“Leasing is very sensitive to taxation and I understand the taxation rules were changed, and as a result, impacted growth of leasing in India,” said Simon C Bell, Global Head-SME Finance, World Bank Group.
Addressing a symposium on ‘Movable Asset Financing’, organised by the Finance Industry Development Council, Bell said leasing was still an important industry and needed to be encouraged.
Lopsided funding
Bell said India should look to increase its share of movable assets financing from 14 per cent to 25 per cent, which could potentially lead to another $180 billion credit flow into the MSME sector, which provides jobs and growth to the Indian economy.
In OECD countries, about 50 per cent of lending is collateralised against movables, he added.
“If we are able to get banks, NBFCs and financial institutions to lend lot more towards movable assets, then significant financing needs of the SME sector can be met,” he added.
World Bank Group research shows that only 14 per cent of the total asset base of MSMEs comprises immovable assets, such as land and buildings, and one per cent comprises vehicles, which MSMEs can utilise as collateral.
The balance 85 per cent comprises movable assets, such as plant and machinery, inventory, receivables, and other intangible assets, which financial institutions are often not willing to accept as standalone primary security (without any additional collateral security).
Looking at global best practices, it is estimated that at least 25 per cent of total movable assets (against six per cent at present) could be targeted for movables-based finance in the medium term (5-8 years).
This amounts to roughly $171.7 billion based on March 2013 figures. In the long term, nearly 48-50 per cent of movable assets could be targeted, similar to the levels seen in OECD countries.
Movables-based finance in the US has been predominant, with about 70 per cent of MSME financing secured by movable collaterals. The high proportion of movables-based finance in the US has been facilitated by an enabling environment, Bell added.
The International Finance Corporation, which is part of the World Bank Group, had recently signed two engagement letters with FIDC, a self regulatory organisation and representative body of RBI-registered NBFCs.
Source: The Business Line