Leasing: A Potential Solution for SME Expansion and Rural Financial Sector Deepening - A Study of Russia

This paper examines the effect of expansion of leasing markets on access to finance for small and medium enterprises (SMEs) and agribusinesses. It provides an overview of leasing industry in Russia and describes existing leasing operations, risk mitigation practices, progress of leasing companies and challenges faced by the leasing industry in Russia.The paper then describes the following legislative reforms that have led to the conducive environment for leasing:

• Legislation clearly defining lease contract, leased assets and responsibilities and rights of parties to a lease contract;
• Abolition of law for licensing of leasing companies;
• Favorable tax policy permitting accelerated depreciation for leased properties;
• Abolishment of turnover taxes on sales revenue.

The paper also highlights the remaining challenges affecting the leasing industry as:

• Lease back agreement not defined as separate type of leasing in legal terms;
• Lack of clarity on method for recording the asset on balance sheet;
• Existence of weak property rights laws.

Finally, it provides recommendations to donors to support leasing initiatives including:

• Encouraging appropriate legal and regulatory environment;
• Supporting clear tax policy;
• Introducing market oriented guarantees;
• Investing in leasing companies to demonstrate the viability of leasing as financing option;
• Providing investment and technical assistance;
• Implementing second phase of activities in rural areas.