Daily News Egypt

Amendments to draft financial leasing law enables leasing of assets for consumption purposes - Daily News Egypt

Advertising Area



Advertising Area



Amendments to draft financial leasing law enables leasing of assets for consumption purposes

The law will be submitted to the cabinet within days, said Sami


The Egyptian Financial Supervisory Authority (EFSA) is working on completing the final draft of the financial leasing law which will be submitted to the cabinet for review and the parliament for discussion.

The draft includes major changes that will enable the activation of financial leasing for consumption purposes, including passenger cars.

EFSA’ chairperson, Sherif Sami, said that they are in the final stages of their review of the amendments.

He added that the draft law includes an article that gives EFSA’s board the authority to issue rules and decisions enabling the lease of some assets for consumption purposes; however, the draft law does not yet specify what kinds of assets.

Sami added that financial leasing is originally limited to economic activities, adding that EFSA’s board has the right to review the draft law and make amendments. In the coming days, Sami is expected to sign the amended draft law before submitting it to the cabinet.

Some of the automotive associations present at the 2016 Egypt Automotive Summit demanded the amendment, arguing that it will help increase sales.

Financial leasing is a practice in which a company, known as the lessor, buys an asset for its customer, the lessee, and then allows the lessee to rent it for an agreed upon period of time.

The lessee has the right to choose between buying the entire leased asset or part of it in the time and for the price determined in the contract, taking into consideration the amounts paid as lease payments. Also, the lessee is forbidden from disposing of the leased asset without the lessor’s written consent.

The draft law gives the right to the lessee to waive the contract to another lessee after obtaining the approval of the lessor; in such a case, the original lessee would act as a guarantor for the second lessee. The law would also give financial leasing companies the right to be involved in the business of operating the lease.

The size of the financial leasing contracts in Egypt reached about EGP 16.7bn from the beginning of the year until the end of November.

Sami said the board will determine the price of entering into a financial leasing contract and the cost of providing proof of registration, adding that the maximum cost for each service cannot exceed EGP 500 and EGP 200 respectively.Automotive sector presents legislative suggestion for passenger cars financial leasing

Automotive expert and CEO of Auto Z Company, Amr Al Iskandarani, said that passenger cars do not benefit from the financial leasing law’s current draft form, while commercial cars do. He demanded passenger cars be included.

He expects that if amended, the draft law could increase market sales of passenger cars by 100% because it would allow new customers to enter the market.

He said also that a major company from the Gulf doubled its sales to 200,000 units in a year after adopting such a financial leasing law there.

Al Iskandarani made suggestions regarding executive regulations that would enable financial leasing for individuals. He said that customers could lease cars in exchange for a monthly payment, and after a three-year period, they could have the option of outright buying the car after paying the difference between the car’s value and the total paid in that time.

He suggested the leasing period could vary between three and five years. After the leasing period comes to an end, the car’s book value after depreciation would become zero, as the lease payments that would be distributed over the leasing period would be equal to the car’s real value. In return, customers would pay the value of three lease payments in advance, which will be considered an insurance.

Al Iskandarani suggested two types of contracts for the passenger cars’ financial leasing: a closed and an open contract.

Closed contract

In a closed contract, the car would be leased for three years with lease payments equal to 60% of the car’s value, while the remaining 40% must be paid off by the end of the leasing period. If this is done, the lessee would own the car.

In such a case, the lessor company would pay the insurance and maintenance costs throughout the duration of the lease, and would also be responsible for the licensing process and paying the car’s tax.

That type of contract would dictate that the customer must pay the 40% after the leasing years come to an end to own the car, and in case they decide not to pay the remaining amount, they would pay the amount determined in the penalty clause in the contract. In such a case, the company would have the right to offer the car owned by that customer to be financially leased to another customer as a second hand car with a lower lease value.

Open contract

In accordance with the open contract, the customer would have the right to lease the car during the leasing period, without being obligated to pay for the remaining value of the car at the end of the lease period. If the customer or company violates the contract, the amount determined in the penalty clause would be paid.

The lease payments would be 70-80% of the car’s price, and the company would also be responsible for paying the insurance and maintenance value during the leasing years, in addition to being responsible for the car’s licensing procedures and paying the taxes.

Terms and conditions

The company would provide a complete insurance coverage in addition to providing a free alternative car in case of accidents, breakdowns, and scheduled maintenance visits for passenger cars. Broken down cars would be taken to the nearest service centre.

The free maintenance would cover 20,000 km annually, and any additional mileage would be paid for according to the company’s policies, although additional mileage can be bought in advance at a lower price. Free maintenance would be carried out by a predetermined service centre. Periodic maintenance would be conducted every 5,000 km, which includes oil changing and car washing.

However, any problems that arise as a result of maintenance carried out by unauthorised service centres and through the use of alternative spare parts would not be covered by the maintenance clause. Tyres, car batteries, and damage resulting from sandstorms would also not be covered. These issues can be dealt with by authorised dealers, but customers would be charged separately for them.

Alterations to the vehicle would also be forbidden during the lease period; however, the customer could at any point during their lease opt to purchase the vehicle.

According to Al Iskandarani’s suggestion, ending the contract within the first 12 months would result in the lessee paying a fine determined by the penalty clause.

Payments

Customers would have to pay an insurance amount in advance equal to three months’ worth of lease payments which is refunded at the end of the leasing period. In addition to the insurance, customers must pay non-refundable administrative fees for passenger cars and commercial cars of EGP 500 and EGP 1,000 respectively.

Risks facing companies

If companies fail to sell their vehicles at the end of the lease period, they can offer to lease them again through the financial leasing system at reduced prices in order to cater for people interested in second hand cars.

Also, the companies would be responsible for licences, maintenance fees, insurance, and taxes. They would also have to deal with the increase in the exchange rate and spare parts’ prices and the risk that customers default on paying the cost of additional maintenance fees after the first 20,000km annually.

Advantages of the financial leasing draft law

Some of the advantages of the draft law include increasing sales by about 100%, and increasing tax and customs revenues after the sales rates increase. Also, financial leasing will stimulate the sales of the brands with low demand in the Egyptian market because of their high prices.

Another advantage is increasing the profit margin of the automotive agents and leasing companies, while the customer would pay a low price in exchange for having an insured and licensed car and receiving free maintenance services.

Moreover, financial leasing would decrease the risks facing manufacturers and agents, represented in the increase in cost of importing cars and their components. Also, it would decrease the risk throughout the leasing period, as the leased car would be owned by the company, until the customer pays the remaining amount.

Advertising Area



https://dailyfeed.dailynewsegypt.com/2016/12/20/amendments-draft-financial-leasing-law-enables-leasing-assets-consumption-purposes/
Breaking News

No current breaking news

Receive our daily newsletter
Subscribe