Leasing as financial service is a contractual agreement where the owner (lessor)of equipment transfers the right to use the equipment to the user (lessee) for anagreed period of time in return for a rental. At the end of the lease period the assetreverts back to the lessor unless there is a provision for the renewal of the contractor there is a provision for the transfers of ownership to the lessee. If there is anysuch provision for transfer of ownership, the deal is treated as hire purchase.Therefore, a lease could be generally defined as
-“A contract where a party being the owner (lessor) of an asset (leased asset)provides the asset for use by the lessee at a consideration (rentals), eitherfixed or dependent on any variables, for a certain period (lease period),either fixed or flexible, with an understanding that at the end of such period,the asset, subject to the embedded options of the lease, will be either returnedto the lessor or disposed off as per the lessor's instructions”.
Leasing was prevalent during the ancient Sumerian and Greek civilizations whereleasing of land, agricultural implements, animals mines and ships took place. The practice of leasing came into being sometime in the later half of the 19
centurywhere the rail road manufacturers in the U.S.A resorted to leasing of rail cars andlocomotives.The equipment leasing industry came into being in 1973 when the first leasingcompany, appropriately named as First Leasing This industry however remainedrelegated to the background until the early eighties, because the need for theseindustry was not strongly felt in industry. The public sector financial institutions – IDBI, IFCI, ICICI and the State Financial Corporations (SCFs) provided bulk of the term loans and the commercial banks provided working capital financerequired by the manufacturing sector on relatively soft terms. Given the easyavailability of funds at reasonable cost, there was obvious no need to look for alternative means of financing.