leasing divisions to their existing operations.

 

Finance companies and leasing companies:

While talking about the leasing market in Sri Lanka, one must not forget the typicality of its market place: almost a vertical separation between leasing companies and finance companies. The finance companies are identified as engaged in hire-purchase and consumer finance activities. Though there are no apparent restraints or a clear demarcation in the business activities as such: finance companies engage in leasing as well, and leasing companies are not restrained from carrying on hire-purchase activities, the distinction appears to be more regulatory in nature. Companies accepting deposits are classified as finance companies; companies not accepting deposits, even where they carry leasing or hire-purchase business, are not treated as finance companies.

There are a number of finance companies in the country, and the first finance company, under the name The Finance Company Limited, was opened way back in 1940.

The growth of leasing volumes in Sri Lanka (this is understandably only by the members of the Equipment Leasing Association - therefore, it excludes hire-purchase volumes) is evident from the following chart:

 

In the chart above, 1995-96 and 1996-97 are estimates, and the negative growth in the last year (about 5% dip) is reportedly because of difficult economic conditions. The GDP also fell sharply during this period. However, in calendar 1997, it is estimated that lease volumes grew up again by a wonderful growth rate of over 32%.

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