Chapter: 1

Introductory Aspects

1.1 Background
A lease is an agreement allowing one party to use anothers property, plant, or equipment for a stated
period of time in exchange for consideration. Leases have become more prevalent as businesses and
consumers look for alternatives to finance the acquisition of fixed assets. A lease agreement involves at
least two parties) a lessor (such as a bank), who owns the property, and a lessee, who uses the property.
The lessor, essentially a creditor in the transaction, is repaid from a combination of lease or rental
payments, tax benefits, 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 took place around 2000 B.C., when Sumerian farmers leased tools from temple
priests. The basics of leasing have changed little since that time. Over the years, the strength of the
leasing industry has been its resiliency and its ability to make the most of the changing business
environment. Leasing is the most widely used method of personal property financing in the United
States today. For bank lessors, leasing is another competitive product that can satisfy the needs of bank
customers; leases may be safer than other bank products because the transactions are secured; and leases
are generally more profitable than commercial loans because of advantages inherent in their structure,
such as tax benefits.

OBJECTIVES OF THE REPORT

I 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
To prepare this report I have collected the relevant data from two sources--Primary data and secondary data.
The primary data were collected from personal observation and direct investigations.
The secondary sources were:
Brochures and websites of the NBFI institutions.
Annual Reports of the current market players.
Publications related to lease finance and NBFI sector.
Different publications of united leasing.

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
Theoretical explanation

Lease Financing:
Lease is a contract between the owner and the user of assets for a certain time period during which the
second party uses an asset in exchange of making periodic rental payments to the first party without
purchasing it. Under lease financing, the lessee regularly pays the fixed lease rent over a period of time
at the beginning or at the end of a month, 3 months, 6 months or a year. At the end of the lease contract
the asset reverts to the real owner.
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. The purchaser chooses the equipment and the vendor, and fills out a onepage credit application form. A follow-up is conducted within 24 hours, and a final decision is issued
shortly thereafter.
There are five main advantages:
1.
2.

A simple and quick financing application and approval process;

Protection of your working capital (monthly rentals are much lower than the total cost of the
equipment, and your line of credit remains intact);
3. Your borrowing capacity from banks is preserved and can be used for financing that only them
can provide;
4. Your monthly rentals are tax deductible;
5. Sales taxes do not apply when acquiring equipment.

However, in case of long-term lease contracts, the lessee is generally given the option to buy the leased
asset or renew the lease contract. The three major types of leases are the operating lease, financial/capital
lease and the direct financing lease. The operating lease is a short-term lease contract where the lessor
bears all operating and repairing costs of the asset and the lessee pays periodic rental payments to the
lessor, and where the lease is cancelable, and there is no bargain purchase option. Financial/capital lease
is a long-term lease contract where the lessee bears all operating, repairing and maintenance costs, and
makes periodic rental payments to the lessor. The lease is not cancelable and the lessee has the option for
bargain purchase or renewal of lease contract at the end of the original lease period. In a direct financing
6

lease, the lessor leases the asset by manufacturing or by purchasing from the manufacturer to the lessee
directly and the lessee makes regular rental payments to the lessor. The 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
major types, there are some other types of lease such as sale and lease and leveraged lease.

Lease Classification Criteria

From the standpoint of the lessor, all leases may be classified for accounting purposes as follows:
a) Capital or financial lease: To be a capital lease, it must satisfy one or more of the following four
criteria:(1)The lease transfers ownership of the property to the lessee, (2)The lease contains a bargain
purchase option, (3)The lease term is equal to 75% or more of the estimated economic life of the leased
property, (4)The present value of the minimum lease payment (excluding executory costs) equals or
exceeds 90% of the fair value of the leased property.(Stamford,Conn. FASB,1980). Office building,
multipurpose industrial building and even complete shopping centers are frequently financed with this
method. Most lease backs are on a net-net basis, which means that the lessee pay all maintenance
expense, property taxes, insurance and lease payment.
b) Operating lease: Operating leases result in the recognition of only rent expense. Under the operating
lease each rental receipt by the lessor is recorded as rental revenue. Leases that do not meet any of the
four criteria are classified and accounted as operating Lease. Short-term cancelable lease agreements are
called operating lease. Computers, copiers, telephone services, etc. are often obtained by operating
leases. An operating lease is usually characterized by the following features:
(1)The lease is cancelable by the lessee prior to its expiration; (2) The lessor provides service,
maintenance and insurance; and (3) The sum of all lease payments by the lessee does not necessary fully
provide for the recovery of the asset cost).
c) Sale-leaseback: The term sale-leaseback describes a transaction in which the owner of the property
(seller-lessee) sells the property to another which is simultaneously leases it back from the new owner.
The use of the property is generally continued without interruption. The advantages of a sale lease back
from the sellers viewpoint usually involve two primary considerations:
(1) Financing If the purchase of equipment has already been financed, a sale-lease back can allow the
seller to refinance at lower rates, assuming rates have dropped. In addition, a sale-leaseback can provide
another source of working capital, particularly when liquidity is tight.

(2) (2) Taxes- At the time a company purchases equipment, it may not realize that it was going to be a
minimum tax and that ownership might increase its minimum tax liability. By selling the property, the
seller-lessee may deduct the entire lease payment, which is not subject to minimum tax considerations.

Lease Financing in Bangladesh:

Bangladesh is a developing country, but 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 bright prospects.
Lease financing was first introduced in Bangladesh in the early 1980s. Industrial Development Leasing
Company of Bangladesh Ltd. (IDLC), the first leasing company of the country, was established in 1986
under the regulatory framework of BANGLADESH BANK. It was a joint venture of the Industrial
Promotion and Development Company of Bangladesh Ltd. (IPDC), International Finance Corporation,
and Korea Development Leasing Corporation. Another leasing firm, the UNITED LEASING
COMPANY Ltd. started its operations in 1989. The number of leasing companies grew quickly after
1994 and by the year 2000, rose to 16. The leasing business became competitive with the increase in the
number of companies and wider distribution of their market share. There are, however, 6 other
companies conducting leasing business in the country, although they do not use the word leasing in their
names. In terms of money value, the leasing business in Bangladesh increased from Tk 41.44 million in
1988 to Tk 3.16 billion in 2000.
The leasing companies now operating in the country are Industrial Development Leasing Company of
Bangladesh, United Leasing Company, GSP Finance Company (Bangladesh), Uttara Finance and
Investments, Bay Leasing and Investment, Phoenix Leasing Company, Prime Finance and Investment,
International Leasing and Financial Services, Union Capital, Vanik Bangladesh, Peoples Leasing and
Financial Services, Bangladesh Industrial Finance Company, UAE-Bangladesh Investment Company,
Bangladesh Finance and Investment Company, and First Lease International.
Lease financing, as organized in Bangladesh, operates with the following objectives: (a) to assist the
development and promotion of productive enterprises by providing equipment lease financing and
related services; (b) to assist in balancing, modernization, replacement and expansion of existing
enterprises; (c) to extend financial support to small and medium scale enterprises; (d) to provide finance
for various agriculture equipment; and (e) to activate the capital market by operating as managers to the
issue, underwriters, or portfolio managers.
8

The functions of a lease business include lease financing, short-term financing, house building
financing, and merchant banking and corporate financing. In this last group of functions, the leasing
business in Bangladesh moved away from regular leasing activities and is now involved in stock-market
related activities such as issue management, underwriting, trust management, private placement,
portfolio management, and mutual fund operation. Broad capital market operations of the lease
financing institutions include bridge financing, corporate counseling, mergers and acquisition, capital
restructuring, financial engineering, and lease syndication. Prominent among the sectors of the economy
that now receive lease financing services are textiles, apparels and accessories, transport, construction
and engineering, paper and printing, pharmaceuticals, food and beverage, chemicals, agro-based
industries, telecommunications, and leather and leather products.
Commercial banks and development finance institutions (DFIs) have been the traditional lending
institutions in Bangladesh. In fact, the concept of lease financing is a relatively new one in the country.
Initially, leasing companies had to adopt the role of educators to make Bangladeshi entrepreneurs aware
of the benefits of leasing. However, as DFIs demonstrated poor recovery and fund recycling
performances, leasing got the opportunity to develop as an alternative source of funding. A few other
factors also contributed to development of the leasing business in the country. For example, the
commercial banks have been keener in providing trade financing and FOREIGN EXCHANGE dealings
rather than long-term loans because of the risks involved and their longer gestation period. The selection
of lease proposals is relatively free from extraneous pressure and is subject to a quality level appraisal.
Under lease agreements in the private sector, projects are sanctioned and implemented expeditiously,
resulting in benefits in time and cost savings. Private leasing companies also attract clients by providing
relatively better services. The 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 capitalized, which substantially reduce the initial investment.
Leasing companies, however, face some problems in conducting their business in the country. The
relatively slow growth of the demand side compared to the fast growth of the lease business is one such
problem. This leads many leasing companies to operate in partial capacity. The culture of loan default
that prevails in the country is also a deterrent. Leasing companies often find it difficult to raise funds
through short- or long-term borrowing from money and capital markets. They are hard pressed to deal
with the financial assets because of the present laws of the country, which are also not fully enforceable.
Leasing business is gaining increased importance in the economy of Bangladesh with its gradual
transformation from an agrarian to industrial one. The government periodically revises the trade and
industrial policy to create a liberal business environment both for domestic and foreign investment.
Increased investment in the energy sector as well as in power, transport, telecommunications, water and
sanitation, and safe disposal of wastes is expected to bring further opportunities for leasing industries.

The traditional sources of funds of our country in the financial market are the Commercial Banks,
DFIs and the stock exchange. But these sources are not enough to effectively meet the growing demand
of capital investments for industrialization of the country. And the backdrop of such scenario, leasing
companies came forward in the 80s to serving as an alternative source of financing. At present there are
11 leasing companies operating there business.

The name of the leasing companies:

1. Industrial Development Leasing Company of Bangladesh Ltd. IDLC
2. United Leasing Company
3. Uttara Finance & Investment company Ltd.
4. Phonenix Leasing company Ltd
5. Bay leasing & Investment Ltd.
6. International Leasing & Finance Company Ltd.
7. GSP Finance company (BD) Ltd.
8. Prime Finance & Investment Ltd.

10

Chapter: 3
Practical Aspects

11

About the company

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.

12

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.

13

CORPORATE GOVERNANCE

Board of Directors

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

14

Multi Products to Compete with Banks/ Financial Institutions

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.

15

Products & services of ulc

Products provided by united leasing company

1. Lease Product
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.

Benefits from the Lease product

Conserving Capital:
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.
Payment Flexibility:
Customers lease rentals can be structured as monthly, quarterly, semi-annually or annually to match
with the cash flow generation.
Customize Service:
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.
Ownership Transfer:
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.
Prepayment Facility:
Customers can prepay and adjust full or partial amount with receivable only after adjustment of first six
installments.

16

Reducing Balance Method:

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. Term Loan:
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 Term Loan; enables customers to take advantage of transactions to be completed in short period.
Revolving Loan; enables customer to meet continuous working capital requirement.

Collateral Free Term Loan:

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
Focus Group
Loan Amount (up to)
Repayment Term
Repayment Method
Age Limit
Applicants Income (min)
Product Name
Focus Group
Loan Amount (up to)
Repayment Term
Repayment Method
Age Limit
Applicants Income (min)

Nokshi
Woman Entrepreneurs
Tk 5.00 lacs
24 months
EMI
25-55 years
Taka 3.50 lakh
Agrani
SME
Tk 6.00 lacs
18-24 months
EMI
30-55 years
Taka 2.50 lakh

Mousumee
SME
Tk 5.00 lacs
18 months
Can be Structured
30-55 years
Taka 2.50 lakh
Briddhi
SME
Tk 12.00 lacs
18-24 months
EMI
30-55 years
Taka 2.50 lakh

17

3. Home Loan:
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.

Innovative products
Ship Building Finance:
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.
Power and Energy Empowering:
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.

18

There are two broadly definable areas in the energy sector:

Renewable Energy:
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.
Non-renewable Energy:
Gas and oil backed power plants and burgess are the sectors here where the companies can go for
investment as a private or a conglomerate.
Cement Industry Financing:
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.
House Financing
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.
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.

19

Home Conversion Loans

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.
Adjustable-Rate-Home-Loan
Loan under Adjustable Rate is linked to companys Retail Prime Lending Rate (RPLR). The rate on the
loan will be revised every three or ,according 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

20

 Maximum Term
Property Type

Repayment Option

No. Of Years

Residential

EMI Based

15

Non Residential

EMI Based

10

8. Tranche Based EMI

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. Flexible Loan Installment Plan
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. Accelerated Repayment Scheme
Accelerated Repayment Scheme offers you a great opportunity to repay the loan faster by increasing the
EMI. Whenever you get an increment, increase in your disposable income or have lump sum 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 lump sum funds rather than use it for loan prepayment. The return from the
investments also gives you the comfort of paying the increased EMI.

21

Regulatory reform
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
Bindings in Women Entrepreneur
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.
Absence of short term fixed deposit facility
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.

Loan Information

Loan Amount:
Maximum loan amount is Tk 50 lacs or 70% of the purchase price/cost, whichever is lower.
Repayment Term:

22

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.
Interest Rate:
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. Deposit Scheme
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:
23

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.

Double money return:

Due to attractive profit, customers investment becomes double at maturity.
Triple money return:
To secure childrens marriage, education, retirement/financial solvency this scheme triples investment at
maturity.
Benefits from the deposit scheme:
Safe investment:
United Leasing Company determined to deliver the profit and investment of the customers duly.
Attractive profit:
UCL is providing better profit under various savings scheme which will enhance the investment at
maturity.
Best consumer service:
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.
Loan facility:
Considering the necessity UCL is providing quick loan facility. Customers can avail loan up to 80%90% of investment amount.
6. Channel Financing Services
24

Channel financing services of ULC offers;

1) Factoring of Accounts Receivable
2) Work Order Financing
3) Distributor Financing
4) Assignment Discounting

Benefits of Channel financing Services:

Reduced Investment in Receivables:
Customers receive payments right before or after the delivery therefore their funds are no longer tied up
in receivables.
Expansion of Business:
As cash flows improve, customer can increase business by delivering higher volume to existing
customers and also expand business to new ones.
Sales Ledger Administration:
ULC will administer the sales ledger for the assigned customers.
Collection of Receivables:
ULC will monitor and collect the receivable on due time from the customers.
High Quality Reports:
ULC provides detail report on the performance of the customers that will help them direct in sales
efforts.
Scope for Additional Financing:
When the customer utilizes factoring facility properly, it will help ULC support them with other
services.

Deposit rate (effective from April 27, 2012)

Investment Type

Tenure

Profit Rate
25

Annual Profit

1 year

10.50%

Cumulative Term

2 to 5 years

10.50%

Earn Ahead

1 year

09.50%

Monthly Earner

1 Year

10.00%

Monthly Earner

2 years & above

10.00%

Quarterly Earner

1 year

10.20%

Quarterly Earner

2 years & above

10.20%

Double Money Program

7 years & 2 months

Triple Money Program

11 years & 3 months

Easy Millionaire Scheme

Deposit minimum Tk5, 000/-every

month

Conditions:
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).
.

Major problems
Sources of Funds Problem:
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
26

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.
High Cost of 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.
Low Profit Margin compared to banking sector:
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.
Investment in High Risk 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.
Lack in Product Diversification:
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
27

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.
Competition with 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.
Lack of Human Resource:
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.
Weak Legal 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.
Lack of a Secondary Market:
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.
Market Segmentation
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
28

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 assetliability 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.

Findings:
Financial results
The Company's before and after tax profit for the year 2012 were Tk 349 million and Tk 229 million compared to Tk
369 million and Tk 213 million respectively in the previous year.
The financial results are summarized below:

Operating Income

2012

2011

Taka

Taka

646,434,496

633,092,814

Operating expenses and provision

(297,419,253)

(263,752,763)

Profit before tax

Provision for taxation
Profit after tax
Retained earning brought forward
Available profit
Proposed transfer from General Reserve
Profit available for appropriation

349,015,243
(120,000,000)
229,015,243
2,832,123
231,847,366
40,000,000
271,847,366

369,340,051
156,000,000
213,340,051
2,592,072
215,932,123
86,000,000
301,932,123

Appropriation of accumulated profit:

Profit transferred to Statutory Reserve
Proposed cash dividend
Proposed bonus share
Un-appropriated profit carried forward

47,000,000

45,000,000

55,440,000
166,320,000

69,300,000
184,800,000

3,087,366
271,847,366

2,832,123
301,932,123

29

Dividend
The Board of Directors of the Company is pleased to recommend the distribution of three bonus shares for every
twenty shares held on record date March 12, 2013 amounting to Taka 166.32 million.
The Board also recommended cash dividend of Taka 0.50 per ordinary share amounting to Taka 55.44 million for
110.88 million ordinary shares held on record date March 12, 2013 for the year ended December 31, 2012.

Plan for utilisation of undistributed profit

The undistributed profit will be utilised to invest in financing assets and meet contingencies under section 100 of the
Schedule 1 of the Companies Act 1994.

Key operating and financial data

Operating Result

2012

2011
633
369
156
213

2010
590
212
578
200
378

2009
447
213
50
162

2008

Net Operating Income

Non Operating income
Profit before tax
Provision for tax
Profit after tax
Balance Sheet

MBDT
MBDT
MBDT
MBDT
MBDT

646
349
120
229

419
203
50
153

Total investment portfolio

Total assets
Financial liabilities
Total Liabilities
Shareholders' equity
Shares outstanding

MBDT
MBDT
MBDT
MBDT
MBDT
MNos

9,014
11,817
7,935
9,862
1,954
110.88

7,867
10,305
6,626
8,510
1,795
92.40

7,596
9,260
5,872
7,639
1,621
52.80

7,212
8,718
5,396
7,456
1,262
26.40

7,264
8,752
5,773
7,606
1,146
23.1

Times
%
Times
%
BDT
BDT
%

5.0
12.2
1.41
5.2
18
2.07
5
20:3

4.7
12.5
1.60
6.6
19
2.31
7.5
5:1

4.7
26.2
1.62
6.4
31
7.15
7.5
4:3

5.9
13.5
1.31
6.8
48
6.14
7.5
1:1

6.6
14.0
1.32
6.6
50
6.62
17.5
7:1

Financial ratios
Debt-equity ratio 1
Return on equity 2
Financial expenses coverage 3
Provision on Doubtful Assets to
total lease, loan and advances
Net asset value per share(NAV)
Earning per share (EPS)
Cash dividend
Stock dividend (bonus share)

30

Number of offices
Number of employees
Restatements 4 :
EPS (with non operating income)
EPS (without non operating income)
NAV

Nos.
Nos.
BDT
BDT
BDT

16
209
2.07
2.07
17.63

13
196
1.92
1.92
16.19

10
175
3.41
1.50
14.62

6
127
1.46
1.46
11.38

5
128
1.38
1.38
10.34

MBDT= Bangladeshi Taka in Million, BDT= Bangladeshi Taka, Mnos= Number in Million

Debt-equity ratio is the ratio between total debt and total equity.

Return on equity is the ratio between net profit and average equity.
Financial expenses coverage is the ratio between profit before interest & tax and interest expenses.

Restatements have been calculated based on shares outstanding at the end of the year 2012 and accordingly
restated for the previous years.
Share outstanding rearranged on the basis of Tk. 10 each share.

31

SWOT ANALYSES OF ULC

Strengths:
It was among the first in this industry and therefore enjoys first mover advantages.
At the moment they are the market leader as they are paying 32% Dividend and giving
2:1 Bonus Share to its shareholders this year, which is more than any other leasing
company in the country.
ULC has very high skilled, energetic, hard working and motivated human resources.
ULC believes and practices participative management.
ULC is engaged in product diversification, this year they have introduced a new
product syndicate financing and they are also planning to introduce house loan in near
future.
ULC has a very strong client base among the leasing companies; most of which are the
giant local and multinational organization such as, British American Tobacco
Bangladesh, HSBC, Square, Navana, Transcom etc.
ULC do not comply undue political influence.
With its diversified business, ULC is better equipped to compete in an ever changing
and challenging business environment.
Weaknesses:
One thing might be their lack of commitment to one big huge investment project since
they do not want to put all their eggs in one basket.
Another major weakness of ULC is it has a very low pay structure for entry-level
employees, which can become a de-motivating factor.
ULC discriminates private university students and public university ( Dhaka
University) students.
Opportunities:
With growth in our corporate sector, the demand for lease financing is also growing and
consequently, the lease financing industry.
Among visible non-functioning of development financial institutions, ailing capital
market and lack of interest of commercial banks in term financing, the leasing industry
remains the only vibrant financial intermediaries for the medium term financing with less
than 5 % non-performing loans.
By introducing new products such as house loan ULC can expand its market.
Threats:
Continuously increasing deflation rate result into less disbursement of fund.
There is a clear trend of increasing competition in the lease market with the entry of
more leasing companies and leasing by commercial banks.
Employees of ULC are not satisfied with their low salary structure and other benefits as
a result they can switch to other competing financial organization.

32

33

Chapter: 4
Conclusionary Aspects

34

RECOMMENDATIONS
To solve the above problems ULC authority already has taken some initiative which will
help them to mitigate there problems. My recommendation regarding above problems
are:

Provide a workshop to RM for CIR and CIB report.

Credit visit will only do when full application will come to the department.

Client visit will be done by Branch Manager.

CONCLUSION
The financial environment has become hyper competitive as the number of non banking
financial institutions are increasing. Competition among the leasing companies has grown
stronger with the growth of the NBFIs, besides entrance of commercial banks in the lease
financing market who have the advantage of lower costs of fund compared to the NBFIs.
The study found that the performance of United Leasing Company is satisfactory. But, in
order to maintain and attract more depositors and borrowers ULC should improve their
strategy and service quality; it should also concentrate in minimizing the credit approval
process time which in turn will give more quick service to its clients. The market still
offers huge opportunities for the leasing business. Those NBFIs that can set objectives in
order to gain access to the opportunities by using vision and back-up resources might be
able to survive and will becoming the best operator in the market. So, we hope that
United Leasing Company will be the one of them.

35

Chapter: 5

36

Ending matters.
REFERENCE
Reports and Manuals:
1. Annual Report- 2009.
2. Credit Appraisal Manual of ULC.
World Wide Web:
http://www.ulc.com.bd.milestones.htm
http://www.ulc.com.bd.share_struc.htm
http://www.ulc.com.bd
http://www.ulc.com.bd/product.htm
http://www.ulc.com.bd.lease_f.htm
http://www.ulc.com.bd.fixed_ret_inv.htm

37