19% APR

The leasing industry is dead - long live the leasing industry. Atleast in Pakistan.

And why is that:

1. 19.6% EAR (Effective Annual Rate) on a fully secured commercial asset that will depreciate at a rate of 15 - 20% a year over the next three year. No that is not a typo - it is nineteen point six percent. This is with a 20% down payment in an environment where the overnight rate hovers around 8%, the 3 month treasury bill at 8%, the 6 month at 8.4%, the 1 year at 8.79% and the 10 year treasury bond at 9.85%. Cost of deposits runs at between 9 - 11%.

2. No credit for depreciation and a pricing system that makes leases more expensive than bank financing.

3. A processing system that takes somewhere around 10 - 12 days for a decision to come out.

If you are fortunate enough to own any shares of a leading leasing company or investment bank, right now would be the right time to get out. Actually the right time to get out was three years ago but just incase you were hoping that these guys will get their act together any time soon, I think the cause is hopeless.

So where do you go for your funding and financing needs. If you are a small fish like us, for most asset purchases you will find that friends, family and members of your board will be a far easier, ready and cheaper source of cash loans than banking or leasing system in Pakistan. It is nice to go through the process and find out that you are credible enough to lend but you would be better off working outside the system.

If you are bigger fish the friends and family circle doesn't work but you will have the leverage to negotiate your own terms with the system.