The Role of Lease Financing in Bangladesh

Introduction Lease backing is comparatively a newfound concept in the fiscal sector and has got recognition as aninnovative cite of finance for accelerating the pace of industrialization as well as stinting growth ofBangladesh. Leasing companies hold up registered substantial growth in lease financing during the year 1985through 1994.Since 1995 to date, growth in lease market has significantly slowed overcome because of sluggisheconomic activities, withdrawal of incentives by the government, imposition of cash resource requirementwith Bangladesh Bank as per Finance Act 1998, expansion of number of leasing institutions, lack ofdiversification of suffice and of awareness in business community about leasing etc. Researchers have alsofound that leasing companies need to develop their professionals and should come in the market with newmarketing strategy. BackgroundBangladesh is a least developed country in the world with per capita GDP Tk. 11. 284 (USD 230). She suffersfrom povert y, imperfection in both, factor and product market, continuous in equilibrium in the economy,defective administrative structure in both financial and non-financial sector, inappropriate tax structure,heavy dependency on assistance from World Bank including other International alter Agencies andDonor Countries, lack of capital stock, massive unemployment, political turmoil and unhealthy environmentfor investment.With the emersion of Bangladesh as an independent country in 1971, the thenGovernment nationalized all commercial Banks with the foretaste of accelerating industrial growth throughfinancial, fiscal and other supports. Since the inception of independent Bangladesh, commercial Banks,Development Financial Institutions and Investment Corporation of Bangladesh have been the major sourcesof industrial finance in the country. These Banks were predominately serving the public sector by extendingsupport in the mannikin of long term add, working capital finance, bridge finance et c. and had limited experiencein trade, commerce and industry.Due to dearth of experience in investment decision, realise financing,recovery of loan and recycle of loan, both entrepreneurs and Banking Financial Institutions coupled withdifficulties at all(prenominal) stage of development and accomplishment which ultimately led to the emergence of many a(prenominal) sick industries. The Development Financial Institutions (DFI s) that depend largely on outdoor(a) assistance suffer fromfinancial constrains because of ineffective project appraisal. Imprudent investment decisions, silly recoveryand inability to recycle of loan which resulted in withdrawal of depot by international donors.As a result ofpoor performance and withdrawal of extraneous support, the liquidity position of DFI s have declined and abilityof sanctioning fresh loan and of refinancing sick industries reduced. Nationalized commercial Banks areusually reluctant to finance capital expenditure collectible to higher financial risk and poor recovery and designedto promote the unproductive sectors. Besides, their loan operation was substantially diminished due toadditional cash harbor requirement imposed by Bangladesh Bank in order to hold in inflation. Consequently,genuine industrial clients are affected by their limited access to the long-term local currency loan.Thiscontention is evident from the fact that the private sector body in massive default to the DFI s and NCB s,90% of borrowers to DFI s are in defaulting and recovery rates are as low as 10% of the total recoverableamount. On the other hand, Dhaka Stock Exchange (DSE), the save stock market of Bangladesh is not wellorganized and therefore failed to mobilize sufficient fund to meet the demand of the capital market of thecountry. During 1972-84, public sector financial institutions were found totally failure in developing industrialsector and promoting first contemporaries of industrial entrepreneurs