A lease is an agreement for using an asset between a lessee and a lessor. This financing tools have been used as a popular instrument for financing. Although the history of leasing industry in Iran goes back to 30 years ago, but this industry is in growth period of its life cycle. In this article, we try to investigate the leasing industry context of operation in Iran.
Leasing market could be classified according to its companies and services and also its customers. Leasing industry is active in four major contexts such as retail items, small items, medium items and large items. Leasing industry in developed countries is active in medium and large items in household, business establishments and governmental organization however in developing countries the main areas for leasing are in retail and small items so the leasing companies which are active in Iran is related to the mentioned items. According to the statistics which has been published by leasing companies’ association last year, more than 45 percent of leasing operation dedicated to automobile and another 45 percent of leasing activities dedicated to heavy vehicles and just 10 percent belongs to non-automobile markets.
Main players of leasing market in Iran are companies that works as a subsidiary of banks and automakers.
Most important incentives of leasing industries in Iran:
- Improve sale performance (automakers’ subsidiaries)
- Help allocating funds (banks subsidiaries)
Primary wave of developing leasing companies has started by automakers companies in early years of 2000 and expanded to other sectors. In addition, many banks such as Persian Bank and Mine and Industry Bank have started to use leasing as a tool for improving economic profit.
The prices of leased products have been calculated according to weighted average cost of capital. This variable (WACC) would be affected by loan interest rate, Sukuk Interest rate, expected return on equity and the cost of other sources. According to the regulation of leasing companies which have enacted by money and credit council of Iran, lease rate is around 21 percent. However, because of high cost for financing, the effective rate for leasing a car is about 32 percent. The commission of leasing operation that hasn’t been calculated in the first step and the discount of the car makers provide the difference between these two rates which is about 11 percent.
To conclude, although leasing industry has been operated in the past 30 years ago but this industry is allocated to car industry, this means that leasing for the rest products such as real estates has no infrastructure in Iran.