Currently, there is a large demand for equipment leasing in Tajikistan, as manufacturers are in dire need of new equipment to replace existing production lines. Aging equipment prevents companies from operating at full capacity and meeting demand. However, local businesses – both large and small – are unable to replace this equipment due to limited working and investment capital to purchase new equipment, and limited access to finance.
Neither the manufacturing nor agricultural sectors can continue operating under existing conditions and are looking for new mechanisms and business processes. Leasing is one solution to this problem and could provide a necessary stimulus for growth.
Common trends
Although the demand for lease financing remains high, the local financial institutions still lack long-term and low-cost capital to match the terms of foreign lessors’ lease contracts. Banks prefer traditional short-term loans, viewing it as less risky and less expensive. Thus, liquidity concerns do not allow the banks to utilize their short-term resources to finance medium-term lease contracts. Banks have recently started implementing new funds and liquidity management tools.
Another important reason for the lack of growth in domestic leasing is the tax treatment of leases. Unlike in the other Central Asian countries, there are no tax incentives for leasing in Tajikistan.
Leasing operations in Tajikistan started in 2003 when the Law on Leasing was enacted. Commercial banks were the only lessors until 2005. After conducting several successful leasing operations, Tojiksodirotbank established the leasing company in 2005.
In 2006, a second leasing company was registered with foreign capital participation, but did not make leases in 2006.
In the second half of 2007 leasing market growth increased and became more effective. Three new leasing companies were registered and established by the local commercial banks in 2007.
Thirty deals with a total value of leased assets of $5.9 million were conducted by the above-mentioned lessors in 2007 as compared with nine leases totaling $0.7 million in 2006. The leasing portfolio as of end-2007 was $6.7 million.
Lessors implement leasing operations using the same interest rates as for commercial loans. Interest rates for dollar nominated leases made in 2007 were 22% pa, whereas those in national currency were 24% pa.
