in Central Asia and Azerbaijan

in Central Asia and Azerbaijan

2007

L E A S I N G I N C E N T R A L A S I A N A N D A Z E R B A I J A N – 2 007

in Central Asia and Azerbaijan

2007 1

L E A S I N G I N C E N T R A L A S I A N A N D A Z E R B A I J A N – 2007

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L E A S I N G I N C E N T R A L A S I A N A N D A Z E R B A I J A N – 2 007

Introduction

The leasing1 market in Central Asia developed well in 2007, especially in Azerbaijan and Uzbekistan. Over the past six years, there have been several significant positive changes in the leasing market in Azerbaijan, the Kyrgyz Republic, Tajikistan, and Uzbekistan due to legislative and tax changes. Leasing, a medium-term financial instrument for the procurement of machinery, equipment, vehicles and/or properties, provides financing of fixed assets (equipment, vehicles, etc.) rather than direct capital. Leasing institutions – banks, leasing companies, insurance companies, equipment producers or suppliers, and non-bank financial institutions – purchase the equipment and then provide the equipment for a set period of time to businesses. During that period of time, the lessee makes periodic payments to the lessor at a set interest rate. At the end of the period, the equipment is transferred to the ownership of the business, depreciated and discarded or sold to a third party. The leasing reform effort over the past six years has helped Azerbaijan and Uzbekistan significantly strengthen their leasing markets, in particular due to the favorable tax climates that have created unique conditions for growth. The parliaments in Azerbaijan and Uzbekistan have significantly amended their leasing legislations to make them more attractive for both foreign and domestic investment. Additionally, amendments were made to the Codes of Economic Litigation Procedures to create non-judicial repossession procedures. Also, Azerbaijan and Uzbekistan have both amended their respective tax codes to remove barriers to leasing and create a level playing field for leasing and traditional bank credit. The other two Central Asia countries – the Kyrgyz Republic and Tajikistan – have both adopted new laws on financial leasing that are equally progressive. These recent changes have made the Central Asia region one of the most progressive for leasing in terms of leasing legislation and tax policy.

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This survey covers only financial leasing as defined by the countries’ legislations. For the purpose of this document hereinafter leasing means financial leasing. 3

L E A S I N G I N C E N T R A L A S I A N A N D A Z E R B A I J A N – 2007

The positive changes in legislation were due to constructive partnerships among the Parliaments, Governments, local commercial banks and leasing companies, with support from international financial institutions, including the International Finance Corporation, which has set up advisory services projects throughout Central Asia and Azerbaijan to assist in the creation and development of leasing. These partnerships formed the foundation for dynamic leasing growth in Azerbaijan and Central Asia. In Azerbaijan, the leasing market grew substantially: $162.1 million worth of new leases were financed in 2007 compared to $56.5 million in 2006 and $2.5 million in 2003. The leasing portfolio as of end-2007 totaled $158.1 million. There are currently 12 lessors that conduct leasing operations in the country. In Uzbekistan, the value of new leases in 2007 more than quadrupled from $37.6 million in 2003 to $169.7 in 2007. Compared with 2006, this is also a growth of 57.7 percent (from $107.6 million). There are now 42 active lessors (banks and leasing companies) making financial leases in Uzbekistan. All of the major banks in Uzbekistan have entered the market. The leasing market has also started to evolve in the Kyrgyz Republic and Tajikistan, where further development of this market now depends on the creation of a more favorable tax environment for leasing. In the Kyrgyz Republic, six lessors, among them banks and microleasing companies, are financing leases reaching the country’s poorest regions. In Tajikistan, in 2007 three new leasing companies were established and the number of lessors grew to six. The volume of new leases increased from $0.65 million in 2006 to $5.9 million in 2007.

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L E A S I N G I N C E N T R A L A S I A N A N D A Z E R B A I J A N – 2 007

Azerbaijan and Central Asia Leasing Market Volume ($ million) 180

162.1

2004

2005

2006

169.7

2007

150 120

107.6

90

81.5 56.5

60

43.4

35.3

30 8.7 0

Azerbaijan

0.6 0.2 1.3 0.6

1.0 1.9 0.7 5.9

Kyrgyz Republic

Tajikistan

Uzbekistan

# of Leases Financed 6000 2004

2005

2006

5630

2007

5107

5000 4078

4000 2810

3000 2000 1000 0

1225 407 107 199 Azerbaijan

113 51 29 44 Kyrgyz Republic

6

3

9

Tajikistan

30 Uzbekistan

1. Азербайджан

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L E A S I N G I N C E N T R A L A S I A N A N D A Z E R B A I J A N – 2007

Leasing in Azerbaijan and Central Asia: Synchronization of Leasing Policy throughout the Region With the support of IFC’s SECO-funded advisory services programs in Central Asia and Azerbaijan (launched in 2001 and 2003, respectively), the countries in the region have steadily improved their legal and tax frameworks. One result has been the unification of national legislations to support the development of regional investment in leasing. Amendments have been adopted to the Law on Leasing, Civil Code and Tax Code in Azerbaijan and Uzbekistan, and new laws on leasing and amendments to the Tax Code were adopted in the Kyrgyz Republic and Tajikistan. This work significantly unified the legislations and expanded access to lease finance for entrepreneurs and businesses across the region. Unified Elements of the Leasing Legislation The key improvements in leasing legislation are centered around standardization of definitions, regulations and obligations between parties, detailed below.

1. Definition of Leasing Unification of the definition of leasing throughout the region is based on the following principles:

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•

Mandatory participation of three parties to the lease: lessor, lessee, and supplier;

• •

Purchase of the leased asset specifically for transfer through a lease;

•

Obligatory use of the leased asset for commercial purposes (in Azerbaijan, leased assets can be used for consumer purposes as well).

The lease agreement must meet one of the several stated requirements (classifications), which are a combination of classifications for financial leases from IAS 17 and GAAP FAS 13; (classifications are not included in the Tajik Law on Leasing, but included in the Tax Code).

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Additionally, Uzbekistan has established a minimum lease term of one year.

2. Civil regulation

•

Leasing is defined as a type of “property hire” and thus, is governed by the overall principles of “property hire.” For example, the basis for early termination of a property hire agreement is also the basis for the early termination of a lease agreement;

•

Leasing is defined as an investment activity based upon the purchase of a leased asset by a lessor using either debt and/or equity funds and the further transfer of the leased asset to a lessee on the basis of a lease agreement.

3. Legislative advantages for leasing that correspond through the region:

•

Non-bank financial institutions are not required to obtain a license to conduct leases;

•

Non-bank financial institutions are not restricted by obligatory capital requirements for leasing;

• •

There is no obligatory registration of the lease agreement; Leasing as an activity is not supervised by government structures unless the lease is financed by an institution already under supervision, such as a bank.

4. Accounting of leases

•

The Kyrgyz Republic and Tajikistan have adopted International Financial Reporting Standards (IFRS);

•

In Azerbaijan and Uzbekistan, National Accounting Standards are applied; however, banks also prepare their annual financial reports according to IFRS.

Uzbekistan’s National Accounting Standard for leasing is very similar to International Accounting Standard 17, “Leases.” 7

L E A S I N G I N C E N T R A L A S I A N A N D A Z E R B A I J A N – 2007

5. Taxation and customs regulation of leasing operations The Tax Codes of the Central Asian countries and Azerbaijan use classifications criteria, which are a combination of classifications for financial leases from IAS 17 and GAAP FAS 13. The tax codes only impact leases in which the asset leased is a fixed asset. In each country, financial leasing is at least on the same taxation “playing field” as bank credit, and in some countries, leasing is a more effective instrument from a tax point of view. For example:

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•

In the Kyrgyz Republic and Tajikistan, VAT is not levied on the interest portion of the lease payment, and is offset for equipment purchase;

•

In Azerbaijan and Uzbekistan, lease payments (rentals) are exempt from VAT;

•

In Uzbekistan, equipment that is imported for leasing is exempt from VAT on import; leased asset is exempt from property tax; and lessors’ interest income is exempt from income tax.

L E A S I N G I N C E N T R A L A S I A N A N D A Z E R B A I J A N – 2 007

Leasing in Azerbaijan An Overview of the Market

After a decade of stagnation in the leasing sector of the country, significant positive changes have been made in the leasing legislation. The introduction of a more favorable tax regime, proper civil regulation and an increased level of public awareness have revived the market. New lessors were established to satisfy the increasing demand for lease financing.

Common trends The market has immediately reacted to the improvements in the leasing environment. As a result of reforms in leasing legislation, the number of lessors increased from 3 in 2003 to 12 at the end of 2007. $162.1 million worth of new leases were financed in 2007 compared to $56.5 million in 2006 and $2.5 million in 2003. The consolidated leasing portfolio grew from $2.1million in 2003 to $158 million in 2007. The portfolio of the leasing sector as of December 31, 2007, includes 1,659 deals. The number of new lease contracts concluded in 2007 tripled compared to the same number of 2006 and it is 34 times the same number in 2003.

Leasing Market Growth ($ million) 200 162.1

160 120 71

80 34

40 0

2.1

7.2

2003

2004

2005

2006

2007

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L E A S I N G I N C E N T R A L A S I A N A N D A Z E R B A I J A N – 2007

Table 1. New Leases and Leasing Portfolio

Number of lessors at year’s end New leases during a year: - number - value of assets leased, million Leasing portfolio at year’s end: - number of active leases - value, million Delinquent leases (at year’s end) - number - value, million

2002

2003

2004

2005

2006

2007

3

3

3

11

12

12

36 $2.5

107 $8.7

199 $35.3

407 $56.5

1225 $162.1

74 $2.1

181 $7.2

365 $34

787 $71

1659 $158.1

3 $0.2

17 $1.6

Source of funding for leasing Leasing companies generally finance their operations with their own equity/ funding or bank loans. Table 2. Capitalization of leasing companies (at end of the year)

Number of companies Equity (million) Leasing portfolio ($ million)

10

2003

2004

2005

2006

2007

3 $0.7 $2.1

7 $2.4 $7.2

11 $3.5 $34

12 $4.5 $71

12 $6.3 $158.1

L E A S I N G I N C E N T R A L A S I A N A N D A Z E R B A I J A N – 2 007

Table 3. Leased assets Types of leased assets

2007 Number

Value, US$, million

35 35 6 161 12 268 9 11 148 352 46 80

3.02 3.75 0.33 17.11 1.13 50.37 2.01 2.4 20.23 16.78 4.59 16.74

Light industry equipment Food processing equipment Printing Trade equipment Medical Construction, Construction materials production Office equipment Agricultural machinery Freight transportation Passenger vehicle Real estate Other

Distribution of leases throughout the country

Regional Distribution of Leased Assets (by number of leases)

The distribution of leases throughout the regions of Azerbaijan is unequal and depends on the level of business activity in the regions. In 2007, as in 2006, the majority of leases were made in Baku. Mostly, leasing companies provide services in the regions where they have branches or representative offices of parent banks. Apsheron Sheki-Zagatala Gyandja-Gazah

89% 3% 3%

Guba-Hachmaz Lenkoran Mugan-Sal’yan

2% 2% 1%

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Basic Lease Terms and Conditions The following average terms and conditions are offered by Azerbaijani lessors:

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Term: General guideline for leasing companies is for lease terms from 12 months to 96 months. However, the maximum term for many leases is fixed at 36 months.



Amount: The internal policies for many companies set forth the minimum lease amount to be not less than $10,000. The maximum net investments in leases have also been determined not to exceed $1,000,000.



Grace Period: Lessors usually do not extend a grace period (interestonly period) of longer than 6 months to any leases made.



Payment: Lease payments are structured based on the capacity of the business and useful economic life of the asset. The payment schedule (annuity or reducing balance) is proposed to allow for monthly, quarterly, or semi-annual payments.



Companies do not accept lease proposals requiring a large, lump-sum payment scheduled at the end of the lease term (i.e., balloon payment).



Down Payment: Lessors require an average down payment of 20 percent. However, a higher down payment may be required for individual leases, to exceed 50 percent of the leased asset value.



Interest: Interest rates vary from 15 percent to 26 percent and are established for each individual lease.



Origination Fee: The general practice is that lessors charge a 1 percent up-front fee of the total cost of the project.



Insurance: Insurance of lease assets and any additional security is mandatory for all leases made.

L E A S I N G I N C E N T R A L A S I A N A N D A Z E R B A I J A N – 2 007

Legal Framework for Leasing in Azerbaijan

Adopted September 1, 2000, the Civil Code of Azerbaijan is the foundation of civil law in the country. The Civil Code defines legal terms and regulates the property and contractual rights and obligations of participants involved in commercial transactions. The provisions of the Civil Code are applied to legal entities, property and property rights, rules governing enforcement of obligations, and validity and termination of contracts. The Civil Code also sets forth rules governing contracts and agreements such as sale and purchase, loan, commission, transportation, storage and supply, and leasing. Leasing operations are regulated by provisions of Chapter 38 (“Leasing”) of the Civil Code adopted in 2000. In 2003, 18 amendments concerning leasing operations were made to the Civil Code by Parliament. The amendments greatly improved upon the “Law on Leasing Services” from 1994, which was inherently flawed due to its ambiguity and contradictory nature. The Civil Code clearly defines the rights and responsibilities of the parties, repossession procedures and essential conditions of a lease agreement. The current provisions of the Azerbaijan Civil Code regulating leasing compares favorably with internationally adopted legislation. Tax Framework for Leasing in Azerbaijan In Azerbaijan, the issues of taxation are regulated by the Tax Code. The Tax Code was adopted in January 2001 and establishes the tax system of the country, general principles of taxation, the rights and responsibilities of taxpayers and state tax authorities, liabilities for tax law violations and the procedures for unlawful actions of tax agencies and officials.

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The Tax Code states that any one of the following conditions constitutes a financial lease agreement:

•

At the end of a lease agreement, the ownership title of the leased asset is transferred to the lessee OR the lessee has the right to purchase a leased asset at a reasonable market price negotiated beforehand, or

•

The term of the lease agreement is longer than 75 percent of the economic life of a leased asset, or

•

The depreciated value of a leased asset at the end of the agreement is not more than 20 percent of its original value, or

•

The total amount of lease payments is not less than 90 percent of the market value of a leased asset stated at the beginning of the period, or

•

A leased asset is manufactured for a lessee by special order and after expiry of a lease agreement can be used exclusively by a lessee.

On December 30, 2007, Decree #220 of the Cabinet of Ministers revised the overall tariffs and reduced the list of imported assets that are free from customs duties. This change in regulation reduces the advantages of leasing vis-à-vis a bank loan and naturally was not welcomed by leasing companies. To further improve the taxation regime, the Leasing Association and IFC’s Azerbaijan Leasing Development Project successfully lobbied 3 major amendments to the country’s Tax Code, which were adopted by Presidential Decree December 16, 2005 and enforced starting January 1, 2006. The amendments to the Tax Code were aimed at improving leasing taxation, and resulted in:

14

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Abolishment of the withholding tax of 10 percent on lease payments made under domestic leases;

•

Reduction of the tax burden on cross-border leases by replacing the 4 percent withholding tax on total lease payments with a 10 percent tax imposed exclusively on the interest portion of the payment;

L E A S I N G I N C E N T R A L A S I A N A N D A Z E R B A I J A N – 2 007

•

Clarification of the language of the Tax Code in the part related to leasing transactions. Thus the Tax Code now clearly states that lease payments should consist of a principal and interest portion;

•

In line with other industry-positive changes, the previously adopted tax privilege for leasing-accelerated depreciation was abolished.

Customs regulation Import and export of goods in Azerbaijan is regulated by the Customs Code adopted in 1997. However, customs tariffs are regulated by the Law on Customs Tariffs adopted in 1995. Customs tariffs range from 0.5 percent to 15 percent of the customs value of the property, and are levied for imported goods. The actual rate levied depends upon the type of property and country of origin. The present classification of customs tariffs is determined by the decree of the Cabinet of Ministers on “The Amount and Rates of Customs Duties and Fees for Export-Import Operations in the Azerbaijan Republic” dated April 12, 2001 (Decree #80). On January 31, 2005, Decree #12 of the Cabinet of Ministers revised the existing customs tariffs and introduced a list of customs-duties-free import of leased assets.

Factors hindering further growth of leasing in Azerbaijan Even though a number of factors impeding the development of the leasing sector have recently been removed, there are still a few factors hindering its growth. Due to a change in the list of VAT exempt equipment imported to the country potential lessees can not offset VAT already paid to the customs. The list of equipment exempt from VAT on import was shortened in 2007. Since leasing is exempt from VAT, lessees have no VAT to offset and thus have to pay more VAT from their business. This has tarnished the attractiveness of leasing in Azerbaijan.

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L E A S I N G I N C E N T R A L A S I A N A N D A Z E R B A I J A N – 2007

Also, in accordance with the Azerbaijani legislation, a lessor can not repeatedly lease assets returned by a lessee or assets expropriated as a result of a lessee’s default. Another problem of the leasing sector in Azerbaijan is shortage of long-term funding. The leasing companies are inadequately capitalized, while commercial banks prefer to fund short–term funding, which excludes leasing, and are anxious to be involved into long-term financing.

Prospects The dynamics of the leasing market and an analysis of the key economic indicators point to substantial potential of the industry. Given that a leasingfriendly legislative environment continues to develop, the volume of conservatively estimated lease financing may grow to $150-$200 million by the end of 2008.

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Lessors in Azerbaijan AG Leasing

ASB Leasing

16 Gulle Street, Icheri Sheher Baku, AZ 1004 Tel: +994 (12) 437 19 31 / 32 Fax: +994 (12) 437 19 33 Contact person: Azar Mammadov E-mail: [email protected] Web site: www.agleasing.com

1 Azerbaijan Avenue Baku, AZ 1005 Tel: +994 (12) 493 01 45 +994 (12) 493 14 16 Fax: +994 (12) 493 84 50 Contact person: Sanvan Maharramov E-mail: [email protected]

AtaLeasing

Azerdemiryolbank

111 R. Rza Street Baku AZ 1014 Tel: +994 (12) 596 75 25 / 88 Fax: +994 (12) 596 76 11 Contact person: Yusif Muslumov E-mail: [email protected] Web site: www.atalizinq.com

31 Karabakh Street Baku, AZ 1008 Tel: +994 (12) 444 72 86 Fax: +994 (12) 496 09 77 Contact person: Valentina Strelkova E-mail: [email protected] Web site: www.azerdemiryolbank.com

Bank of Baku

Debut Bank

42, Ataturk Avenue Baku, AZ 1001 Tel: +994 (12) 447 00 55 Fax: +994 (12) 498 82 78 Contact person: Teymur Ibrahimov e-mail: [email protected] Web site: www.bankofbaku.com

16 Babek Ave, Baku, AZ 1025 Tel: +994 (12) 496 45 51 Fax: +994 (12) 496 45 60 Contact person: Elchin Nuraliyev E-mail: [email protected] Web site: www.debutbank.az

Gunay Leasing

Joint Leasing

4/6 Rasul-Rza Street Baku, AZ 1001 Tel: +994 (12) 498 04 55 +994 (12) 493 74 95 Fax: +994 (12) 498 13 60 Contact person: Suada Huseynova E-mail: [email protected]

65 Fizuli Street Baku, AZ 1014 Tel: +994 (12) 447 52 26 Fax +994 (12) 447 52 27 Contact person: Elchin Ahmadov E-mail: [email protected]

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Mugan Leasing

Nikoil Leasing

4, 28 May Street Baku, AZ 1000 Tel: +994 (12) 498 34 11 +994 (12) 498 35 11 Fax: +994 (12) 498 31 77 Contact person: Vugar Veliev E-mail: [email protected]

1 Orujev Street Baku, AZ Tel: +994 (12) 496 86 08 +994 (12) 496 86 09 Fax: +994 (12) 496 86 10 Contact person: Maksim Anisimov E-mail: [email protected]

SLC AZERLIZING

Parex Leasing and Factoring

108 Nobel Avenue Baku AZ 1025 Tel: +994 (12) 447 28 17 Fax: +994 (12) 447 28 14 Contact person: Ahliyat Aliyev E-mail: [email protected]

44, J.Jabbarli Street Caspian Plaza, 5th floor Baku, AZ 1065 Tel: +994 (12) 598 09 31 +994 (12) 436 81 63/64 Fax: +994 (12) 436 81-62 Contact person: Lola Qulieva E-mail: [email protected]

Texnika Lizing

Uni Leasing

1107 Ataturk Avenue Baku, AZ 1069 Tel: +994 (12) 493 87 11 Fax: +994 (12) 440 29 61 Contact person: Zeynal Baxshaliyev E-mail: [email protected]

92 Nizami Street Baku, AZ 1010 Tel: +994 (12) 498 81 68 Fax: +994 (12) 498 91 29 Contact person: Anar Yadigarov E-mail: [email protected] Web site: www.unileasing.az

Uluxanli OJSC 16 Babek Avenue Baku, AZ 1025 Tel: +994 (12) 496 45 56 Fax: +994 (12) 463 09 11 Contact person: Rizvan Mammadov E-mail: [email protected]

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Leasing in the Kyrgyz Republic An Overview of the Market

On July 23, 2002, the president of the Kyrgyz Republic signed the Law on Financial Leasing, which laid the foundation for the development of the leasing market in the country, and the first lease was undertaken the following year. The Kyrgyz Republic has since taken several further steps, including adopting amendments to the Tax Code articles stipulating taxation of leases, to develop leasing as an effective financial instrument for small and mediumsized businesses. Today, two major Kyrgyz banks – Kyrgyz Investment and Credit Bank (KICB) and Tolubay Bank – along with Inexim Bank, the financial company “Bai Tushum,” the Financial Company to support Credit Unions, and leasing company Maalymat are financing leases.

Common trends In 2007, the above-mentioned institutions financed 44 leases of the total value of $0.6 million against 29 leases worth $1.27 million in 2006. A significant drop in leasing volume in 2007 was due to absence in 2007 of any big lease deals like the transaction made by KICB in 2006 for an amount of $1.1 million. That transaction could not reflect the common trends in leasing developments in the country. Without that transaction, leasing industry demonstrated a moderate growth in 2007 against 2006. There were 12 delinquent leases in 2007 amounting $7 thousand and they all happened in agricultural sector that suffered from low harvest that year. One of the key factors impeding the growth of leasing in 2007 was the taxation of leasing in the country, especially the VAT issue. In addition, local banks lack long-term financial resources to provide leasing.

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L E A S I N G I N C E N T R A L A S I A N A N D A Z E R B A I J A N – 2007

Table 1. Leasing Portfolio2

Number of lessors by year’s end New leases during the year: - number - value of assets leased, thousand Leasing portfolio by the end of the year: - number of active leases - value, thousand Delinquent leases (by the end of the year): - number - value, thousand

2003

2004

2005

2006

2007

5

5

6

6

6

165 $977

113 $554

51 $172

29 $1,270

44 $612

-

-

162 $549

178 $1,477

150 $1,485

-

-

5.0 $0.7

2.0 $0.1

12.0 $7.0

3

Lessors in the Kyrgyz Republic ($ thousand) 1200 2004

2005

2006

1100

2007

1000 800 603

600 400 200

300 154 101 136

130 9

0 Financial Company to Support Credit Unions

Inexim bank

KICB

Bai-Tushum



Leasing portfolio reflects data of organizations that provided information during the survey.



Number of lessors includes both active and non-active organizations that used to have experience in providing leasing.

2 3

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In the diagram above data from Tolybai bank and Leasing company Maalymat are absent since it was not provided.

Leased assets Agricultural equipment, mainly tractors, dominated among leased assets in 2007. Only one item of vehicles was leased in 2007. Due to double registration fees on the leased vehicle, it remains the least attractive asset to be leased. Table 2. Leased assets Types of leased assets

2005 Number

Agricultural machinery Office equipment Production equipment Food processing equipment Trade equipment Vehicles Woodwork equipment

7 32 4 2 4 1 1

2006 Value, ’000 $111.5 $29.1 $20.3 $4.5 $4.7 $1.1 $0.9

Number 8 3 1 4 12 1 -

Value, ’000 $152.9 $2.0 $1,099.8 $5.2 $8.8 $0.8 -

2007 Number 43 1 -

Value, ’000 $603.0 $9.0 -

Lease terms and cost of leased equipment Most leases financed in Kyrgyzstan in 2007 are for up to 3 years (excluding KICB, which has a lease deal for 6 years). This is because lessors prefer to lease an asset for a shorter period depending on its liquidity and depreciation, as well as due to the lack of long-term funding. The average lease size in 2007 was equivalent to $14, 000 (almost $6,000 in 2006 without the $1.1 mln lease by KICB).

Sources of funding for leasing In 2007 leasing transactions were financed through the lessors’ own equity and loans of founders. 21

L E A S I N G I N C E N T R A L A S I A N A N D A Z E R B A I J A N – 2007

Interest rates In 2007, lease deals were conducted in local currency only, and the annual interest rates were 12-15 percent pa. Legal Framework for Leasing in the Kyrgyz Republic

Leasing is governed in Kyrgyz Republic on the basis of the second part of the Civil Code, adopted January 5, 1998, and the Law on Financial Rent (Leasing), adopted July 23, 2002. The Civil Code defines leasing as a form of property hire (rent) and addresses overall concepts to govern leasing, such as the lease agreement, the leased asset, and the rights and obligations of the parties to the lease. Leasing in Kyrgyz Republic is not licensed, though institutions that are licensed, such as financial-credit institutions (banks and microfinance institutions), require additional noting in their bank licenses or certificates. The Kyrgyz Republic has introduced third-party commercial arbitration, which can be used for repossession of leased assets due to breach of contract. Otherwise, repossession is conducted, if constreeted, through court proceedings. Tax Framework for Leasing in the Kyrgyz Republic The Tax Code, in effect since June 1, 1996, is the major legislative act that governs taxation in the Kyrgyz Republic. Taxation for leasing is based on criteria and classifications determined by IAS 17 and impacts VAT and profit taxes. Additionally, all finance leases must be at least 12 months in duration.

The tax framework for leasing includes:

22

•

VAT is levied solely on the cost of the leased asset, and not on the interest payment. Lessors have the right to offset VAT based on the amount stated in the invoice at the transfer of the asset to the lessee;

•

Technical equipment (based upon a government approved list) imported into the Kyrgyz Republic for lease is exempt from import VAT;

L E A S I N G I N C E N T R A L A S I A N A N D A Z E R B A I J A N – 2 007

•

Transfer of main assets from a lessor to a lessee is exempt from VAT if the main assets were exempt from import VAT, and if a lessor purchased main assets from a seller that is not a registered as VAT payer.

The third bullet point describing the VAT treatment of leasing operations became effective since March 2008 when the Law on amendments and changes to the Tax Code were signed by the President. That has removed a major tax obstacle preventing development of the leasing sector in the Kyrgyz Republic.

Factors hindering growth of leasing in Kyrgyz Republic Even though Kyrgyz Republic adopted progressive legislation to support the growth of leasing, several barriers have hindered further development. Most importantly, the demand for leasing has been stalled in Kyrgyz Republic due to the VAT issue. Assets imported into the country for leasing are levied VAT, whereas fixed assets imported by commercial entities for their own manufacturing purposes are exempt from import VAT.

Prospects Solving the above-mentioned problem will provide significant stimulus for leasing to develop in Kyrgyz Republic. SME activity is growing rapidly and needs investments. The greastreet demand is for agricultural equipment, food processing and trade equipment. Lease of construction and medical equipment is neglected and, therefore, seems to be a lucrative niche to develop.

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Lessors in the Kyrgyz Republic Financial Fund Bai-Tushum

Finance Company to Support Credit Unions

216, Toktogul Street Bishkek, 720040 Tel: +996 (312) 21 16 42

219, Chuy Avenue Bishkek, 720015 Tel: +996 (312) 21 95 66 / 67 +996 (312) 21 97 26 Fax: +996 (312) 61 09 98 Contact person: Melis Umarhodjaev E-mail: [email protected]

Inexim Bank

Kyrgyz Investment and Credit Bank

57, Kalyka Akieva Street Bishkek, 720040 Tel: +996 (312) 65 06 10 Fax: +996 (312) 65 06 54 Contact person: Ulan Shamkeev E-mail: [email protected] Web site: www.ineximbank.com

115A, Ibraimov Street, Bishkek, 720010 Tel: +996 (312) 69 05 55 Fax: +996 (312) 69 05 60 Contact person: Erina Kadiralieva E-mail: [email protected]

Leasing Maalymat

Tolubay Bank

301, Frunze Street Talas, 720000 Tel: +996 (3422) 52 170 Contact person: Nurlan Atahanov E-mail: [email protected]

247, Toktogul Street Bishkek, 720010 Tel: +996 (3656) 24 02 46 Contact person: Andrey Dmitriev E-mail: [email protected], [email protected]

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L E A S I N G I N C E N T R A L A S I A N A N D A Z E R B A I J A N – 2 007

Leasing in Tajikistan An Overview of the Market

Currently, there is a large demand for equipment leasing by manufacturers in Tajikistan to acquire new equipment and replace existing obsolete production lines. Ageing 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 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 a subsidiary leasing company in 2005. In 2006 the second specialised leasing company was registered with foreign capital participation. In 2007, three new leasing companies were established by large local commercial banks. Existing and newly established companies started to expand leasing operations in the market, contributing to the rapid growth of the leasing market in the second half of 2007. The leasing market growth was supported by positive trends within the financial market of Tajikistan and the stable growth of banking assets. All these factors allowed financial institutions to move in to new sectors and employ leasing.

25

L E A S I N G I N C E N T R A L A S I A N A N D A Z E R B A I J A N – 2007

In 2007 there were 6 active lessors in the market: Tojiksodirotbank, Nahust Leasing, Leasing Finance, CommerzLeasing, InterLeasing, and MLF Imon. The above-mentioned lessors undertook 30 leasing deals totaling $5.9 million (compared with nine deals totaling $0.6 million in 2006). The consolidated leasing portfolio as of end of 2007 was $6.7 million (compared with $2.3 million at the end of 2006). Тable 1. Leased Assets Types of Assets

2005 Number

Equipment for light industry Food processing Trade Printing Medical Real estate Agricultural Construction Passengers cars Truck cars Mobile equipment Other

1 1 1 -

2006 Value, ’000 $1,500.0 $370.0 $60.0 -

Number 1 3 1 1 1 1 1

2007 Value, ’000 $100.0 $417.1 $2.6 $20.0 $29.0 $70.0 $10.0

Number 1 5 2 1 4 1 5 3 2 4 2

Value, ’000 $5.2 $548.1 $1,012.8 $60.0 $628.5 $14.7 $834.2 $85.7 $94.3 $2500 $96.2

Lessors implement leasing operations using the same interest rates as for commercial loans. Interest rates for US dollar-nominated leases made in 2007 were 22 percent p.a., compared with 24 percent p.a. for leases in local currency. This reflects a substantial decrease of interest rates on leasing deals from 2006 (36 percent p.a.). In the beginning of 2008, the declining trend in interest rates has continued. There are no exact statistics on cross-border leases in 2007.

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L E A S I N G I N C E N T R A L A S I A N A N D A Z E R B A I J A N – 2 007

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. 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 the other Central Asian countries, there are no tax incentives for leasing in Tajikistan. Also, there is significant demand for short-term funding in the country, and banks prefer to offer traditional short-term loans as a less risky and less expensive financing solution.

Basic Lease Terms and Conditions The following average terms and conditions are offered by Tajikistan lessors:

Term: General guideline for leasing companies is for lease terms from 12 months to 60 months. However, the maximum term for many leases is fixed at 36 months.



Amount: The internal policies for many lessors set forth the minimum lease amount to be not less than $30,000. The maximum net investments in leases is not determined.



Grace Period: Lessors usually do not extend a grace period (interestonly period) of longer than 6 months to any leases made.



Payment: Lease payments are structured based on the capacity of the business and prognosis cash-flaw (in some cases useful economic life of the asset is also considered). The payment schedule (annuity or reducing balance) is proposed to allow for monthly, quarterly, or semiannual payments.



Lessors do not accept lease proposals requiring a large, lump-sum payment scheduled at the end of the lease term (i.e., balloon payment).

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L E A S I N G I N C E N T R A L A S I A N A N D A Z E R B A I J A N – 2007



Down Payment: Lessors require an average down payment of 20 percent. However, a higher down payment may be required for individual leases, to exceed 40 percent of the leased asset value.



Interest: Interest rates vary from 20 percent to 27 percent and are established for each individual lease.



Origination Fee: The general practice is that lessors charge a fixed fee (about $100) for the project.



Insurance: Insurance of lease assets and any additional security is mandatory for all leases made, in spite of the fact that there is no mandatory obligation in local legislation.

Legal Framework for Leasing in Tajikistan

Leasing in Tajikistan is governed by the Civil Code and the Law on Leasing, signed by the President on April 21, 2003. The Civil Code has instituted several norms that are specific to leasing and supersede the general norms applied to rent relationships, such as repossession, risk relationships among the three parties, the lease agreement, and transfer of the leased asset. The Law on Leasing builds on these definitions and provides more detailed roles and responsibilities for all three parties. It is important to note that in contrast with the other Central Asian countries, this definition does not include obligatory classifications based on IFRS. For the purposes of civil regulations, leasing, therefore, is not restricted by a lease term, the useful life of the leased asset, or the obligatory transfer of ownership to the lessee at the end of the lease agreement. However, this definition contains other obligatory aspects, such as participation of three parties (lessor, lessee and supplier) to the lease, special acquisition by the lessor of the property for transfer through a lease, and the mandatory usage of the leased asset for commercial purposes. It is important to note that the legislation does not have a minimum lease period.

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The Republic of Tajikistan acceded to the International Institute for the Unification of Private Law (UNIDROIT) Convention on International Financial Leasing on April 19, 2004. In cross-border leases, the UNIDROIT Convention takes precedence over Tajikistan law and regulation. According to the UNIDROIT Convention, cross-border leases are operations in which a lessor and a lessee are located in differing countries. Tax Framework for Leasing in Tajikistan

The existing Tajikistan Tax Code (enacted January 1, 2005) provides leasing with a number of tax advantages:

•

VAT is levied solely on the cost of the leased asset, and not on the interest payment;

•

Production equipment imported through cross-border leases is exempt from VAT on import (in accordance with the list of equipment, approved by the Government);

•

Interest paid as a part of lease payments to local lessors is not taxed at the source of income (lessee). It is included in the gross income of the lessor and taxed at 25% income tax after all deductions, in accordance with the Tax Code;

•

Interest income tax on cross-border leases to foreign lessors is withheld at the source of income at 12% rate;

•

Lessees can apply up to two times accelerated depreciation on fixed assets set in operation after January 1, 2005.

Prospects Liberalization of the Tajik tax system can serve as a stimulus for the increase of long-term funding. It will allow companies to attract more funds to modernize the existing production capacity and create new capacity. Currently, the greastreet demand is for agricultural and agricultural processing equipment, followed by equipment for light manufacturing and food processing. For this purpose the first state Agroleasing company has been established whose main business is leasing of agricultural equipment. Microleasing of trade equipment also has a large potential in Tajikistan.

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L E A S I N G I N C E N T R A L A S I A N A N D A Z E R B A I J A N – 2007

Lessors in Tajikistan CommerzLeasing

First Microfinance Bank

22, Rudaki Avenue Dushanbe, 734025 Tel: +992 (37) 221 27 20 Fax: +992 (37) 221 47 38 Contact person: Sativaldiev Ravshan, E-mail: [email protected]

105, Rudaki Avenue Dushanbe, 734003 Tel: + 992 (37) 228 93 10 + 992 (37) 228 93 14 Fax: +992 (37) 251 02 41 Contact person: Hudoberdi Zuurbekov E-mail: [email protected]

InterLeasing

LeasingFinance

5/1, Bofanda Street Dushanbe, 734025 Tel: + 992 (37) 223 40 81 Fax: +992 (37) 221 59 26 Contact person: Ulduz Ishonkulova E-mail: [email protected]

77/2, Mayakovsky Street, 3rd floor Dushanbe, 734018 Tel: +992 (48) 701 06 06 +992 (48) 701 97 98 Fax: +992 (48) 701 97 98 Contact person: Sanjar Karimov E-mail: [email protected] Web site: www.agroinvestbank.tj

MZO Imon

Nahust Leasing

157, K. Khujandi Street Khujand, 735700 Tel: +992 (3422) 4 23 53 +992 (3422) 4 25 89 Fax: +992 (3422) 4 23 53 Contact person: Gulbahor Makhkamova E-mail: : [email protected] Web site: www.imon.tj

47a, Behzod Street Dushanbe, 734013 Tel: +992 (44) 600 40 59 Fax: +992 (37) 221 47 38 Contact person: Firdavs Berdiev E-mail: [email protected] Web site: www.sodirotbonk.tj, page «NahustLeasing»

OrienLeasing

Tojiksodirotbank

95/1, Rudaky Avenue Dushanbe, 734003 Tel: + 992 (37) 221 24 60 + 992 (37) 221 11 36 Contact person: Radjabbek Sulaimonbekov E-mail: [email protected]

47a, Behzod Street Dushanbe, 734013 Tel: +992 (44) 600 40 50 Fax: +992 (37) 221 47 38 Contact person: Zair Tairov E-mail: [email protected] Web site: www.sodirotbonk.tj

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L E A S I N G I N C E N T R A L A S I A N A N D A Z E R B A I J A N – 2 007

Leasing in Uzbekistan An Overview of the Market

Until 2002, almost all leasing companies in Uzbekistan were established under separate Government Resolutions, which granted individual tax preferences. Presidential Decree #3122 “On Measures for the Future Development of Leasing,” enacted August 28, 2002, created a strong basis for the sector’s growth. This Decree expanded all of the tax benefits available to credit to leasing, thus removing the tax barriers to its growth. The Decree was then followed by more than 40 legislative amendments to the Civil Code, Tax Code, Civil Litigations Code, and the Laws on Leasing and Customs Tariffs between 2002 and 2003. With this substantial overhaul, the legislative framework for leasing in Uzbekistan is now progressive and provides significant incentive for growth in the sector. Further stimuli to leasing were provided by an April 2004 Government Resolution, which gave lessees the ability to use accelerated depreciation for tax purposes to amortize the leased asset. This additional tax advantage for lessees will further assist small businesses to acquire new equipment and technology for leasing. The Resolution also simplified procedures for registering and accounting for leased vehicles, and reduced the fees levied to use notary writ to repossess leased assets. In April 2006, income from leasing transactions became exempt from income tax until 2009. Amendments enacted on December 27, 2007, provided further incentives to leasing – the Law “On Leasing” and the Civil Code define the lease payment as a sum of the reimbursement by a lessee to a lessor that includes the cost of the leased facility and the interest income of the lessor.

Common trends In 2007, the leasing sector enjoyed a spectacular 57.7 percent growth per annum, totaling $169.7 million in new leases versus $107.6 million in 2006 (a $62.1 million increase). Domestic leasing penetration (share of assets acquired through leasing in total capital investment) decreased from 4.22 percent in 2006 to 3.9 percent in 2007, although the share of leases in GDP in 2007 increased to 0.76 percent from 0.63 percent in 2006. 31

L E A S I N G I N C E N T R A L A S I A N A N D A Z E R B A I J A N – 2007

Table 1. Leasing based investments into fixed assets Years

Cost of assets leased, USD mln $37.9 $43.4 $81.5 $107.6 $169.7

2003 2004 2005 2006 2007

Share of leasing in investments into fixed assets, % 2.67 2.37 3.72 4.22 3.91

Share of leases in GDP, % 0.37 0.36 0.60 0.63 0.76

Uzsel’khozmashleasing is still the largest lessor in Uzbekistan, with 22 percent of the market share. Encouragingly, the state-owned company, which is financed from a special fund at the Ministry of Finance to stimulate replacement and improvement in agricultural equipment, has seen its market share decline from 38 percent in 2006, as a result of an increase in bank lease operations, emergence of new leasing companies, expansion of business by leasing companies established before amendments in the legislation and entrance to the market of new market players such as credit unions. The number of lessors has grown from 13 in 2002 to 48 by the end of 2007. Leased assets 200

Uzsel’khozmashleasing

other lessors

160

132.4

120 80

67.1 44.9

40 0

32

12.4

15.5

25.5

27.9

36.6

40.5

37.3

2003

2004

2005

2006

2007

L E A S I N G I N C E N T R A L A S I A N A N D A Z E R B A I J A N – 2 007

Table 2. Leasing Market Players Breakdown, $ million Leasing companies Banks Others Total

2002 39.2 1.7 0.5 41.4

2003 30.5 6.7 0.7 37.9

2004 33.1 10.2 0.1 43.4

2005 59.3 19.2 3.0 81.5

2006 57.3 46.4 3.9 107.6

2007 85.1 80.2 4.4 169.7

Leasing companies made up half of the leasing market in 2007, reaching 50.1 percent. The annual increase in the volume of leased assets in 2007 was 48.5 percent, reaching $85.1 million (from $57.2 million in 2006). Nevertheless, the share of the leasing companies in the leasing market has been steadily decreasing in the longer term. In 2003, for example, leasing companies made up 80.5 percent of the leasing market. Leasing companies’ share of delinquent leases in 2007 was 1.2 percent. The expansion of the banks into the leasing market has been the main reason behind the decreasing market share of leasing companies. In 2003, banks leased $6.7 million worth of assets. In 2007, this number reached $80.2 million, almost doubling the figure from 2006. The share of assets leased by banks grew from 17.7 percent in 2003 to 47.3 percent by the end of 2007. The share of delinquent leases of banks was 0.4 percent. Table 3. New Leases and Leasing Portfolio 2002 Number of lessors at year’s end 14 New leases during a year: - number 2,621 - value of assets leased, million $41.4 Leasing portfolio at year’s end: - number of active leases - value, million Delinquent leases (at year’s end): - number No data - value, million

4

2003 21

2004 23

2005 28

2006 33

2007 424

2,817 $37.9

2,810 $43.4

4,078 $81.5

5,630 $107.6

5,107 $169.7

7,022 $60.1

8,985 $87.8

13,068 $133.9

17,693 $201

21,012 $266.4

170 $1.3

36 $2.0

279 $2.0

No data

524 $2.5

This is the number of active lessors in 2007. 33

L E A S I N G I N C E N T R A L A S I A N A N D A Z E R B A I J A N – 2007

Agricultural equipment in 2007 remained to be the most often leased asset, although its share decreased. The value of leased agricultural equipment in 2007 was $61.1 million, or 36 percent of all leased assets, down from 57 percent in 2006. Table 4. Leased Assets Types of assets

2004 2005 2006 2007 Number Value, Number Value, Number Value, Number Value, of leases million of leases million of leases million of leases million Equipment for light 26 $0.5 4 $2.2 38 $5.6 91 $6.4 industry Food processing 46 $3.4 34 $4.0 27 $2.6 51 $3.8 equipment Printing 5 $0.9 9 $3.3 30 $3.6 22 $1.0 Construction 16 $1.2 62 $10.6 49 $5.9 117 $17.8 Other manufacturing 30 $0.9 53 $2.8 5 $0.2 6 $0.3 equipment Trade 22 $0.03 125 $0.2 10 $0.6 3 $0.05 Medical 10 $0.2 10 $0.9 27 $0.9 39 $1.8 Computers and office 52 $0.8 36 $1.3 28 $1.0 50 $0.5 equipment Agricultural 2,493 $30.5 3,422 $46.1 5,022 $61.3 3,815 $61.1 machinery Trucks 2 $0.2 10 $0.9 24 $1.7 57 $6.4 Passenger vehicles 80 $1.6 242 $5.5 274 $7.1 701 $29.4 Real estate 16 $2.7 38 $2.4 49 $8.9 67 $16.0 Other 12 $0.4 33 $1.3 47 $8.2 88 $25.1 Total 2,810 $43.4 4,078 $81.5 5,630 $107.6 5,107 $169.7

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L E A S I N G I N C E N T R A L A S I A N A N D A Z E R B A I J A N – 2 007

Leased assets Analysis of the leased assets shows that in 2007 leasing of passenger transport grossly increased from just 7 percent of all leases in 2006 to 17 percent. Production facilities remained constant from 2006 to 2007, at 17 percent. But within this segment, the share of equipment that produces construction materials rose from 6 percent to 10 percent in 2007. Leasing of printing equipment went down from 3 percent in 2006 to less than 1 percent in 2007. Total lease value ($ million) agricultural machinery passenger vehicles manufacturing equipment real estate trucks medical equipment computer & office equipment

36% 17% 17% 9% 4% 1% 0.3%

construction

10%

light industry

4%

food production

2%

printing

1%

0.2% other manufacturing equipment

Lease term and leased assets value In Uzbekistan, the average lease term is up to three years. The average lease size increased substantially in 2007 to $33,200 ($19,100 and $20,000 respectively in 2006 and 2005). Aloqa Bank financed leases that averaged $3 million in 2007. Lessors like Uzbekleasing International, AsakaTrans Leasing, as well as banks like Alp Jamol, UzKDB, Credit Standard and UzPromStroyBank had average transaction sizes of about $230,000.

Sources of finance Leasing companies finance their operations from shareholder loans and their own funds. Out of 17 leasing companies only two did not seek loans in 2007. Of the total value of leased assets by leasing companies, the share of loans is 21 percent, and the residual debt on the taken loans at the end of 2007 was 16 percent. 35

L E A S I N G I N C E N T R A L A S I A N A N D A Z E R B A I J A N – 2007

Banks and other lessors financed their activities from their own resources only.

Basic Lease Terms and Conditions The following average terms and conditions are offered by Uzbekistan lessors:

36



Term: Most often lease duration vary between 1 and 3 years. Some lessors are ready to lease for 5, 7 and 10 years.



Amount: Lease amounts greatly vary across the board. The minimum amount is about $5,000. Some banks do not set limits for maximum amounts.



Grace Period: Lessors usually do not extend a grace period (interestonly period) of longer than 6 months to any leases made.



Payment: Lease payments are structured based on the capacity of the business and prognosis cash-flaw (in some cases useful economic life of the asset is also considered). The payment schedule (annuity or reducing balance) is proposed to allow for monthly, quarterly, or semiannual payments.



Lessors do not accept lease proposals requiring a large, lump-sum payment scheduled at the end of the lease term (i.e., balloon payment).



Down Payment: Lessors require an average down payment of 30 percent. However, a higher down payment may be required for individual leases, to approach 50 percent of the leased asset value.



Interest: Interest rates vary from 10 percent to 30 percent, average fluctuating at 17% and are established for each individual lease.



Origination Fee: The general practice is that lessors charge a fixed fee (about $100) for the project.



Insurance: Insurance of lease assets and any additional security is mandatory for all leases made, in spite of the fact that there is no mandatory obligation in local legislation.

L E A S I N G I N C E N T R A L A S I A N A N D A Z E R B A I J A N – 2 007

Legal Framework for Leasing in Uzbekistan

Leasing is governed by the Civil Code, which was adopted in August 1996, and the Law on Leasing, adopted in April 1999. Both the Civil Code and the Law on Leasing were amended in December 2002 to create a more progressive legislative framework for leasing. Also in August 2003, the Uzbekistan Parliament adopted amendments to the Code for Economic Litigation Procedures to simplify and strengthen repossession procedures for leased assets. Uzbekistan has signed and ratified the UNIDROIT Convention, which governs international leasing and came into effect in Uzbekistan February 1, 2001. The UNIDROIT Convention serves as the governing basis for international leasing operations and takes precedence over Uzbekistan law and regulation only in those cases in which the lessor and the lessee are located in separate countries. Tax Framework for Leasing in Uzbekistan In Uzbekistan, leasing is on the same taxation “playing field” as bank credit; from a tax point of view, leasing is a more effective instrument.

Taxation for leasing is based on the same criteria and classifications as stipulated in the Law on Leasing. Finance leases are based on classifications determined by IAS 17. Additionally, all finance leases must be at least 12 months in duration. The tax advantages of leasing are as follows:

•

Lease payments (rentals) are exempt from VAT (in Uzbekistan, there is no offset of VAT being a part of fixed assets price at acquisition);

•

Manufacturing equipment imported into Uzbekistan for lease is exempt from VAT on import and customs duty (based on the list approved by the government);

• •

Lessor’s income is exempt from income tax until 2009; When computing the taxable income, the lessee is allowed to deduct: – the interest paid on a lease from his gross income; – the whole amount of accrued depreciation including accelerated depreciation on the leased assets; 37

L E A S I N G I N C E N T R A L A S I A N A N D A Z E R B A I J A N – 2007

•

Lessees are not levied property tax on leased assets for the full term of the lease.

Prospects On January 1, 2008 a new version of the Tax Code came into effect. The Tax Code is the main legal act that regulates taxation in Uzbekistan. At the same time certain aspects of tax calculation and payment are governed by Presidential decrees and resolutions, and bylaws issued by the Government, ministries or agencies within their authority. For taxation purposes the new Tax Code introduces the term “finance lease,” which differs from the term “leasing” in the Law “On Leasing,” in that the Tax Code’s term does not necessitate a special purchase of a lease object/facility upon a special purchase order of a lessee. All the criteria peculiar to the finance lease are identical to the criteria specified by the Law “On Leasing” for the leasing transactions. Hence, the term “finance lease” has a wider notion than “leasing,” which includes leasing transactions. General tax rules apply to the parties involved into leasing transactions taking into account preferences on payment of VAT, income tax and property tax described below. This research has revealed the following tendencies:

38

•

A high demand for leasing services has led to the emergence of new players: leasing companies as well as organizations whose major business is not leasing – such as credit unions or business associations. This fosters a stronger competitive environment, expansion of the client base, and increase in quantity and quality of available leasing services;

•

Further diversification of the types of assets being leased to various industries and sectors would positively affect the general economic growth. It is already obvious that the share of agricultural equipment is decreasing, while the volume of passenger and cargo road transport, as well as food processing and light industry equipment is increasing.

L E A S I N G I N C E N T R A L A S I A N A N D A Z E R B A I J A N – 2 007

Lessors in Uzbekistan Leasing Association in Uzbekistan

Alliance Leasing

1, 4-floor, Turab Tula Str, Tashkent, Uzbekistan International Banking and Financing Center Tel.: (+998 71) 239 16 54, 214 64 46 Fax: (+998 71) 120 67 29 General Director: Zafar Mustafayev website: www.leasing.uz

1, Niyozbek yuli Street, Tashkent, Uzbekistan Tel.: (+998 71) 235 47 04, 235 78 56 Fax: (+998 71) 235 59 08 Contact person: Nataliya Utkunova e-mail: [email protected]

Asaka-Trans-Leasing

Asia-European Trust Company

9, 1-passage, Mukimiy Street, Tashkent Tel.: (+998 71) 120 39 07 Fax: (+998 71) 120 39 59 Contact person: Dilnoza Kadirova

4, Musa Djalil Passage, Tashkent Tel.: (+998 71) 268 74 39, 268 94 28 Fax: (+998 71) 268 73 46 Contact person: Akmal Nasirov e-mail: [email protected]

Association of Karakalpak Business Women

Baraka

21, Musaev Street, Nukus, the Republic of Karakalpakstan Tel.: (+8 361) 223 97 33, 223 88 59 Fax: (+8 361) 223 97 33 Contact person: Azat Allayarov e-mail: [email protected]

49A, 2-floor, Uzbekistan avenue, Tashkent Tel.: (+998 71) 140 07 46 Fax: (+998 71) 140 07 46 Contact person: Zahro Ruzieva e-mail: [email protected]

Business Leasing

Express Leasing

7, Akbar Askarov Street, Tashkent Tel.: (+998 71) 120 30 40, 120 44 93 Fax: (+998 71) 120 44 94 Contact person: Timur Batirov e-mail: [email protected]

App.39, h.48, 1-floor, Usmon Nosir Street, Tashkent Tel.: (+998 71) 280 55 07, 253 77 63 Fax: (+998 71) 280 55 06 Contact person: Muzaffarbek Sabirov e-mail: [email protected]

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L E A S I N G I N C E N T R A L A S I A N A N D A Z E R B A I J A N – 2007

Feron leasing

Karakalpakstan Business Incubator

1, Niyozbek yuli Street, Tashkent, Uzbekistan Tel.: (+998 71) 150 40 30, 150 40 29 Fax: (+998 71) 150 40 30 Contact person: Vildan Gafurov e-mail: [email protected]

56, Alakoz Street, Nukus, the Republic of Uzbekistan Tel.: (+8 361) 224 03 08, 222 19 02 Fax: (+8 361) 222 03 08 Contact person: Aleksandr Li e-mail: [email protected]

Kurilish-Leasing

Orient Leasing

29A, Oltin Vodiy Street, Tashkent Tel.: (+998 71) 250 73 72, 250 73 14 Fax: (+998 71) 250 33 03 Contact person: Aziz Abdujalilov e-mail: [email protected] website: qurilish-lizing.com

86A, Nukus Street, Tashkent Tel.: (+998 71) 252 70 19 Fax: (+998 71) 252 70 19 Contact person: Rustam Abdurahmanov e-mail: [email protected]

Pahta Leasing

Poytaht-Leasing

52, Kichik halka yuli Street, Tashkent Tel.: (+998 71) 279 34 59 Fax: (+998 71) 279 37 21 Contact person: Olimjon Solihboyev e-mail: uzpaxta [email protected]

10, Chehov Street, Tashkent Tel.: (+998 71) 120 46 62, 120 77 52, 120 77 57 Fax: (+998 71) 120 77 00 Contact person: Dilshod Kirgizbaev e-mail: [email protected]

Premium Leasing

Sanar Lizing

25, Olmachi Street, Tashkent Tel.: (+998 71) 267 07 80 Fax: (+998 71) 267 07 44 Contact person: Akbarhon Ahrolhonov

2, Musahanova Street, Tashkent Tel.: (+998 71) 150 48 02 Contact person: Jahongir Tadjiev e-mail: [email protected]

Uzavtosanoat Leasing

Uzbek Leasing International

30, Abdullayeva Street, Tashkent Tel.: (+998 71) 267 91 22, 267 91 23, 267 40 18 Fax: (+998 71) 267 41 24 Contact person: Umidjon Igamberdiev e-mail: [email protected]

1, 4-floor, Turab Tula str., Tashkent International Banking and Financing Center Tel.: (+998 71) 239 16 54, 214 64 46 Fax: (+998 71) 120 67 29 e-mail: [email protected] website: www.uzbek-leasing.com

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L E A S I N G I N C E N T R A L A S I A N A N D A Z E R B A I J A N – 2 007

UzCaseagroleasing

UzCaseservice

2, Ahangaran Highway, Tashkent Tel.: (+998 71) 120 70 02 Fax: (+998 71) 120 74 84

16, Furkat Street, Tashkent Tel: (+998 71) 120 89 58, 120 60 97 Fax: (+998 71) 120 89 77 Contact person: Sharif Allayarov e-mail: [email protected]

Uzselhozmashleasing

Uztransleasing

4A, Abaya Street, Tashkent Tel.: (+998 71) 244 62 73, 244 61 98 Fax: (+998 71) 244 49 89 Contact person: Pahriddin Khodjiev e-mail: [email protected]

35, A.Kodiriy Street, Tashkent Tel: (+998 71) 244 08 20 Fax: (+998 71) 244 81 39 Contact person: Fayzulla Abdullaev e-mail: [email protected]

Verdad-RSR

Zamin Invest

112, Khurshid Street, Tashkent Tel.: (+998 71) 214 60 02/03, 238 57 45 Fax: (+998 71) 214 60 02 Contact person: Zoya Kolesnikova e-mail: [email protected]

2, 2-floor, A.Kodiriy Street, Tashkent Tel.: (+998 71) 120 63 63 Fax: (+ 998 71) 234 33 06 Contact person: Ulugbek Iskandarov e-mail: [email protected]

Alokabank

Alp Jamol Bank

30, Oybek Street, Tashkent Tel.: (+998 71) 252 78 85, 252 78 74 Fax: (+998 71) 252 78 03 Contact person: Farruh Khodjaev e-mail: [email protected]

21, Ataturk Street, Tashkent Tel.: (+998 71) 232 16 00 Fax: (+998 71) 232 25 65 Contact person: Bakhtiyor Zulfikarov e-mail: [email protected]

Asaka Bank

Capital Bank

67, Nukus Street, Tashkent Tel.: (+998 71) 120 39 94, 120 39 83, 120 81 11 Fax: (+998 71) 120 86 91 Contact person: Shuhrat Mahmudov

32, Matbuotchilar Street, Tashkent Tel.: (+998 71) 140 35 84, 140 35 85 Fax: (+998 71) 140 35 90 Contact person: Nodirbek Khalbekov e-mail: [email protected]

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Credit-Standart Bank

Ipak Yuli Bank

25, Kunaev Street, Tashkent Tel.: (+998 71) 140 12 00, 140 12 07 Fax: (+998 71) 140 12 17 Contact person: Yuliya Chernoivanova

12A, Farkhadskaya Street, Tashkent Tel.: (+998 71) 120 38 88 Fax: (+998 71) 120 38 78 Contact person: Flora Ibragimova e-mail: [email protected]

Ipotekabank

Gallabank

17, Mustakillik Street, Tashkent Tel.: (+998 71) 233 11 22, 150 98 27/28 Fax: (+998 71) 233 03 53 Contact person: Muzaffar Yuldashev

36, Shahrisabzskaya Street, Tashkent Tel.: (+998 71) 233 38 99, 236 14 22 Fax: (+998 71) 236 11 05 Contact person: Kamol Turdiev e-mail: [email protected]

Halk Bank

Hamkor Bank

46, Katartal Street, Tashkent Tel.: (+998 71) 273 86 80, 273 66 08 Fax: (+998 71) 273 60 21 Contact person: Suhrob Khoshimov

85, Bobur Avenue, Andijan Tel.: (+8 374) 224 77 18, 224 70 39 Fax: (+8 374) 235 50 63, 222 22 48 Contact person: Bakhtiyor Yusupov website: www.hamkorbank.uz

Microcreditbank

Pahtabank

14, Lutfi Street, Tashkent Tel.: (+998 71) 273 05 78, 273 05 76 Fax: (+998 71) 273 28 11

43, Mukimiy Street, Tashkent Tel.: (+998 71) 120 88 33, 150 53 87 Contact person: Ikromjon Urazkulov e-mail: [email protected]

Trust Bank

Turkiston Bank

7, Navoi Street, Tashkent Tel.: (+998 71) 244 76 47 Fax: (+998 71) 244 76 61 Contact person: Zamira Abiltarova e-mail: [email protected]

6, Amir Teymur Street, Tashkent Tel.: (+998 71) 233 58 43, 233 89 37 Fax: (+998 71) 232 09 34 Contact person: Svetlana Chesnokova e-mail: [email protected]

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Turon Bank

U-Т Bank

4A, Abay Street, Tashkent Tel.: (+998 71) 244 30 44, 244 32 52 Fax: (+998 71) 244 32 52 Contact person: Sultan Primov website: www.turonbank.uz

15B, Halklar Dustligi Avenue, Tashkent Tel.: (+998 71) 273 83 24, 273 83 25 Fax: (+998 71) 120 63 62, 273 90 51 Contact person: Adolat Rahimjanova e-mail: [email protected] website: www.utbank.uz

Universal Bank

UzKDB Bank

18, Istiklol Street, Kokand Tel.: (+998 71) 232 20 04 Contact person: Zohidjon Ismoilov e-mail: [email protected] website: www.universalbank.uz

1, Mustakillik Street, Tashkent Tel.: (+998 71) 120 80 00, 232 10 00 Fax: (+998 71) 232 08 00 Contact person: Olmos Holboboev e-mail: [email protected] website: www.kdb.uz

Uzpromstroybank 3, Shahrisabzskaya Street, Tashkent Tel.: (+998 71) 120 35 95, 120 45 01 Fax: (+998 71) 233 34 26 Contact person: Maksud Ostonov e-mail: [email protected]

Imkon

Osiyo trast

63, Zakirov Street, Tashkent Tel.: (+998 71) 233 84 00 Fax: (+998 71) 235 84 92 Contact person: Obidjon Azimboyev e-mail: [email protected]

7/37, U. Nosir Street, Tashkent Tel.: (+998 71) 281 57 00 Fax: (+998 71) 281 58 00 Contact person: Jamshid Sultanov e-mail: [email protected]

Poytaht invest

Sanar Kredit

3, Yunusov Street, Tashkent Tel.: (+998 71) 227 83 08, 229 19 15 Fax: (+998 71) 228 82 19 Contact person: Sherzod Khidoyatov e-mail: [email protected]

55, Chilanzar Street, Tashkent Tel.: (+998 71) 277 97 05 Fax: (+998 71) 277 97 05 Contact person: Khikmatulla Fatkullayev e-mail: [email protected] 43

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IFC Azerbaijan - Central Asia Leasing Facility Advisory Services Project Leasing has been an important source of medium and long-term financing for companies, both in developed economies, and in countries with economies in transition. Leasing plays an important role in these countries as an effective means to increase the lessee’s asset base, particularly in private and/or new companies and in SMEs, all of which play a key role in introducing innovation and competition in the economy, and result in job creation. IFC, a member of the World Bank Group, has a long history financing leasing throughout the world. IFC has invested in more than 100 leasing companies in 50 different countries (35 in Europe, Middle East and Central Asia). In 25 countries, IFC has initiated the establishment of the first leasing company in that country. IFC’s total investment in leasing for the last 30 years has been over $1 billion. To assist in growth of the leasing market in the region, IFC has established an internal facility of $30 million to finance lessors in Azerbaijan and Central Asia (ACALF). In a major effort to strengthen the leasing industry in Azerbaijan, Kyrgyz Republic, Tajikistan and Uzbekistan; IFC in partnership with the Swiss State Secretariat for Economic Affairs (SECO) launched the ACALF Advisory Services activity. It is a three-year program that will improve private sector economic growth, increase access to finance and create employment through the development of leasing. ACALF Advisory Services Project currently provides assistance to 11 participating financial institutions (PFIs) engaged in financial leasing in the region. At the industry level, the IFC project is working to improve the business climate by removing burdensome legal and regulatory obstacles that hinder the viability of leasing. At the institutional level, the project strives to build capacity and strengthen systems within the individual financial institutions. The IFC ACALF Advisory Services Project is available to consult with foreign and domestic investors, lessors, lessees, and suppliers on all leasing issues in Central Asia and Azerbaijan. Please do not hesitate to contact us with any question. For more information, visit the web site at www.ifc.org/acalf.

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International Finance Corporation IFC, a member of the World Bank Group, fosters sustainable economic growth in developing countries by financing private sector investment, mobilizing private capital in local and international financial markets, and providing advisory and risk mitigation services to businesses and governments. IFC’s vision is that people should have the opportunity to escape poverty and improve their lives. In FY07, IFC committed $8.2 billion and mobilized an additional $3.9 billion through syndications and structured finance for 299 investments in 69 developing countries. IFC also provided advisory services in 97 countries. For more information, visit www.ifc.org.

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Partner The State Secretariat for Economic Affairs (SECO) is the Swiss Confederation’s competence center for all the core issues related to the economic policy. SECO’s aim is to create the basic regulatory and economic policy conditions to enable business to flourish for the benefit of all. SECO represents Switzerland in the large multilateral trade organizations as well as in international negotiations. SECO is also involved in efforts to reduce poverty and help developing countries with transition economies build sustainable democratic society and viable market economy. Each year Switzerland spends approximately 1.9 bln. Swiss francs on development cooperation and transition assistance to countries.

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Teymur Heybatov

Zarina Odinaeva

Country officer in Azerbaijan

Country Officer in Tajikistan

21, Istiglaliyyat Street, The Venetian Palace, 2nd floor, Baku city, Azerbaijan Tel: (994 12) 497 45 29 Fax: (994 12) 497 08 91 e-mail: [email protected]

7, Abdullo Komandir Street Dushanbe, Tajikistan Tel: (992 48) 701 14 43, 701 14 40, 701 14 54 Fax: (992 48) 701 14 48 e-mail: [email protected]

Cholpon Kokumova

Elbek Khodjaev

Country Officer in Kyrgyzstan

Country Officer in Uzbekistan

33/1 Razzakov Street , Apt. 1 Bishkek, Kyrgyz Republic Tel: (996 312) 64 63 50, Fax: (992 312) 61 11 48 e-mail: [email protected]

107B, A. Temur Street International Business Center, 14th floor Tashkent city, Uzbekistan Tel: (998 71) 238 59 25, 238 59 28 Fax: (998 71) 238 59 27 e-mail: [email protected]

www.ifc.org