United Leasing Company Limited

United Leasing Company_ Internship Report
INTERNSHIP REPORT
Subject:
INTERRELATION BETWEEN PRODUCTS, INTEREST RATES &
TERMS OF FINANCE
Internship Organization:
United Leasing Company Limited

22 , Kazi Nazrul Islam Avenue, Dhaka
Prepared for:
Internship Supervisor
Mr. Imran Rahman
Associate Professor
IBA, Univ. of Dhaka
Prepared by
Maruf Haider
ZR 33, BBA 10th
Institute of Business Administration
University of Dhaka.
May 17, 2019
United Leasing Company

June 25, 2006
Mr. G. M. Chowdhury
Chairman
Internship & Placement Program
Institute of Business Administration
University of Dhaka
Dear Sir:
I am glad to submit my Internship Report for the Internship Program (BBA 10 th, 2006
),
herewith.
I considered your remarks and instructions very carefully while preparing this report. I
tried my level best to follow your schedule, format and discipline.
I tried to comprehend all the areas related to this report. This has certainly enhanced my
knowledge base with a practical orientation.
Thank you for your consideration.
Sincerely Yours,
Maruf Haider
ZR -33 , BBA 10th
IBA
Univ. of Dahaka

TABLE OF CONTENTS
SECTION 1 –ORGANIZATION REPORT
1.1 BACKGROUND OF ULC
1.2 CORPORATE OBJECTIVE
1.3 CAPITAL, SPONSORS AND SHARE STRUCTURE
1.4 BOARD OF DIRECTORS
1.4.1 EXECUTIVE COMMITTEE
1.5 ORGANIZATIONAL STRUCTURE
1.5.1 MANAGEMENT
2.1 LEASE PORTFOLIO AND SECTOR WISE EXPOSURE
2.2 PERFORMANCE OF ULC AT A GLANCE
2.3 SWOT ANALYSES OF ULC
3.0 CREDIT OFFERS BY ULC
4.1 CREDIT APPROVAL PROCESS OF ULC
5.1 CONCLUSION
SECTION 2 - INTERNSHIP PROJECT
1.0 INTRODUCTION
2.0 EXECUTIVE SUMMERY

3.1 SCOPE & OBJECTIVES OF STUDY:
3.1 PRODUCTS/SCHEMES:
3.2 VARIABLES & PARAMETERS:
3.3 METHODOLOGY & ANALYSIS:
3.4 LIMITATIONS:
4.0 PRODUCT DEFINITIONS
4.1 THE DIFFERENCE BETWEEN LEASE AND HIRE PURCHASE
5.0 RELATIONSHIPS/ OBSERVATIONS/ANALYSIS
5.1 IMPLACIT RATE ACROSS PRODUCTS AND TERMS (Bearing of Type and
Terms on Interest Rate)
5.2 INTEREST RATE SENSITIVITY OF BORROWERS (Relationship between

Interest Rate and Loan Size)
5.3 PRODUCT BIAS (Frequency Distribution of Products)
6.0 CONCLUSION

SECTION 1 –ORGANIZATION REPORT
1.1 BACKGROUND OF ULC

United Leasing Company (ULC) Limited is the second oldest leasing company in
Bangladesh. It started its operation back in 1989 as a joint venture with reputed foreign
and local sponsors.
Incorporated as a public limited company under the Companies Act 1913, ULC was also
granted license under the Financial Institutions Act, 1993. The shares of the company are
quoted on the Dhaka Stock Exchange since 1994.
The Company’s customers include most of the top corporate groups in the country
including some of the multinationals. However, the Company’s major and most profitable
business segments are leases to the small and medium enterprises.
The Company enjoys a sound reputation for excellent customer service. As an associate
of a long established foreign company, it is recognized as a reliable financial partner
among the business community. Its access to multilateral institutions like ADB and The
World Bank permits it to arrange funds at competitive rates and get their assistance in
areas such as staff training and information technology.
1.2 CORPORATE OBJECTIVE
The main objectives of the company are to assist the development of productive private
sector industries particularly in their balancing and modernizing programs. The company
mainly extends lease financing for machinery, equipment to the industries & vehicles for
commercial purpose. In addition it also provides project finance for expansion of
business.

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The primary activity of the company is to provide leases to different commercial

organizations. It provides lease for all sorts of manufacturing equipment and for vehicles.
1.3 CAPITAL, SPONSORS AND SHARE STRUCTURE

Authorized Capital of ULC is Tk. 1000 million and issued, subscribed and paid up capital
is Tk. 140 million. The sponsors and their current shareholding in the company are as
follows:
Type Name Share %
Foreign Lawrie Group Plc of the UK 20%
Local United Insurance Company Ltd 9.69%

National Brokers Ltd 1.60%
Duncan Brothers (BD) Ltd. 1.00%
Octavious Steel & Company of Bangladesh Ltd. 0.71%
Institutional _ 44%
General Public _ 23%
Table 01: Type, Name and Share (%) of Sponsors.
Shareholding Structure of ULC
Local General Public

13% 23%
Foreign
Institutional 20%
44%
General Public Foreign Institutional Local
Illustration 01: Shareholding Structure of ULC.

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1.4 BOARD OF DIRECTORS

Its Board of Directors consisting of nine members who are the nominees of the
Institutional Shareholders supervises the Company’s management. The Board appoints
the Chairman from among the Directors.
Name Nominee of
Chairman Mr. Kafiluddin Mahmood
Directors Mr. P. A. Leggatt. MBE Lawrie Group Plc of the U.K.

Mr. A.S.M.O. Subhan Lawrie Group Plc of the U.K.
Mr. O.R.A.R. Nizam National Brokers Limited
Mr. A. Rouf Amo Tea Co. Ltd
Mr. S. Aziz Ahmad Surma Valley Tea Co. Ltd
Mr. M. A. Wahed The Chandpore Tea Co. Ltd
Mr. M. Moyeedul Islam United Insurance Company Ltd
Mr. M. M. Alam (MD) The Allynugger Tea Co. Ltd
Comp. Sec. M. Ataul Hoque
Table 02: Board of Directors. (ULC web site)
The Company policy is to attract, motivate and retain top quality financial service
professionals. At present ULC’s staff strength is 60. There are three branches in
Chittagong, Gazipur and Jessore. The Managing Director with the power and authority
vested in him by the Board of Directors manages the overall operation of the Company.
He has a MBA and CA degree with more than 30 years of experience in Canada and
Bangladesh with MNCs.
An Executive Committee of the Board of Directors comprising of three Directors

nominated by the Board and the Managing Director approve lease proposals, periodical
accounts and other administrative matters.
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1.4.1 Executive Committee

The Board of Directors comprising the Managing Director and three other directors
nominated by the Board appoints the Executive Committee. The Committee is authorized
to approve all financing proposals without any limit subject to the exposure limit
specified in the policy statement. It also reviews periodical accounts and other
administrative matters.
The Board has given authority to the Managing Director for approval of lease proposals
up to an amount of Taka 1.0 million in the case of new lessees and up to Taka 2.5 million
in case of existing lessees.
1.5 ORGANIZATIONAL STRUCTURE

Here, organizational structure of United Leasing Company Limited has been illustrated.
Operations HR CRM Finance
Monitoring Marketing Marketing Commercial IT

Services
Accounts Treasury
Illustration 02: Organizational Structure of ULC.

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1.5.1 Management
Name and designation of management personnel are given below:
Name Designation
Syed Ehsan Quadir Managing Director
M. A. Azim Deputy Managing Director
M. Ataul Hoque General Manager
Md. Shahabuddin Deputy General Manager
Avijit Bhattacharjee Head of Accounts
Mohiuddin Rasti Morshed Head of Marketing
Shahidul Islam Majumder Head of IT
Eva Rahman Head of Operations and Human Resources
Ashfaqul Haq Chowdhury Head of Marketing Services
Jamal Mahmud Choudhury Head of Monitoring
Sabrina Mehnaz Head of Treasury
Md. Russel Shahriar Head of Credit
Table 03: Management of ULC. (ULC web site)
2.1 LEASE PORTFOLIO AND SECTOR WISE EXPOSURE
ULC provides lease finance to the following sectors:
1. Textiles
2. Transport
3. Apparels and accessories
4. Other services
5. Construction and engineering
6. Financial intermediations
7. Food and Beverage
8. Paper and printing
9. Telecommunications
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10. Agro based industries

11. Chemicals
12. Pharmaceuticals
13. Other manufacturing industries
14. Hospitals
15. IT firms
Now, Sector wise Exposure (2004) has been illustrated below:
Sectorwise Exposure (2004)
Others Textiles
12% 20%
Ot. MFG
24%
Chemicals
13%
Services
31%
Textiles Chemicals Services Ot. MFG Others
Illustration 03: Sector wise Exposure (2004) of ULC.

(Annual Report- 2004)
2.2 PERFORMANCE OF ULC AT A GLANCE
Here, United Leasing Company’s performance from year 2000 to 2004 has been
illustrated.

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Illustration 04: Net Profit. (Appendix-01)
Illustration 05: Operating Revenue (restated). (Appendix-02)

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Illustration 06: Financial Assets (restated). (Appendix-03)

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Illustration 07: Earning Per Share. (Appendix-04)

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Illustration 08: Contracts. (Appendix-05)
(Annual Report- 2004)
2.3 SWOT ANALYSES OF ULC
Strengths:
 It was among the first

in this industry and therefore enjoys first mover advantages.
 At the moment they are
the market leader as they are paying 32% Dividend and giving 2:1 Bonus Share to its
shareholders this year, which is more than any other leasing company in the country.
 ULC has very high
skilled, energetic, hard working and motivated human resources.
 ULC believes and
practices participative management.
 ULC is engaged in
product diversification, this year they have introduced a new product
syndicate financing and they are also planning to introduce house loan in near
future.
 ULC has a very
strong client base among the leasing companies; most of which are the giant
local and multinational organization such as, British American Tobacco
Bangladesh, HSBC, Square, Navana, Transcom etc.
 ULC do not comply
undue political influence.

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 With its diversified

business, ULC is better equipped to compete in an ever changing and
challenging business environment.
Weaknesses:
One thing might be their lack of commitment to one big huge investment
project since they do not want to put all their eggs in one basket.
Another major weakness of ULC is it has a very low pay structure for entry-
level employees, which can become a de-motivating factor.
Opportunities:
 With growth in our
corporate sector, the demand for lease financing is also growing and
consequently, the lease financing industry.
 Among visible non-
functioning of development financial institutions, ailing capital market and
lack of interest of commercial banks in term financing, the leasing industry
remains the only vibrant financial intermediaries for the medium term
financing with less than 5 % non-performing loans.
 By introducing new
products such as house loan ULC can expand its market.
Threats:
 Continuously increasing deflation rate result into less disbursement of fund.
 There is a clear trend of increasing competition in the lease market with the
entry of more leasing companies and leasing by commercial banks.
 Employees of ULC are not satisfied with their low salary structure and other
benefits as a result they can switch to other competing financial organization.

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Among the NBFIs doing business in Bangladesh United Leasing Compnay is the second
largest in terms of Credit portfolio which totals around Tk. Six billion at present. But the
list of financial services ULC is offering is shorter compared to other NBFIs.
3.0 CREDIT OFFERS BY ULC

Among many products listed in its operational software, only the following six are traded
in practice.
1. Lease finance:
i. Sale & Leaseback
a. Lease Local
b. Lease Foreign
ii. Hire Purchase
2. Working capital finance:
i. Short Term Loan
ii. Factoring
iii. Revolving Loan
3. Long Term Finance:
i. Term Loan
Unlike most of the large NBFIs ULC does not have a merchant banking license, and
cannot perform underwriting, issue management & portfolio management services. The
deposit schemes offered do not have much variety.
Nonetheless, over the last 17 years of operation it has emerged to be a major player in
non-bank lending market
A detailed analysis of the products/ schemes offered by ULC is appended at the end of
the report (Appendix 2)
4.1 CREDIT APPROVAL PROCESS OF ULC

Dealing Officer (i.e. the ME) prepares the appraisal, along with the help of the AGM or
the Manager, whoever is responsible for bringing the client. Then it is passed onto the

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GM who reviews the appraisal. The next person in the approval process is the MD
himself. He may either approve of it right away or recommend it to the Executive
Committee. Even if the MD gives his approval for a particular appraisal, it is reported to
the Executive Committee.
Marketing Executive
Prepares Credit Appraisal
Reviewed by GM
Approved by MD/
Executive
Committee
Reported to
Executive
Committee (if
approved by MD)
Illustration 10: Credit Approval Process.
5.1 CONCLUSION
Leasing industry of Bangladesh is growing rapidly. The increasing demand of leasing is
inviting more and more new entrants into the industry. Even banks have started leasing at
a lower rate than the existing leasing firms. Moreover, with the liberalization of trade,
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domestic firms are going to face high competition from foreign firms. To survive the
strong competitive wave the future is going to bring, firms should collaborate with each
other to increase their market share and hence tap the whole domestic market.

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SECTION 2 - INTERNSHIP PROJECT
1.0 INTRODUCTION
The main focus of this internship paper was to study certain key features e.g. Implicit
Rate, IRR and Terms of different products, offered by United Leasing Company Limited.
The List includes Bill Discounting – Revolving, Hire Purchase – Foreign, Hire Purchase -
Sale & Hire Back, Lease – Foreign, Lease – Local, Leasing-Sale & Lease Back, Short
Term Finance and Term Loan.
The key statistics of portfolio were analyzed for interrelationship.
Apart from these key aggregate stats the composition of ULC’s outstanding portfolio on
the basis of finance types and finance tenure was also studied.
A specific discrepancy of the portfolio -regarding choice of finance scheme to offer- was
pointed out in the later part of analysis.
All the observations and findings were explained from both empirical knowledge base
and database analysis.
2.0 EXECUTIVE SUMMERY
ULC’s portfolio mainly comprises of two different types of product, namely Sale &
Lease Back & Hire Purchase. Lease & Hire Purchase does not make any practical
difference for the borrower. For a given amount of finance with same tenure and interest
rate, the rent / installment from both will be identical, the entire cash flow will be the
same and so will be the IRR. But Return on Equity originates from accounting and
taxation practices. ROE varies across terms and asset type. In general it is such that –‘For
shorter term return out of Hire Purchase is higher and in longer term return from Lease is
higher’.

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While studying the relationship between Interest Rate and Terms, it was observed that
-Interest rates for longer term finance schemes are lower than shorter term
products. E.g. rate for Bill Discounting and Short Term Finance is higher than Term
Loan and Lease. But this observation had an exception. Compared to Hire Purchase
Interest Rate for Lease is higher. Although Hire Purchase term is usually shorter
than Lease. This phenomenon can be explained by a tenure matching of short term
loans to short term funds which are expensive and about Hire Purchase a part of the
tax benefit is passed on to borrower in terms of lower interest rate.
The study of interest rate in relation to finance amount gave evidence that for smaller
credits interest rat is charged higher and for larger credit the rate is lower. This is partly
because of stronger negotiation power of large borrowers and SMEs’ inaccessibility to
finance on the other end. Indifference to slightly higher rents for smaller finance is also
responsible.
ULC has a particular product bias toward Sale & lease back. This bias is justified by one
observation where we would see that in most cases the lease term was appropriate
for choosing S&LB in stead of Hire Purchase. Nonetheless, in many other cases
Hire Purchase was ignored quite unjustifiably.
3.0 SCOPE & OBJECTIVES OF STUDY:
1. To find out the difference in return parameters i.e. Implicit Rate 1(herein after
referred as IR), IRR2, Spread3, NPV across different products/schemes.
2. To find out the difference in Terms/tenure across different products/schemes.
1
The rate used for calculation of monthly annuity repayments- commonly called ‘rental’ or ‘Rent’
2
The Internal Rate of Return after estimating the impact of Lease Advance (Initial deduction from the
finance amount), and Purchase option (End of term residual purchase price to be received from the
borrower). Usually IRR is higher than IR
3
The difference between IR and IRR, utilized to increase actual return from finance amount.

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3. To find out the relationship between Return and Terms across different
products/schemes.
4. To find out the trend of Implicit Rates for the period January, 2000- April, 2006
and identify seasonality if present.
5. To find out the interest rate sensitivity of clients to be depicted by a relation
between Implicit Rate and Loan/Lease amount
3.1 PRODUCTS/SCHEMES:
The schemes listed in the following were included in the data range for analysis
1. BILL DISCOUNTING - REVOLVING

2. HIRE PURCHASE - FOREIGN
3. HIRE PURCHASE - SALE & HIRE BACK
4. LEASE - FOREIGN
5. LEASE - LOCAL
6. LEASING-SALE & LEASE BACK
7. SHORT TERM FINANCE
8. TERM LOAN
3.2 VARIABLES & PARAMETERS:
The variables and aggregate statistics listed below, were taken into account for relation
and regression analyses across the schemes listed above.
1. Count of Finance
2. Average of IR
3. Max of IR
4. Min of IR
5. Average of IRR
6. Max of IRR
7. Min of IRR

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8. Average of Spread
9. Max of Spread
10. Min of Spread
11. Average of Term
12. Max of Term
13. Min of Term
3.3 METHODOLOGY & ANALYSIS:
1. Charts and tables for Products and the given parameters like Average Implicit
Rate, Avg. IRR, Avg. Term etc among different products are used to illustrate
useful observations.
2. Time series analysis for interest rates throughout the last 24 months.
3. Multidimensional Correlation analysis among Term, Principal, IR, IRR, Spread is

done to find out inter-relations between every two variables.
3.4 LIMITATIONS:
1. Finance with structured payments was excluded from database for analysis.
Unequal monthly/quarterly repayments are rare. The operational software VIEW
21 used by ULC has certain problems in reporting key figures like IRR, IR when
the rents/repayments are broken down into cascaded unequal installments.
2. Hypothesis testing was not done to prove relationships and observations due to
lack of explanatory variable. Rather simple correlation analysis, rank and cross
tabulations are used to support key observations.

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3. Costs and Tenure of sources of funds for ULC was relevant in certain analyses.
But data regarding this was not available.
4.0 PRODUCT DEFINITIONS
LEASING:
Sale & Leaseback - For an asset already bought and in use , the lessor/borrower sells the
asset to ULC & ULC leases it back to the lessor , ownership & depreciation benefit is
retained by ULC.
Lease Local -The asset is bought from local source & leased back to the Lessor.
Lease Foreign - ULC opens LC or stands as guarantor to import the asset, leases it back
to Lessor
HIRE PURCHASE
Sale & Hire Back - Although much less frequent than sale-leaseback, ULC still offers
the product with no practical difference from sale-leaseback. In general the equity
participation from the part of borrower in Hire Purchase is higher.
Hire Purchase –Local The asset is bought from local source
Hire Purchase – Foreign ULC opens LC or stands as guarantor to import the asset from
a foreign source.
WORKING CAPITAL FINANCE:

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Short Term Loan -After disbursement by ULC, the borrower pays back the principal
plus the interest in a single tranche, after a short interval, usually 90 days.
Factoring ULC goes through the borrowers ledger, selects some of the renowned
companies to which the borrower supplies and approves the relevant a/c receivables for
immediate discounting, the borrower needs to get the bill endorsed for payment in favor
of ULC from its customers.
Revolving Loan ( a line of credit offered by ULC, disbursement may be made in several
tranches, the total outstanding will never exceed the approved limit, terms and conditions
are set each time before disbursement)
LONG TERM FINANCE:
Term Loan - Long term finance repaid by borrower; does not result in any ownership of
asset for ULC at the beginning
4.1 THE DIFFERENCE BETWEEN LEASE AND HIRE PURCHASE
Lease & Hire Purchase does not make ant practical difference in the cash stream of a
particular finance.
For a given amount of finance with same tenure and interest rate, the rent / installment
from both will be identical, the entire cash flow will be the same and so will be the IRR.
But Return on Equity from these two differs mainly due to terms (also on the basis of
asset type). This difference in ROE across loan tenure originates from accounting and
taxation practices.

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The accounting standard in use requires that for Lease ‘Rent’ is reported as revenue and
‘Depreciation’ on leased asset as expense. The resultant difference will be ‘Income’. On
Income ULC will have to pay Tax. So how much income, essentially how much expense
is shown in different years is important. The depreciation Schedule allows different
percentage of depreciation (from Initial rate to Normal Rate) depending on the assets age.
The Depreciation Schedule is such that it allows unequal tax benefit in different years.
Cash outflow for Tax varies accordingly.
In Hire Purchase only interest income is reported as income, not depreciation. So tax
benefit and cash outflow relating to Tax is evenly distributed.
The integrated cash inflow –outflow from Finance and for tax is complicated and
influences the complete return out of a Lease and return of a Hire Purchase. So it
becomes a complex decision – when to offer which. A detailed table in this regard is
appended in appendix 1.
But in general it is such that –‘For shorter term return out of Hire Purchase is higher and
in longer term return from Lease is higher’.

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5.0 RELATIONSHIPS/ OBSERVATIONS/ANALYSIS
5.1 IMPLACIT RATE ACROSS PRODUCTS AND TERMS (Bearing of Type and
Terms on Interest Rate)
The average interest rate charged for Rents4 varies maximum with a range of two percent
across the common schemes. The following table depicts the observation while the table
below gives figures.
4
Repayment Installments or Annuity
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AVERAGE OF IR
Type Avg. IR
BILL DISCOUNTING - REVOLVING 16.38
HIRE PURCHASE - FOREIGN 14.65
HIRE PURCHASE - SALE & HIRE
BACK 14.65
LEASE - FOREIGN 15.53
LEASE - LOCAL 15.18
LEASING-SALE & LEASE BACK 15.72
SHORT TERM FINANCE 15.61
TERM LOAN 15.20
Grand Total 15.61

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FINDINGS & EXPLANATIONS
1. Interest rates for longer term finance schemes are lower than shorter term product.
E.g. rate for Bill Discounting and Short Term Finance is higher than Term Loan
and Lease.
2. Compared to Hire Purchase Interest Rate for Lease is higher. Although Hire
Purchase term is usually shorter than Lease.
The reasons for a higher interest rate in the short term are;:-
1. Empirically it has been seen that short term finances are riskier than long term
finances. The bad debt percentages for short term products are higher than long
tenure finance. In fact, Bill Discounting is abolished (modified and then revived
as Factoring) while Short Term Finance is for the time being postponed.
2. Tenure Matching principal of assets and liabilities prescribes that since ULC pays
higher interest rate for deposits and loans taken in the short run it should also
charge a higher interest rate in the short run.
3. Although Hire Purchase is provided for shorter terms, the product is different in
certain aspects. Firstly, for taxation purposes the accounting for Hire Purchase is
different than lease and because of a different structure in the financed asset
depreciation schedule, Hire Purchase return i.e. ROE is higher in the short sun.
(See Appendix 1). So part of this extra return advantage is passed on to the
borrower in terms of lower interest rate.
4. Although Short Term Finances are usually perceived as more risky, in case of
Hire Purchase the risk is minimized by higher equity participation from the part of
borrower. The financed asset’s ownership in Hire Purchase will be in ULC’s
name, while the borrower might have paid as high as 20% of the asset’s purchase
price.

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5.2 INTEREST RATE SENSITIVITY OF BORROWERS (Relationship between

Interest Rate and Loan Size)
A common observation of ULC’s day-to-day loan/lease approvals will testify that the
higher the finance amount the lower the interest rate. Although from risk perspective the
opposite should have been true.
In the following there is a summery correlation analysis among Principal Amount,

Implicit Rate and IRR.
Principal IR IRR
Principal 1
IR -0.165177727 1
IRR -0.207390541 0.911722 1
From the correlation coefficient we can say that there is a not so strong negative
relationship of IR and IRR with Principal.
The ranked tables below will give a clearer message

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HIGHEST 10 FINANCE AMOUNT
Type Principal IR IRR

LEASING-SALE & LEASE BACK 110,000,000 12.00 14.03
HIRE PURCHASE - SALE & HIRE BACK 100,000,000 14.00 14.00
LEASE - FOREIGN 70,256,491 13.50 15.80
HIRE PURCHASE - SALE & HIRE BACK 70,000,000 14.00 14.00
Averages 81,271,294.2 13.78 14.49
LOWEST 10 FINANCE AMOUNT
Type Principal IR IRR

LEASE - FOREIGN 55,315 18.96 20.96
LEASING-SALE & LEASE BACK 93,000 15.00 17.00
BILL DISCOUNTING - REVOLVING 100,370 16.65 18.65
TERM LOAN 154,000 14.00 14.00
BILL DISCOUNTING - REVOLVING 155,520 16.67 18.67
Averages 113,755.5 16.18 17.77
FINDING & EXPLANATION
1. The tables above give evidence that the interest rate charged for higher finance
amount averages lower than the interest rate charged for lower finance amount.

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2. The same also implies that borrowers with larger finance need are more sensitive
to the interest rate.
The phenomena witnessed can be explained by the following observations,:-
1. Borrowers / Client with need of larger finance amount are larger in size, whereas
smaller size credit is in demand mainly from the part of SMEs. Because of better
negotiation power and greater eligibility/ accessibility to finance, large
organizations can win favorable terms. SMEs due to lack of accessibility have to
give in to the terms offered by lending institution.
2. In case of SMEs not the Implicit Rate, only the ‘Rent’ is disclosed. Often they
even lack expertise to gauge the Interest Rate. Lack of accessibility, comparison
and expertise often leave them without any idea about the Implicit Rate.
Moreover, loan/lease advance are utilized to leverage the return out of small
finances.
3. A higher interest with lower finance amount does not increase the
monthly/quarterly annuity significantly. The increase in the annuity may go
unnoticed, or client might be indifferent to this ‘small monthly difference’.
5.3 PRODUCT BIAS (Frequency Distribution of Products)

Among the products/finance schemes that are in the offer list of ULC Sale & Lease Back
is much too common. Apart from different types of lease, Term Loan stands next, then
Hire Purchase . This is illustrated in the following pie diagram and frequency distribution.

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Type Count
BILL DISCOUNTING – REVOLVING 51
HIRE PURCHASE – FOREIGN 5
HIRE PURCHASE - SALE & HIRE BACK 52
LEASE – FOREIGN 148
LEASE – LOCAL 108
LEASING-SALE & LEASE BACK 1070
SHORT TERM FINANCE 21
TERM LOAN 109
Grand Total 1564
A reason for such bias in favor of Sale & Lease back and Lease as a whole is that most of
the finances are for Four (4) year (freq. 517). At this length of the term return from Lease
is higher than Hire Purchase. (see Appendix 1)
Count of Term

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Term (years) Count

0 68
1 45
2 159
3 491
4 517
5 276
6 8
Grand Total 1564
But evenly noticeable is that a good many number of finances were provided for three or
less years. In these cases Hire Purchase could have been profitable. The following cross
tabulation of Terms across types shows that contrary to the thumbs rule – ‘For shorter
term Hire Purchase return is higher’, (see Appendix 1) Lease is still the majority in 1 to 3
years range.

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Type
HIRE LEASING-
HIRE PURCHASE LEASE SALE &
PURCHASE - SALE & LEASE – - LEASE Grand
Term - FOREIGN HIRE BACK FOREIGN LOCAL BACK Total
1 8 9 1 20 38
2 5 29 20 7 96 157
3 14 49 22 380 465
Grand Total 5 51 78 30 496 660
FINDINGS & EXPLANATION
1. The frequency of finances is adversely in favor of Sale & Lease Back. Marketing
force of ULC is biased toward Sale & Lease Back.
2. The frequency of finances is adversely in favor of 3 to 4 years range.
3. If tenure is shorter than 3 years Hire Purchase should have been preferable,
although Sale & Lease Back is frequent even in shorter terms (less than 3 years).
4. In earlier years, in many instances Lease was preferred to Hire Purchase, although
the later is supposed to be profitable.
The reason behind this bias for sale & lease Back are,-
1. Majority finances belonged to 4+ year category, so Lease was indeed the right
choice.
2. Prior to development of a return calculation model used by ULC, Marketing

persons were not fully aware of this decision making criterion.

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6.0 CONCLUSION
United Leasing Company has entered a self fueling cycle over the long period of
operation. The clientele is growing very slowly, although larger credit appetite of existing
clients has sustained its growth so far. To further enhance and diversify clientele ULC
will have to add diversity to its scheme line. Revere worthy competitors are stretching
their menu. Initially this enhancement of offer may not fetch a good return, but eventually
this diversity will be needed to sustain the primary items of the offer. A particular product
bias should be avoided.
Concentration of portfolio in a particular range of time scale 3-4 years should also be
avoided. Better fund management and credit risk analysis should be developed, which are
not yet at a standard level for ULC. Better matching of fund and scattering the schemes
across the time scale would make the portfolio more stable.
Over the years ULC has developed its pool of human resources both from business and
non business academic background. If employees with non-business background are
recruited anyway, thorough training should be arranged, so that the entire workforce has
comprehensive knowledge of financial aspects. Then they can make decisions in the best
interest of the organization and maximize its wealth.

Page 30
APPENDIX 1
Tax Depreciation
Rate* Mode
Initial Normal
Asset class Rate Rate Advance Arrear
Up to 36 Months Up to 24 Months HP
HP is better and is better and
beyond that Lease beyond that Lease
General Machinery 20.00% 25.00% is better is better
Moulds/Moulding beyond that Lease beyond that Lease
Machine 30.00% 0.00% is better is better
Vehicles 20.00% 0.00% is better is better
Furniture & Fixure 10.00% 0.00% is better is better
* For Lease only

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APPENDIX 2
se financing is the main product of United Leasing Company. The company started ith
1.1 LEASE FINANCE AND HIRE PURCHASE
this product and with time they have diversified their product range.
ULC has also introduced Hire Purchase scheme in their product portfolio. This will give
the clients another options to choose. This scheme is allowed only for institutional clients.
ULC does not offer this to individuals.
Lease or Hire Purchase is asset Financing whereby the lessor (financier) gives the right to
use an asset to the lessee (user) against regular payments termed as rent. (ULC Web site)
Mainly ULC does asset based financing. The major modes of finance offered by ULC
are:
Sale and Lease back:

When ULC purchases the equipment/vehicle from the client and gives it on lease to
the client. In this case the client will be regarded as the supplier.
Local Purchase:
When ULC purchases the equipment/vehicle on behalf of the client, from a local
supplier.
Foreign purchase:
When ULC purchases the equipment/vehicle on behalf of the client, from a foreign
supplier. It is worthwhile to note at this point, that in the case of foreign purchase, the
documentation department prepares the lease agreement only and the rest of the
documents are prepared by the commercial section under the Finance department. But
for local purchase, the documentation department has plenty of work.
Leasing is fairly a new concept in Bangladesh and it provides finance for acquisition of
asset as an additional source. The procedures adopted in leasing are fast, flexible with
minimum documentation. What leasing offers is not the money alone, but value added to
it in the form of assistance in acquiring the asset itself and other services. In a situation
where the entrepreneur intends to acquire equipment urgently for balancing and

Page 32
modernizing without straining the resource otherwise available, leasing provides an ideal
opportunity.
1.1.1 Advantages Lease Finance and Hire Purchase
1. Provides up to 100% of the cost of the equipment:
Often no deposits or advance payments are required. For a Lease or Hire Purchase of
very low cost equipment, for a lessee which is a borderline credit risk or when there is a
tax benefit arising from the lessee making a substantial initial rental. Clearly, any leasing
facility, which requires rentals to be paid in advance, is not 100% financing.
Nevertheless, leasing often does provide a higher percentage of financing than an
equivalent installment credit facility.
2. Does not tie up valuable working capital or credit lines:
A leasing facility preserves liquidity for other more appropriate uses. There may,
however, be other sources of finance, which a lessee could also tap.
3. Offers cash flow benefits:
Rentals fixed at the inception of a Lease or Hire Purchase assist expense budgeting and
cash flow forecasting. The lease term is normally related to the useful life of the
equipment.
4. Provides certainty:
A Lease or Hire Purchase is non-cancelable, unlike an overdraft, which is repayable on

demand and may be reduced during a credit squeeze.
5. A sound hedge against inflation:
Equipment can be acquired at current prices and rentals met out of future earnings.

Page 33
6. May be off balance sheet:
Leasing is not borrowing and in many countries there is no accounting requirement to

show leased equipment and the corresponding liability to make future rental payments on
the balance sheet of the lessee. This treatment also has the effect of showing an
artificially low gearing.
7. May avoid loan covenants or capital investment restraints:
While leasing is not legally borrowing and so may circumvent restrictive loan covenants
and capital budgeting, constraint lenders and head office financial controllers are now
more aware of the leasing loophole. This feature should not encourage a lessee to
overspend.
8. Avoids dilution of share ownership:
Leasing may be the only way of acquiring the long-term use of major assets required by a
business without increasing the capital base. Only a lessor may be willing to seek part of
his reward through an arrangement to share in the residual value of leased assets.
9. Straightforward:
Leasing and hire purchase minimizes administrative costs and simplifies tax and
accounting procedures. Asset depreciation normally becomes the lessor’s responsibility.
Documentation is simplified.
10. Tax efficient:
Lease rentals are generally fully tax deductible as operating expenses. The tax
benefits arising on the acquisition of equipment may also be maximized through a
leasing arrangement by reflecting in the rentals the value of an investment incentive,

Page 34
which because of shortage of tax capacity or other reason, is not fully available to the
lessee.
1.1.2 Terms & Conditions
Lease and Hire Purchase Items:
Industrial Machinery or Equipment
Office Equipment
Medical Equipment
Transport/Vehicle
Tenure:
 Lease: 3 to 5 years.
 Hire Purchase: 1 to 2
years.
Maximum Limit Depends on:
 Requirement and
Equity Participation.
 Merit of the Proposal.
Modes of Repayment:
 Equal monthly
installment.
 Payment structured to
clients cash flow.
Insurance Coverage:
Page 35
 Leased assets are to
be duly covering all possible risk and premiums are to be paid by clients.
(ULC Web site)
1.1.3 Finance Procedure of Lease & Hire Purchase
Initial approach discussion
Finance application
Credit appraisal review
Agreement
Purchase of equipment
for Lease / HP
Local purchase Import of equipment
Purchase order Opening of letter of

credit (L/C)
Delivery
Customer clearance
Delivery
Delivery

Page 36
Execution
Illustration 9: Finance Procedure Lease/Hire Purchase
1.2 FACTORING OF ACCOUNTS RECEIVABLES
Besides Financing, Factoring services includes:

Sales Ledger Maintenance
Collection of Receivables
Reporting
 Only Seven steps:
1. Buyer (customer) places order on seller (ULC client).

2. Seller approaches ULC for approving of factoring facility.
3. ULC approves the facility.
4. Seller delivers goods/services to buyer.
5. Seller submit/assign invoices to ULC.
6. ULC disburse prepayment to seller.
7. Buyer makes payments against invoices directly to ULC.
ULC reimburses the balance amount to seller after prepayment, discount and service
charges.
 Benefits:
Reduced Investment in Receivables: Sellers’ receive payment right after

delivery and therefore sellers’ fund no longer tied up in receivables.

Page 37
Expansion of Business: As cash flows improve, sellers’ can increase business by

delivering higher volume to existing buyers and also expand business with new
ones.
Sales Ledger Administration: ULC will administer clients’ sales ledger for the
assigned customers.
Collection of Receivables: ULC will monitor and collect the receivables on due
time from customers.
High Quality Reports: ULC will provide detailed reports on the performance of
client’s customers that will help the client direct client’s sales efforts.
Scope for Additional Financing: when seller (client) utilizes factoring facility
properly, it will help ULC support the client with other services.
 Costs:
Discount: ULC charge competitive discount for prepayment against invoices.

Service Charge: A nominal service charge is obtained for collecting receivables
from buyers and providing reports.
1.3 BILL DISCOUNTING
It is a short-term finance product that allows credit facility to clients against selected
receivables for supply of goods and services to meet the short-term need. The credit
facility is extended against Taka receivables only.
Any company/institutions/firm can avail this facility. And the customer that is the
companies or firms for whom the client supplies or performs services in the ordinary
course of client’s business has to be approved by ULC.

Page 38
The minimum loan limit will be Taka 1 million and maximum will be Taka 10 million.
And a certain percent of each bills/invoice will be offered in cash to the client. And this
percent will also be selected by ULC.
Same securities that are provided for lease financing can also be used when clients apply
for bill discounting.
This facility ranges from 30 to 120 days. It provides liquidity to the client and they are
allowed to avail this facility 2 times per month.
The mechanism of bill discounting can be summarized as follows:

After selling the goods on credit, the client (supplier/dealer) invites his customer/debtor
with the notification that all monies due on the invoice are assigned to and be paid to
ULC, by printing an assignment clause on the invoice.
After entering into the Bill Discounting Agreement with ULC, the client sells the
invoice to ULC.
ULC makes prepayment (advances) to client up to a specific percentage of the invoice

value in accordance with the approval.
ULC assumes the collection function (obtaining a post-dated cheque) and sends
statements and reminders to the customer (debtor).
ULC gets the payment and at periodic intervals the details of unpaid invoices and other
control reports are submitted by ULC to the client.
After collecting the debt from the debtor/customer, ULC pays the client the remaining
percentage of the invoice value, after deducting the service charge, and the discounting
charge.
Page 39
 BENEFITS:
Getting Instant Cash:

As soon as the client sale the credit they get the instant cash on that credit sales
directly from ULC. Thus, the client’s cash flow is accelerated, purchasing power
increases and eventually, their production and business moves up and credit rating
improves.
Relieved of debt Collection:

As ULC undertakes/assumes, the responsibility of debt collection (obtaining post-
dated checks) on all the invoices factored and the client is relieved of the problems of
debt collection.
Sales ledgers is no more your headache:

ULC’s operation is fully computerized and they keep the client informed through
monthly sales analysis, overdue invoice analysis and debtor payments report. Thus
the client is relieved entirely of the cares and responsibility of maintaining a sales
ledger and credit control.
Besides the client gets the benefit of credit information systems available to ULC and a
wealth of experience in the vital business of collecting cash.
 Cost:
Interest: Competitive rate

Service charge: 0.25% of the total disbursed amount, minimum Tk. 5,000 (plus 15%
VAT) and maximum Tk. 10,000 (plus 15% VAT) to cover administrative expenses,
legal and documentation costs.

Page 40
1.4 SYNDICATE FINANCE
Syndicate finance is new concept in our leasing industry. This year United Leasing Co.
has also introduced syndicate finance for a leading industry.
Syndicate financing is now a very useful and prospective product for non-banking
financial institutes. Large size of financial intermediation is essential for the industrial
development of our country. But it is impossible for many NBFI’s for the government
regulations. As per Bangladesh Bank rule, a financial institute can finance at best 30% of
their paid up capital. But a project might require more than their said limit. Here the
syndicate finance is fruitful.
In the syndicate financing process- there is a leader lessor who makes all types of
negotiations, transactions, documentations, and other formalities. The lessee will contact
with only the leader lessor. In exchange of those the leader lessor takes the commission,
negotiation charge from the whole financial income out of their portion. The risk of the
project will be distributed equally among all the members of the syndicate.
Syndicate finance has some advantages over lease and other financial intermediations.
Now days it is considered as one of the most risk free project for the financial
institutions. If the huge amount distributed to many lessees, there has some possibilities
for to default. The organization has to give individual efforts for the individual clients.
But in syndicate financing there is the only particular client to monitor, and precisely the
client should be financially sound.

Page 41

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United Leasing Company_ Internship Report

United Leasing Company Limited

May 17, 2019

United Leasing Company

June 25, 2006

Thank you for your consideration.

ZR -33 , BBA 10th

United Leasing Company

SECTION 1 –ORGANIZATION REPORT

1.1 BACKGROUND OF ULC

1.2 CORPORATE OBJECTIVE

1.3 CAPITAL, SPONSORS AND SHARE STRUCTURE

1.4 BOARD OF DIRECTORS

1.4.1 EXECUTIVE COMMITTEE

1.5 ORGANIZATIONAL STRUCTURE

2.1 LEASE PORTFOLIO AND SECTOR WISE EXPOSURE

2.2 PERFORMANCE OF ULC AT A GLANCE

2.3 SWOT ANALYSES OF ULC

3.0 CREDIT OFFERS BY ULC

4.1 CREDIT APPROVAL PROCESS OF ULC

SECTION 2 - INTERNSHIP PROJECT

2.0 EXECUTIVE SUMMERY

3.1 SCOPE & OBJECTIVES OF STUDY:

3.2 VARIABLES & PARAMETERS:

3.3 METHODOLOGY & ANALYSIS:

4.0 PRODUCT DEFINITIONS

4.1 THE DIFFERENCE BETWEEN LEASE AND HIRE PURCHASE

5.0 RELATIONSHIPS/ OBSERVATIONS/ANALYSIS

5.2 INTEREST RATE SENSITIVITY OF BORROWERS (Relationship between

5.3 PRODUCT BIAS (Frequency Distribution of Products)

United Leasing Company

SECTION 1 –ORGANIZATION REPORT

1.1 BACKGROUND OF ULC

1.2 CORPORATE OBJECTIVE

United Leasing Company

The primary activity of the company is to provide leases to different commercial

1.3 CAPITAL, SPONSORS AND SHARE STRUCTURE

Local United Insurance Company Ltd 9.69%

General Public _ 23%

Table 01: Type, Name and Share (%) of Sponsors.

Shareholding Structure of ULC

Local General Public

General Public Foreign Institutional Local

Illustration 01: Shareholding Structure of ULC.

United Leasing Company

1.4 BOARD OF DIRECTORS

Directors Mr. P. A. Leggatt. MBE Lawrie Group Plc of the U.K.

Comp. Sec. M. Ataul Hoque

Table 02: Board of Directors. (ULC web site)

An Executive Committee of the Board of Directors comprising of three Directors

1.4.1 Executive Committee

1.5 ORGANIZATIONAL STRUCTURE

Operations HR CRM Finance

Monitoring Marketing Marketing Commercial IT

United Leasing Company

Name and designation of management personnel are given below:

Table 03: Management of ULC. (ULC web site)

2.1 LEASE PORTFOLIO AND SECTOR WISE EXPOSURE

ULC provides lease finance to the following sectors:

10. Agro based industries

Now, Sector wise Exposure (2004) has been illustrated below:

Sectorwise Exposure (2004)

Textiles Chemicals Services Ot. MFG Others