Leasing

The concept of leasing was introduced to Pakistan during Zia-ul-Haq's regime in the early 1980s, as an Islamic form of long term financing. The passage of two ordinances paved the way for the birth of this new concept. These ordinances were the Banking & Financial Service Ordinances 1984, and Banking Companies Tribunal Ordinance 1984, and they required banking institutions in Pakistan to provide financial services in accordance with the Shariat principles of Islam. The Islamic principles prohibit interest-based (Riba) transactions. Since leasing involves a series of fixed rental payments for an asset effectively "rented out", it was understood to be outside the "Riba" category. "

Leasing market is shared by leasing companies as well as the Islamic open-ended funds called Modarbas.

Leasing companies are those which are incorporated as companies. There is a certain procedure of licensing of such companies. Modarbas, however, are formed under the Islamic system under the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980. Of the 52 registered Modarbas, 16 are reportedly engaged in leasing business. The Modarbas enjoy certain tax benefits as tax holiday for certain number of years, followed by a significantly reduced tax rate. The tax holiday was withdrawn in 1992 but re-inserted in 1998.

Besides this, there is still a largely an unorganized market by indigenous financiers who mainly give loans or hire-purchase finance for motor vehicles, particularly commercial vehicles. The growth of leasing volumes in Pakistan has been impressive - an average rate of growth of about 35% to 40% has been achieved over past 1 decade or so.