What does it take to get the leasing sector off the ground? In IFC's experience, the first thing to take care of is legislation that makes leasing feasible. Tax treatment, customs regulations, and the ability to reclaim equipment all have a big influence on whether leasing companies will make it or not.
This is important for Mongolia. Although commodity prices are depressed right now, there is a huge amount of wealth in the ground. Getting it out will require a lot of equipment, everything from excavators to drills to vehicles, and more. And it's not only mining companies that will need equipment—the many Mongolian businesses that provide goods and services to the mining industry will need equipment too. These businesses will be an important part of mining-led economic growth in Mongolia.
IFC's Mongolia Leasing Project, funded by Japan, played a key role in introducing the Law on Financial Leasing in June 2006. It also promoted the idea of leasing and provided training and advice to leasing companies. Did it work? To find out, IFC conducted a survey in April 2008 to measure the development of the sector. Some findings:
- The leasing industry has been growing rapidly, reaching a total volume of over $80 million in 2007—almost three times the leasing portfolio in 2006 and a seven-fold increase over the leasing portfolio in 2005.
- The total volume in new leases reached almost $90 million in 2007, more than double the volume in 2006 and over eight times the leasing volume in 2005.
- The number of lease providers almost quadrupled—from 13 in 2005 to 48 in 2007.
- The market is diversified, though cars, consumer items, and mining equipment still make up a large percentage of the portfolio.
- The sector has stabilized as indicated by the more favorable terms offered—longer term durations and lower interest rates.
More work can be done to strengthen leasing further; for example, contradictions in current legislation need to be resolved. But leasing is here to stay, and will play an important role in Mongolia's development.