First IBL Modaraba grants companies the facility to avail lease
finance for plant and machinery, motor vehicles,furniture &
fixture and office equipment at competitive rates. FIBLM holds
ownership of the assets until all liabilities have been cleared.
The client enjoys the economic benefit of the asset with its usage.
The lease finance offered by the Modaraba can be divided into two main products:
> Direct Lease
> Sale and leaseback
A Direct lease is a contractual financing arrangement in which FIBLM purchases the assets directly from the manufacturers & leases those assets to valuable customers. The product is particularly suited for customers in the expansion phase and looking for alternative financing. The customer is required to contact the supplier and look for an asset according to its requirements. The customer also negotiates the price. The role of FIBLM is limited to that of financier. As a result, FIBLM simply pays the supplier the amount agreed with the lessee.
Sale and Lease Back
A sale and leaseback transaction is one where a company has an existing asset leased from FIBLM. In this case, a payment is made to the customer instead of the supplier. The customer sells its existing asset to FIBLM at the market/cost price, and simultaneously leases it from FIBLM. Therefore, the customer effectively gets financing for assets already under its use. This transaction is not restricted to second-hand assets and can also be conducted for assets recently purchased by the customer.
General features of a lease
The standard leasing product offered by FIBLM is as follows:
Asset : Plant & machinery, motor vehicles and office equipment, furniture & fixture
Lease amount : Cost of the asset
Security Deposit : 10% (or 5% for motor vehicles)
Term : 3 to 5 years
Payments : Monthly or quarterly
Lease rental : In advance/arrears
Although, the above mentioned terms are generally offered, FIBLM has the flexibility to adapt its product according to its customer’s requirements. Therefore, these terms can be altered to give a tailor made product for the customer.
The following steps are followed by FIBLM when booking a lease:
Step 1 - Proposal Letter
Interested customers are provided with a proposal letter determining the terms and conditions of the lease. The proposal letter specifies the lease amount, security deposit, lease period, and rentals amount being offered to the customer for the particular asset. These terms vary with the market trends, customer’s requirements and credit worthiness.
Step 2 - Credit Analysis
On the acceptance of the customer, a comprehensive analysis of the customer is conducted and a proposal is prepared to obtain internal approvals. An approval is sought to provide the customer with a facility limit based on their leasing requirements for the year. This process is conducted for new customers and a review is conducted at each subsequent anniversary of disbursement.
Step 3 - Internal Approvals
All proposals are subject to internal approvals. Once the approval is obtained the customer is provided with a facility limit commensurate with the customer requirement and perceived risk.
Step 4 - Establishment of a Facility Limit
The Facility Limit is the total lease amount a customer can avail during the year. The facility limit has been designed to reduce the initial time taken to obtain approvals for existing customers by skipping steps 2, 3 and 4. This enables the customer to save on time and acquire leases easily. This limit is renewed or enhanced on an annual basis. However, if the customer has a requirement that exceeds the facility limit during the year then fresh approvals have to be sought.
Steps 5 - Security Documentation
The customer is required to sign a lease agreement, which specifies the terms and conditions with FIBLM to finalize the contract. Additionally, standard security documents are obtained from the customer to fulfil FIBLM’s due diligence requirement.
Step 6 - Disbursement
The final stage is the disbursement of the lease amount. The amount disbursed can be the entire lease amount or the security deposit, advance rental and documentation charges can be deducted (in case of sale & leaseback or reimbursement). The customer is provided with a cheque or payorder / demand draft according to the customers requirement drawn in favour of the supplier (direct lease) or the company itself (sale and leaseback).