EQUIPMENT LEASING IN UKRAINE
Robert Teichman, CLP
Bob Teichman, CLP, has been in the leasing business for 42 years, currently serves as an "educator" for the leasing industry with his company Teichman Financial Training, and recently spent 19 days in the Ukraine on a lease education project.
The development of Ukraine's financial markets is a top priority for the United States Agency for International Development (USAID). In this connection, USAID launched the “Access to Credit Initiative” in October 2004 - a five-year project implemented by the Pragma Corporation – in order to develop 4 discrete sectors of Ukraine's financial markets: mortgage, municipal finance, credit bureau and leasing. Given the pool of leasing experience in the US, ATCI asked lessor Bob Homans of Norden Capital and me, together with Pragma's in-country team, to help lay the ground work for the development of leasing in Ukraine.
Ukraine is a country that holds tremendous promise. Since independence in 1991, the country has been moving from a largely centralized economy to a consumer-driven market economy – a major accomplishment in light of Ukraine's recent history. This positive trend towards establishing a market economy has continued to accelerate following Ukraine's “Orange Revolution” last November. One of the government's main goals is to develop financial markets consistent with Western economic models. That's precisely where USAID, Pragma and we fit in.
Availability and access to credit is a basic need for a market economy. While we here in the US are used to the easy availability of all kinds of credit, from credit cards to home equity loans to highly competitive equipment leases, the financial infrastructure for such credit is at an early stage in Ukraine. There are no credit bureaus, for instance, and few equipment leasing companies.
To put matters into context, as of 1 st quarter 2005, Ukraine's total population was approximately 48 million: The number of employees/workers who actually work 50% of the time or more is approximately 10.5 million. According to official statistics, only 33% of those 10.5 million people earn more than UAH 750 (US$ 150) per month . That's about 7.33% of the population. Most people in Ukraine still operate on a cash basis and thus much of it (50 % according to the IMF) takes place in the ‘shadow economy' due to a less-than-friendly tax environment. .
To put it differently, there are less than 200,000 credit cards in Ukraine as of today. That means that only 1 out of every 250 people has a credit card and most of those people live in the major cities. Out in the country-side, you'd be lucky to find someone who has actually seen a credit card as opposed to a debit card which carries no risk to the issuer. With respect to leasing, the industry is in its infancy and that's where Homans and I come into play.
Local and foreign banks provide financing for large companies, but small and medium-sized enterprises, farms and individual borrowers are less likely to find acceptable financing. While Ukrainian banks have made tremendous progress in the last few years, credit extension still remains highly risky as evidenced by high down payments (20-50%), interest rates and collateral requirements. Lending tends to be short term and rarely exceeds 1 year. In addition, while there is a leasing law, the legislative environment remains shaky for both lessor and lessee – particularly in connection with dispute resolution or transaction pricing. These factors all contribute as well to the generally scarcity of funding for leasing companies.
For these reasons, there are few leasing companies in Ukraine, and most concentrate on vehicle leasing. After a series of extensive interviews with lessors, it became clear that there is substantial demand for equipment financing. Local banks, too, are increasingly aware that leasing can be a profitable enterprise. The market is beginning to drive the leasing market and, thus, new companies are seeking advice and training, not to mention funding, to soak up the demand for equipment financing. Farmers and small and medium sized enterprises will be the first to benefit.
The ATCI recognized the need to help lessors learn the wide array of practical techniques at the transaction level that our middle market leasing industry in the US has developed over the past 40 or 50 years. That's exactly what Bob and I and the local Pragma team focus on. By zeroing in on leasing at the lessor/lessee level, ATCI offers consultancy and a series of training courses to lessors, lessees, banks, vendors, and even regulators to enable them to understand leasing and to learn the technical skills and practices needed for an efficient and profitable operation. In addition, ATCI is disseminating information about leasing to the business community, the media and the public.
While in Ukraine in May, I provided training to ATCI staff members and others at a six-day “train-the-trainer” session in Kiev. Local ATCI staff members will in turn provide training to others directly involved in the leasing business. Towards this end, in June, ATCI will hold a basic training session for local vendors and prospective lessees, followed by an intermediate session on lease risk management for banks and leasing companies. Later this year, ATCI plans to hold a national leasing conference and will continue to carry out other “learning” related activities at a variety of different levels.
While I was in class, Bob Homans met with lessors, vendors and prospective lessees to further determine the extent of financing, leasing and investment needs in Ukraine. ATCI recognizes that improving the capacity and quality of the people who are employed by the industry will enhance the growth of the equipment leasing industry. To bring this about will involve the creation of a group of lease professionals – that's precisely one of our main goals. With this goal in mind, ATCI intends to create a certification program that incorporates the principles of the Certified Lease Professional program here in the US.
Equipment leasing in Ukraine is approximately where the US industry was in the 1960's, i.e., before lease brokers, before bank leasing companies, and before credit scoring. In order to meet the demand for equipment and for equipment financing, Ukraine needs knowledgeable lessors and banks as well as a friendlier tax and regulatory environment that more actively encourages leasing in the face of competition from other forms of financing. As barriers to leasing fall, Ukraine's leasing industry is expected to continue to grow – pushed forward, of course, by years of hard-won experience in the US.
Bob Teichman, CLP was born in New York. After attending the High School of Music & Art and the New York College of Music, he received his undergraduate degree from Columbia College. He pursued his graduate studies in Geneva, Switzerland.
He started in automotive leasing in 1963 in sales, then moved into equipment leasing in the late 1960's. For over 20 years he provided funding for leasing companies as an officer of both bank and non-bank lenders. Along the way, he started several successful leasing companies. His company, Teichman Financial Training, located in Sausalito, California, was founded in 1998 and provides lease education and consulting services to lessors, funders, brokers and other members of the financial community.
He is active in the United Association of Equipment Leasing (“UAEL”). For three years he was the Chairman of their Education Committee with responsibility for the Certification Program and Educational Programs. He was also a member of other committees including the Standards Committee. Bob recently finished serving his fourth year as a member of UAEL's Board of Directors.
Bob is a frequent speaker at leasing industry events, and has written articles for UAEL's Newsline and other industry publications. He is a co-author of the Leasing Professional's Handbook.
He currently serves on the Board of Directors of the CLP Foundation and Leasing News Advisory Board.
Bob Teichman, CLP