If as far back as in 2004, Azerbaijan's leasing sector was just in the making, then over last years, the leasing market in the country has become stably and rapidly developing. The total volume of portfolio of Azerbaijan's all operating leasing companies had reached AZN 61,9 mln. to January 1, 2007. The total number of existing leasing operation reached 787 ones, while the same showing to March 31, 2006 was AZN 34,3 mln. at the total number of projects of 471. At the same time, most part of leasing operations fell at the construction sector - 21% out of the total number, transport - 20%, industrial sector - 18% trade sector - 6%, agriculture - 1%, finances and insurance - 6%, tourism and services - 5%, foodstuff - 2%, textile industry - 6%, consumer leasing - 9%, medicine - 2%, telecommunications - 1%, with 25 falling at all the rest.
A total of 16 registered leasing companies are currently working in the market, with 11 ones out of them - active ones: "AtaLeasing", "AzeriLeasing, "ILSH Azerilizinq", "AG Leasing", "Texnika Lizinq", "Parex Leaasing", "UniLizing", etc.
Notably, leasing in Azerbaijan became actually developing only after it had been maintained in Mediterranean region countries by IFC (International Finance Corporation), through establishing a special fund worth of $30 mln. The cooperation was initially carried out just within ALDP (Azerbaijan Leasing Development Project), but the turned into the Central Asian Project for Technical Aid to Leasing Companies (CALF). Within the project, in addition to required information and technical maintenance, some million of USD of credit funds are granted for the development. Moreover, they pay great attention to the successful cooperation with the IFC's Corporative Management Project, since negotiating with foreign investors without the presence and proper observance of the standards of the Corporative Management in the Company would not be so perspective, as if they were.
No doubt that leasing has great perspectives in Azerbaijan. For example, leasing should be introduced to the Azerbaijan agriculture without delay. Thus, according to the researches conducted by the Azerbaijan Agriculture Ministry, today the technical machinery park, privatized after reorganizing collective and state farms is on 90 percent physically and morally depreciated. According to the calculations made by specialists, it is necessary to renew some 30.000 tractors, 25.000 lorries, 4.000 combine harvesters, 1.500 feed distributors, and 2.100 cotton pickers in the country by 2015. All those will require about $468 mln.
However, the issues impeding the further development of leasing in the country are still present. As it is known, the important condition of the development of the above-mentioned sector is its reliable and effective regulation. Leasing operations are regulated by the following major statutory acts in the existing Azerbaijan legislation: Civil Code and Tax Code. However, it would be better if "Bill on Leasing" were elaborated in our country like many other countries did it, since the present-day legislation does not fully meet with the requirements of the development of leasing activity in Azerbaijan.
In addition, leasing is very sensitive to tax regime. The key trouble of leasing is VAT and the mechanism of accelerated depreciation, i. e., taxation of funds acquired by VAT to be passed for leasing. The same tax is also applied to leasing services rendered. As a result of all these the lessor has to pay VAT twice: from the property acquired to pass it to financial lease and from the payments received from the client. It appears that the same subject of a deal is subjected to VAT repeatedly and becomes cheaper by 18% more. Moreover, Azerbaijan has cancelled double depreciation on technical means of the given category, and there is a gap that makes use of subleasing impossible. The Association of Leasing Companies of Azerbaijan, consisting of the chiefs of leasing companies, which is engaged in improving legislative enactments in the sphere of leasing, is currently completing preparation of this issue, based upon the experience of some countries, to submit then to the Government. Furthermore, the Association has submitted proposals on the development of a leasing programme, which will allow the Azerbaijan Government to forecast revenues to be gained from the development of Azerbaijan's leasing market. The Association wants to persuade the Government that leasing financing is the best mechanism for raising the economic activity of the country.
The next task is the financial issue. The authorized capital of our leasing companies does not exceed $1 mln. in aggregate, therefore they have to borrow credits. However, the banking credit in Azerbaijan is not cheap (the interest rate of 18-26%), and, therefore, the interest rate of the lessor will be high (not less than 19-27%). Under these terms, the leasing companies established within banks, which will have an access to the source of available financial resources and which propose their services on very advantageous terms - 19% and lower. It is evidently that it is almost impossible to compete with these companies. The presence of state-run enterprise AgroLeasing in the market tightens the unequal competence. The state agency offer agricultural machinery to farmers on lax conditions resulting in shutting this segment for private leasing companies. Therefore, the weight of such machinery is the summary portfolio of the companies makes just 3%.
Despite of the above-listed difficulties, leasing in Azerbaijan today is a rapidly-developing business. In addition, they become realizing that leasing today is expanding and installation of manufactures that ensure making the production, which is capable to compete internationally, additional jobs, collection as taxes, and many other things. Therefore, all these actions taken to encourage the development leasing in the country is intended for the prosperity of the country; moreover, take into account that leasing itself bears an investment nature. If we can manage to surmount at least the above-mentioned troubles, which are most urgent ones, then Azerbaijan's leasing market may significantly progress.