New amendments and additions to the Law of Uzbekistan «On leasing»

New amendments and additions to the Law of Uzbekistan «On leasing»


The growing requirement for construction material making machinery and agricultural processing equipment, special construction equipment, transport (cargo and passenger) in small business and private entrepreneurship calls for stirring up the activity of local leasing companies.

However further leasing services market development warrants legal framework improvement. According to experts, it is important to introduce amendments and additions to the Law «On leasing».

In this connection, deputies and leasing experts are presently working on introduction of amendments and additions to a number of legislative acts. Muhamadjon Tursunov, a member of the Legislative Chamber Committee for Budget and Economic Reforms, shared the details of this process in practice.

— Due to attention Uzbekistan pays to leasing sector development and improvement of legislation regulating this sphere, our country evidences a significant growth of leasing transactions. On the results of 2010, country’s leasing portfolio made up 1.13 trillion soums while total sum of leasing deals comprised 430 billion soums.

Leasing portfolio’s share in GDP amounted to 1.82%, the share of leasing in fixed capital investments comprised 2.7%. I would like to note that today leasing is a convenient and effective tool for entrepreneurs and farmers to expand the production using modern equipment, and purchasing new machinery involves spending significant funds.

At the present moment the market sees the growth of the number of both lessees and lessors – over 50 companies and 30 banks provide leasing services.

In compliance with present legislation, leasing transactions involve participation of three parties – a seller of the leasing object (producer), a lessor (financial company) and a lessee (client). The leasing principle is rather simple – the leasing company acquires property at the certain seller and transfers to its client for the long term use for the certain compensation.

A number of meetings of deputies with lessors has been held to study the activity and a range of issues faced by representatives of leasing companies in practice. The results revealed that many of them face the same problem – when the leasing company purchases the equipment and transfers it to the client, the manufacturer withdraws from the leasing transaction soon after receiving the full sum for provided equipment.

Seizure of the equipment from the insolvent client makes it hard to transfer this property on lease to other persons. Following the law, leasing companies cannot be sellers because just like banks, they have returned property on balance.

Expected amendments to present legislation envisage the right for lessors to transfer returned property on lease, while banks and other credit institutions will have an opportunity to transfer on lease the property withdrawn as a result of distraintments.

Analyzing the situation, the group of deputies from UzLiDeP fraction also studied the experience of such states as USA, France and Germany where leasing is a complex of economic decisions when a lessee pays to a lessor (the owner) leasing payments for the use of lessor’s assets.

The participation of the third party – a seller — is not required and therefore there is no problem of transferring seized property on lease to third parties. In Russia, a lessor can initially be an owner of the property, i.e. be a seller at the same time.

To be noted, the present draft law stipulates the increase of the number of securities requested by the lessor as warranties of expired costs repayment in compliance with the leasing agreement and entitles the lessors to establish the size of advance fee for the object in lease.

Along with above mentioned securities, introduction of amendments and additions to this article will enable the lessor to call other securities as well as gives the lessor the legal basis to establish the size of advance fee for the leasing object. Securities diversification will reduce the number of overdue leasing payments thus instigating the lessor to more active operation.

Amendments and additions are expected to help to regulate a range of problems in the process of receiving, issuing and transfer of the object on lease.

First of all, leasing companies will be able to transfer the seized property on lease. Banks and other financial institutions will be able to transfer on lease the property accepted on their balance as a result of distrainments.

Experts believe that this amendment will recover the financial state of leasing companies, banks and other financial institutions and will help to involve the deadweight property into economic turnover.

Secondly, the parties of the leasing transaction will be able to use a wider range of securities. It is expected that this will increase the number of leasing transactions.

Thirdly, it will ensure further improvement and growth of leasing companies’ activity operating in different spheres of economy of the Republic of Uzbekistan.

Fourthly, the risk of non-refund of leasing transactions payments will also reduce and that will level up qualitative indexes of this type of financial services, create conditions for a wider access of subjects of entrepreneurship to receiving new objects on lease.

The developers of this draft law are open to any suggestions and proposals on this topic.

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