Regulating the leasing industry | Daily News


 

Regulating the leasing industry

This country’s small entrepreneurs will applaud the Government’s recent move to curb the more unsavoury activities of leasing companies wanting to seize their debtors’ assets as usefully convertible wealth. President Gotabaya Rajapaksa last week directed the Police and other authorities to monitor such mercantile asset seizures to prevent unfair practices and the victimisation of poorer, more vulnerable, businesses caught in a debt trap.

The presidential move came after the news media coverage given to the killing of a leading private transport sector organiser – the Chairman of the country’s trishaw taxi association. The hapless industry official was reportedly accosted on the street in a Colombo suburb and beaten to death over issues he was raising concerning the leasing payment problems faced by trishaw taxi owners.

While police investigations are still on-going, there is much speculation that the small-time taxi operators’ leader had suffered at the hands of the more shady elements in the leasing industry.

Leasing of equipment of all kinds is a major component of business expansion and development in a capitalist economy. Following the liberalising of the market economy in 1977 under the J. R. Jayewardene regime, leasing has played a key role in the growth of Sri Lanka’s economy.

The leasing of property and various types of equipment and machinery are critical to the functioning of a modern, expanding economy. In Sri Lanka, a rapidly developing economy with a yet somewhat impoverished society, the expansion of the small business sector was key to betterment of the lower rung social groups. People who were poor and lacked capital to invest, were quick to seize the opportunity offered by the leasing industry to build up their economic clout. With leasing available, the ‘small man’ had the opportunity of becoming a wealthy one very quickly. Small and medium scale enterprises resorted to such resource mobilisation to enable them climb to the next level in business growth.

Major beneficiaries were the smallest of entrepreneurs, the ‘three-wheeler’ taxi operators whose low-budget taxi vehicles were mostly on lease at the start up of business. Sri Lanka boasts of nearly half a million trishaws, many of them obtained on lease.

Sadly, given the antics of the new ‘loan sharks’ who quickly emerged in this latest business sector, both the trishaw taxi operators, as well as their lower-middle-income social class customers, felt the crunch of the debt trap.

Debt traps are holes into which any entrepreneur can fall. But when debt traps result in severe livelihood crises for poor, small-time, business people and leads to social demoralisation, personal collapse and, even fatalities - as it happened last week – then, better social management is needed to prevent things from worsening.

Clearly, the Government was sensitive to such social predicaments. After all, lower middle class entrepreneurs and their dependents are a very large constituency whose impoverishment risks demoralising and incapacitating entire social groups

Trishaws account for 15% of the active motor vehicle fleet at present while trishaw taxi operators are known to attract significant numbers of the country’s labour force, thereby diverting them from wage labour sectors of the economy. Manufacturing plant operators and construction industry operators have been short of labour for their sectors for over a decade partly due to such diversion of the labour cohorts.

So much so that some industry leaders are known to wish for a regulation of trishaw imports. All this is an indication of the social significance of small and medium businesses and business operators and the delicacy with which these sectors and their social constituencies need to be handled.

Ham handed behaviour by some leasing companies in dealing with their debt victims cannot be allowed to occur unchecked. Sri Lankan society has been experiencing such behaviour for too long.

Not all of Sri Lanka’s 62 non-bank and bank leasing firms indulge in such ruthlessly grasping behaviour. That is why it is important that the Government clamps down on unethical business behaviour of this nature in order that the leasing industry as a whole does not suffer from a bad name.

The Finance Business Act (FBA) empowers the Central Bank’s Monetary Board and the Bank’s Director of Supervision of Non-Bank Financial Institutions (SNBFI) to take necessary corrective actions such as imposing penalties, business restrictions, license cancellation and further investigation of company records and such like in the event of misbehaviour by leasing firms.

However, market economics necessarily allows for some tough competition between firms in order that business turnovers are dynamic and profits are maximised. This is what capitalism is all about, in terms of the efficiency of the market.

But when such competitive regimes lead on to more ruthless actions as has been experienced too often in this country, then it is good that the Government steps in. Leasing is a multi-billion rupee industry here and its flourishing should be ensured. Imposing corporate best practices and a moral discipline is an essential part of ensuring that industry success.


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