Lessons of Experience No. 3: Leasing in Emerging Markets
This publication assesses the developmental impact of leasing and describes IFC's 20 years of experience in the sector. IFC has invested in leasing companies in more than half of the developing countries that have a leasing industry today.
76 pages | © 1996IFC | ISBN 0-8213-3675-4
- Read the executive summary:
One-eighth of the world's private investment is financed through leasing. The proportion is as high as one-third in some OECD economies. In 1994, over US$350 billion of new vehicles, machinery, and equipment were financed through leasing. The first modern independent leasing company was formed in the United States in the 1950s, and the industry extended to Europe and Japan in the 1960s. Since the mid-1970s, the industry has been spreading rapidly through developing countries.
Leasing enables a firm or individual to use assets — such as vehicles or equipment — owned by a leasing company in return for regular payments. The fact that the leasing company retains legal ownership of the asset enables it to focus on the lessee's ability to generate cash flow rather than on its credit history, assets, or capital base. This makes leasing particularly well-suited for financing investment by new or small companies, or companies operating in countries where collateral laws are weak.
The International Finance Corporation (IFC) has been closely involved in promoting leasing in developing countries through a combination of advising governments about leasing regulations, undertaking feasibility studies, identifying sponsors and technical partners, and investing in new leasing companies. Between 1977 and June 1995, IFC's Board approved 120 transactions in 63 leasing companies in 36 countries. In many cases, these were the first leasing companies in the countries concerned. The impact has been substantial: in virtually every country the industry has grown rapidly, and large numbers of small- and medium-sized companies have secured better access to financing. For example, in 1994, 16 leasing companies in which IFC had invested wrote over 10,000 new leases worth over US$2 billion.
Leasing in Emerging Markets is one of a set of publications on capital markets issues that IFC is releasing in its Lessons of Experience series. Other publications in this set include a review of IFC's experience with investment funds in emerging markets, and an overview of the Corporation's experience with helping develop the financial sector in emerging markets.
Since its formation in 1956, IFC has been investing in the private sector in developing countries, sharing full commercial risks without recourse to government support or guarantee. Strong growth in the 1990s has enabled IFC to play a leading role in areas that are newly opening for the private sector.
