Feb 06, 2 002 SEC Notifies Amendments in Leasing Companies

(Establishment and Regulation) Rules, 2000

The Securities and Exchange Commission of Pakistan (SEC) has notified the amendments in the Leasing
Companies (Establishment and Regulation) Rules 2000. The draft amendments have been notified in the
Official Gazette, circulated to all concerned quarters and are also available at the SEC website
http://www.secp.gov.pk to solicit public opinion. Comments from the public, in respect of the proposed
amendments, are invited and the time frame for receipt of comments is fourteen (14) days, i.e. up to
February 20th, 2002.

The amendments aim to make Leasing Companies (Establishment and Regulation) Rules more
comprehensive, practicable and more in line with the Non-Banking Financial Institution (NBFI) Rules of
business, prescribed by the State Bank of Pakistan (SBP). The amendments have been formulated after
extensive discussions with Leasing Association of Pakistan (LAP) and objections and suggestions received
before February 20th 2002 will be considered by SEC before final promulgation of the amendments with
the Ministry of Finance.

Following are the main amendments proposed:

1. Limit of all facilities to be disclosed by a leasing company in its accounts

has been reduced from thirty to twenty percent of its equity.
2. The portion of rule 7(1)(viii)(d) which requires that leasing companies
should ensure that lessee has paid its utility bills has been deleted as
checking of utilities bills is seen as an impediment in their smooth
operations by majority of leasing companies. However, the section relating
to tax payee status of lessee is being retained as it supports the efforts
being made by the government for documentation of the economy as well
as to assist the leasing companies themselves in the process of evaluating
the credit worthiness of their clients.
3. To restrict the exposure to a single person/group by a leasing company,
the exposure limit has been re-defined as 30% of unimpaired capital and
reserves instead of 20% of net investment in lease finance.
4. To allow leasing companies to invest in projects of warehouses, hospitals
and educational institutes, limit subject to maximum of 20 % of the overall
leased portfolio of the company has been proposed.
5. To provide relief to the leasing companies with paid up share capital below
the stipulated level of Rs. 200 million, relaxation has been given in the
form of statutory reserves and other free reserves available for distribution
as bonus shares to be considered as a part of capital to meet the
requirement of Rs. 200 million.
6. Time limit for overdue (past due) profit to be put in a suspense account
has been reduced to 90 days.
7. A new rule has been proposed, that will enable the Commission to
accommodate genuine requests for relaxation of certain
requirements/conditions proposed by leasing companies and obviate the
need to amend rules every now and then.
8. A new rule has been proposed, that will enable the Commission to
accommodate genuine requests for relaxation of certain
requirements/conditions proposed by leasing companies and obviate the
need to amend rules every now and then.
Chapter 2

Definition of Insurance

• Insurance is the pooling of fortuitous losses by transfer of such risks to insurers, who agree to
indemnify insureds for such losses, to provide other pecuniary benefits on their occurrence, or
to render services connected with the risk

Basic Characteristics of Insurance (1 of 4)

• An insurance plan or arrangement typically includes the following characteristics:

– Pooling of losses

– Payment of fortuitous losses

– Risk transfer

– indemnification

• Pooling involves spreading losses incurred by the few over the entire group

Basic Characteristics of Insurance (2 of 4)

• Example of Pooling:

– Two business owners own identical buildings valued at $50,000

– There is a 10 percent chance each building will be destroyed by a peril in any year

– Loss to either building is an independent event

– Expected value and standard deviation of the loss for each owner is:

Basic Characteristics of Insurance (3 of 4)

• Example, continued:

– If the owners instead pool (combine) their loss exposures, and each agrees to pay an
equal share of any loss that might occur:

–
 As additional individuals are added to the pool, the standard deviation continues to
decline while the expected value of the loss remains unchanged

Law of Large Numbers

• Risk reduction is based on the Law of Large Numbers

• According to the Law of Large Numbers, the greater the number of exposures, the more closely
will the actual results approach the probable results that are expected from an infinite number
of exposures.

Basic Characteristics of Insurance (4 of 4)

• Payment of fortuitous losses

– A fortuitous loss is one that is unforeseen, unexpected, and occur as a result of chance

• Risk transfer

– A pure risk is transferred from the insured to the insurer, who typically is in a stronger
financial position

• Indemnification

– The insured is restored to his or her approximate financial position prior to the
occurrence of the loss

Characteristics of an Ideally Insurable Risk (1 of 3)

• Large number of exposure units

– to predict average loss based on the law of large numbers

• Accidental and unintentional loss

– to assure random occurrence of events

• Determinable and measurable loss

– to determine how much should be paid

Characteristics of an Ideally Insurable Risk (2 of 3)

• No catastrophic loss

– to allow the pooling technique to work

– exposures to catastrophic loss can be managed by using reinsurance, dispersing

coverage over a large geographic area, or using financial instruments, such as
catastrophe bonds

• Calculable chance of loss

– to establish a premium that is sufficient to pay all claims and expenses and yields a
profit during the policy period
Characteristics of an Ideally Insurable Risk (3 of 3)

• Economically feasible premium

– so people can afford to purchase the policy

– For insurance to be an attractive purchase, the premiums paid must be substantially less
than the face value, or amount, of the policy

• Based on these requirements:

– Most personal, property and liability risks can be insured

– Market risks, financial risks, production risks and political risks are difficult to insure

xhibit E2.1 Fire as an Insurable Risk

Requirements Does the risk of fire satisfy the requirements?

1. Large number of exposure units Yes. Numerous exposure units are present.

Yes. With the exception of arson, most fire losses are accid
2. Accidental and unintentional loss
unintentional.

Yes. If there is disagreement over the amount paid, a prope

3. Determinable and measurable loss
policy has provisions for resolving disputes.

Yes. Although catastrophic fires have occurred, all exposure

4. No catastrophic loss
do not burn at the same time.

Yes. Chance of fire can be calculated, and the average seve

5. Calculable chance of loss
can be estimated in advance.

6. Economically feasible premium Yes. Premium rate per $100 of fire insurance is relatively lo

Unemployment as an Insurable Risk

Requirements Does the risk of unemployment satisfy the requirements?

1. Large number of exposure units Not completely. Although there are a large number of employees, pred
often difficult because of the different types of unemployment and diff

2. Accidental and unintentional loss Not always. Some unemployment is due to individuals who voluntarily
 3. Determinable and measurable loss Not completely. The level of unemployment can be determined, but th
may be difficult. Most unemployment is involuntary because of layoffs
have completed temporary jobs. However, some unemployment is vol
voluntarily change jobs because of higher wages, a change in careers, f
relocation to another state, or other reasons.

4. No catastrophic loss No. A severe national recession or depressed local business conditions
result in a catastrophic loss.

5. Calculable chance of loss Not completely. The different types of unemployment in specific occup
difficult for actuaries to estimate the chance of loss accurately.

6. Economically feasible premium Not completely. Adverse selection, moral hazard, policy design, and th
catastrophic loss could make the insurance too expensive to purchase.
will pay unemployment benefits in certain cases where the unemploym
the loss payments are relatively small, such as waiver of life insurance
months, or payment of credit card minimum payments for a limited pe

Adverse Selection and Insurance

• Adverse selection is the tendency of persons with a higher-than-average chance of loss to seek
insurance at standard rates

• If not controlled by underwriting, adverse selection results in higher-than-expected loss levels

• Adverse selection can be controlled by:

– careful underwriting (selection and classification of applicants for insurance)

– policy provisions (e.g., suicide clause in life insurance)

Insurance and Gambling Compared

Insurance

• Handles an already existing pure risk

• Is always socially productive:

– both parties have a common interest in the prevention of a loss

Gambling

• Creates a new speculative risk

• Is not socially productive

– The winner’s gain comes at the expense of the loser

Insurance and Hedging Compared

Insurance

• Risk is transferred by a contract

• Involves the transfer of pure (insurable) risks

• Moral hazard and adverse selection are more severe problems for insurers

Hedging

• Risk is transferred by a contract

• Involves risks that are typically uninsurable

• Fewer problems of moral hazard and adverse selection for entities who buy or sell futures
contracts

Types of Insurance (1 of 5)

• Insurance can be classified as either private or government insurance

– Private insurance includes life and health insurance as well as property and liability
insurance

– Government insurance includes social insurance programs and other government

insurance plans

Types of Insurance (2 of 5)

• Life and Health

– Life insurance pays death benefits to beneficiaries when the insured dies

– Health insurance covers medical expenses because of sickness or injury

Types of Insurance (3 of 5)

• Property and Liability

– Property insurance indemnifies property owners against the loss or damage of real or
personal property

– Liability insurance covers the insured’s legal liability arising out of property damage or
bodily injury to others

– Casualty insurance refers to insurance that covers whatever is not covered by fire,
marine, and life insurance

Types of Insurance (4 of 5)

• Private insurance coverages can be grouped into two major categories

– Personal lines: coverages that insure the real estate and personal property of individuals
and families or provide protection against legal liability
 – Commercial lines: coverages for business firms, nonprofit organizations, and
government agencies

Types of Insurance (5 of 5)

• Social Insurance Programs

– Financed entirely or in large part by contributions from employers and/or employees

– Benefits are heavily weighted in favor of low-income groups

– Eligibility and benefits are prescribed by statute

– Examples: Social Security, Unemployment, Workers Comp

• Other Government Insurance Programs

– Found at both the federal and state level

– Examples: Federal flood insurance, state health insurance pools

Benefits of Insurance to Society

• Indemnification for Loss

• Reduction of Worry and Fear

• Source of Investment Funds

• Loss Prevention

• Enhancement of Credit

Costs of Insurance to Society (1 of 2)

• The major social costs of insurance include:

– Cost of Doing Business

▪ An expense loading is the amount needed to pay all expenses, including

commissions, general administrative expenses, state premium taxes, acquisition
expenses, and an allowance for contingencies and profit

– Fraudulent Claims

Inflated Claims

Costs of Insurance to Society (2 of 2)

• Higher premiums to cover additional losses reduce disposable income and consumption of other
goods and service

Chapter 5

Overview of Private Insurance in the Financial Service Industry (2 of 2)

 In 2013, the U.S. insurance
industry employed 2.4 million people

Types of Private Insurers (1 of 11

• Size of the insurance market, 2013

 – Life and health insurers: 850 - these insurers sell life and health insurance products,
annuities, mutual funds, pension plans, and related financial products

– Property and casualty insurers: 2623 - these insurers sell property and casualty
insurance and related lines, including inland marine coverages and surety and fidelity
bonds

Exhibit 5.1 Top Ten Writers of Insurance Annuities by Direct Premiums Written, 2013 (in
Thousands of $)

Ran Group/Company Direct Premiums Written1 Marke

k

1 MetLife Inc., $ 85,001,696 14.9 %

2 Prudential Financial Inc., 41,407,447 7.3

3 Jackson National Life Group 25,728,116 4.5

4 AEGON 24,499,916 4.3

5 Lincoln National Corp. 24,274,104 4.3

6 New York Life Insurance Group 24,223,396 4.3

7 American International Group 21,698,620 3.8

8 Voya Financial Inc. 20,228,599 3.6

9 Manulife Financial Corp. 19,263,216 3.4

10 Principal Financial Group Inc. 18,909,416 3.3

1
Includes life insurance, annuity considerations, deposit-type contract funds and other
considerations, excludes accident and health insurance. Before reinsurance transactions.
2
Based on U.S. total, includes territories.

Data are from SNL Financial LC.

Source: The Insurance Face Book, 2015, p.15, Insurance Information Institute. Reprinted with
permission.

Exhibit 5.2 Top Ten Writers of Property/Casualty Insurance by Direct Premiums Written, 2013
(in Thousands of $)
 Rank Group/Company Direct Premiums Market Share2
Written1

1 State Farm Mutual Automobile $ 55,994,246 10.3 %

Insurance

2 Liberty Mutual 28,906,283 5.3

3 Allstate Corp. 27,583,581 5.1

4 American International Group 23,169,106 4.2

5 Travelers Companies Inc. 22,842,941 4.2

6 Berkshire Hathaway Inc. 18,284,148 3.4

7 Farmers Insurance Group of 18,079,537 3.3

Companies3

8 National wide Mutual Group 17,802,678 3.3

9 Progressive Corp. 17,562,610 3.2

10 USAA Insurance Group 14,562,012 2.7

1
Below reinsurance transactions, includes state funds.
2
Based on U.S. total, includes territories.
3
Data for Farmers Insurance Group of Companies and Zurich Financial Group(which owns Farmers 1
management Company) are reported separately by SNL Financial.

Data are from: SNL Financial LC.

Source: The Insurance Fact Book, 2015, p. 15. Insurance Information Institute. Reprinted with
permission.

Types of Private Insurers (2 of 11)

• Insurers can be classified by their organizational form:

– Stock insurers
 – Mutual insurers

– Reciprocal exchanges

– Lloyd’s of London

– Blue Cross and Blue Shield Plans

– Health maintenance organizations (H M Os)

– Other types of private insurers

Types of Private Insurers (3 of 11)

• A stock insurer is a corporation owned by stockholders

– Objective: earn profit for stockholders by increasing the value of stock and paying
dividends

– Stockholders elect board of directors

– Stockholders bear all losses

– Insurer cannot issue an assessable policy

Types of Private Insurers (4 of 11)

• A mutual insurer is a corporation owned by the policy owners

– Policy owners elect board of directors, who have effective management

– Policyholders may receive dividends or rate reductions

Types of Private Insurers (5 of 11)

– There are three main types of mutual insurers:

 An advance premium mutual is owned by the policyowners; there are no

stockholders, and the insurer does not issue assessable policies

 An assessment mutual has the right to assess policyowners an additional

amount if the insurer’s financial operations are unfavorable

 A fraternal insurer is a mutual insurer that provides life and health insurance to
members of a social or religious organization

Types of Private Insurers (6 of 11)

• The corporate structure of mutual insurers is changing due to:

– An increase in company mergers

– Demutualization, whereby a mutual company is converted into a stock insurer

– The creation of mutual holding companies

 – A holding company is a company that directly or indirectly controls an authorized
insurer

Exhibit 5.3 Mutual Holding Company Illustration

Types of Private Insurers (7 of 11)

• Lloyd’s of London is not an insurer, but a society of members who underwrite insurance in
syndicates

– Membership includes corporations, individual members (called Names), and limited

partnerships

– New individual members now have limited legal liability

– Corporations with limited legal liability and limited liability partnerships can also join
Lloyd’s of London

– Members must meet stringent financial requirements

– Lloyd’s is licensed only in a small number of jurisdictions in the U.S.

Types of Private Insurers (8 of 11)

• A reciprocal exchange can be defined as an unincorporated organization in which insurance is

exchanged among the members (called subscribers)

– Insurance is exchanged among the members; each member of the reciprocal insures the
other members

– It is managed by an attorney-in-fact
 – Most reciprocals are relatively small and specialize in a limited number of lines of
insurance

Types of Private Insurers (9 of 11)

• Blue Cross and Blue Shield Plans are generally organized as nonprofit, community oriented
plans

– Blue Cross plans provide coverage for hospital services

– Blue Shield plans provide coverage for physicians’ and surgeons’ fees

– Most plans have merged into one entity

– Many sponsor H M Os and P P Os

– Some plans have converted to a for-profit status to raise capital and become more
competitive

Types of Private Insurers (10 of 11)

• A Health Maintenance Organization (H M O) provides comprehensive health care services to its

members

– Broad health care services are provided for a fixed prepaid fee

– Cost control is emphasized

– Choice of health care providers may be restricted

– Less costly forms of treatment are often provided

Types of Private Insurers (11 of 11)

• A captive insurer is an insurer owned by a parent firm for the purposes of insuring the parent
firm’s loss exposures

– A single parent, or pure, captive is an insurer owned by one parent

– An association captive is owned by several parents

• Savings Bank Life Insurance refers to life insurance that is sold by mutual savings banks, over
the phone or through Web sites

Agents and Brokers (1 of 3)

• An agent is someone who legally represents the principal and has the authority to act on the
principal's behalf

• Authority may be:

– Expressed

– Implied
 – Apparent

• The principal is legally responsible for all acts of an agent when the agent is acting within the
scope of authority

Agents and Brokers (2 of 3)

• A property and casualty agent has the power to bind the insurer

– A binder provides temporary insurance until the policy is actually written

• A life insurance agent normally does not have the authority to bind the insurer

– The applicant for life insurance must be approved by the insurer before the insurance
becomes effective

Agents and Brokers (3 of 3)

• A broker is someone who legally represents the insured, and:

– solicits applications and attempts to place coverage with an appropriate insurer

– is paid a commission from the insurers where the business is placed

– does not have the authority to bind the insurer

• A surplus lines broker is licensed to place business with a nonadmitted insurer

– Surplus lines refer to any type of insurance for which there is no available market within
the state, and coverage must be placed with a nonadmitted insurer

Life Insurance Marketing (1 of 4)

• The majority of life insurance policies and annuities sold today are through personal selling
distribution systems

– Commissioned agents solicit and sell life insurance products to prospective insureds

– Career, or affiliated, agents are full-time agents who usually represent one insurer and
are paid on a commission basis.

– In a multiple line exclusive agency system, agents who sell primarily property and
casualty insurance also sell individual life and health insurance products.

Life Insurance Marketing (2 of 4)

– Independent property and casualty agents are independent contractors who represent
several insurers and sell primarily property and casualty insurance

– A personal-producing general agent (P P G A) is an independent agent who places

substantial amounts of business with one insurer and has a special financial
arrangement with that insurer
 – Brokers are independent agents who do not have an exclusive contract with any single
insurer

Life Insurance Marketing (3 of 4)

• Many insurers today use commercial banks and other financial institutions as a distribution
system

• A direct response system is a marketing system by which insurance products are sold directly to
consumers without a face-to-face meeting with an agent

– Acquisition costs can be held down, but complex products are difficult to sell this way

Life Insurance Marketing (4 of 4)

• Other forms of life insurance distribution include:

– Worksite marketing

– Stock brokers

Financial planners

Property and Casualty Insurance Marketing (1 of 2)

• The independent agency is a business firm that usually represents several unrelated insurers

– Agents are paid a commission based on the amount of business produced, which vary by
the line of insurance

– The agency owns the expirations or renewal rights to the business; it may bill the
policyholders and collect premiums, but most insurers use direct billing

– Agents may be authorized to adjust small claims and may provide loss control services
to their insurers

Property and Casualty Insurance Marketing (2 of 2)

• Under the exclusive agency system, the agent represents only one insurer or group of insurers
under common ownership

– Agents do not usually own the expirations or renewal rights to the policies

– Agents are generally paid a lower commission rate on renewal business than on new
business

– Exclusive agency insurers provide strong support services to new agents

Marketing Systems in Property and Liability Insurance

• A direct writer is an insurer in which the salesperson is an employee of the insurer, not an
independent contractor.

– Employees are usually compensated on a “salary plus” arrangement

 • A direct response insurer sells directly to the consumer by television or some other media

• Many property and casualty insurers use multiple distribution systems

Group Insurance Marketing

• Many insurers use group marketing methods to sell individual insurance policies to:

– Employer groups

– Labor unions

– Trade associations

• Products are sold through group representatives, employees who receive a salary and incentive
payments based on sales.

• Some property and liability insurers use mass merchandising plans to market their insurance

• Employees typically pay for insurance by payroll deduction

Ammendment:

The Securities and Exchange Commission of Pakistan (SEC) has notified the amendments in the
Leasing Companies (Establishment and Regulation) Rules 2000. The draft amendments have been
notified in the Official Gazette, circulated to all concerned quarters and are also available at the SEC
website http://www.secp.gov.pk to solicit public opinion. Comments from the public, in respect of
the proposed amendments, are invited and the time frame for receipt of comments is fourteen (14)
days, i.e. up to February 20th, 2002.

The amendments aim to make Leasing Companies (Establishment and Regulation) Rules more
comprehensive, practicable and more in line with the Non-Banking Financial Institution (NBFI) Rules
of business, prescribed by the State Bank of Pakistan (SBP). The amendments have been formulated
after extensive discussions with Leasing Association of Pakistan (LAP) and objections and suggestions
received before February 20th 2002 will be considered by SEC before final promulgation of the
amendments with the Ministry of Finance.

Following are the main amendments proposed:

1. Limit of all facilities to be disclosed by a leasing company in its accounts has been reduced from
thirty to twenty percent of its equity.
2. The portion of rule 7(1)(viii)(d) which requires that leasing companies should ensure that lessee
has paid its utility bills has been deleted as checking of utilities bills is seen as an impediment in their
smooth operations by majority of leasing companies. However, the section relating to tax payee
status of lessee is being retained as it supports the efforts being made by the government for
documentation of the economy as well as to assist the leasing companies themselves in the process
of evaluating the credit worthiness of their clients.

3. To restrict the exposure to a single person/group by a leasing company, the exposure limit has
been re-defined as 30% of unimpaired capital and reserves instead of 20% of net investment in lease
finance.

4. To allow leasing companies to invest in projects of warehouses, hospitals and educational

institutes, limit subject to maximum of 20 % of the overall leased portfolio of the company has been
proposed.

5. To provide relief to the leasing companies with paid up share capital below the stipulated level
of Rs. 200 million, relaxation has been given in the form of statutory reserves and other free
reserves available for distribution as bonus shares to be considered as a part of capital to meet the
requirement of Rs. 200 million.

6. Time limit for overdue (past due) profit to be put in a suspense account has been reduced to 90
days.

7. A new rule has been proposed, that will enable the Commission to accommodate genuine
requests for relaxation of certain requirements/conditions proposed by leasing companies and
obviate the need to amend rules every now and then.

8. A new rule has been proposed, that will enable the Commission to accommodate genuine
requests for relaxation of certain requirements/conditions proposed by leasing companies and
obviate the need to amend rules every now and then.
 The Gazette of Pakistan

EXTRA ORDINARY

PUBLISHED BY AUTHORITY

ISLAMABAD, SEPTEMBER 25, 2000

PART II

Statutory Notifications (S.R.O.)

GOVERNMENT OF PAKISTAN
SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN

Islamabad, the 25th September, 2000

NOTIFICATION

S.R.O. ----(I)/2000.- In exercise of powers conferred by section 506 of the

Companies Ordinance, 1984 (XLVII of 1984), read with Finance Division's Notification
No. S.R.O. 698(I)/86, DATED July 2, 1986, the Securities and Exchange Commission
of Pakistan hereby makes the following rules, the same having been published
previously as required by the said section, namely :-

THE LEASING COMPANIES (ESTABLISHMENT AND REGULATION) RULES, 2000

(As amended upto December 21, 2000)

1. Short title and commencement. - (1) These rules may be called the
Leasing Companies (Establishment and Regulation) Rules, 2000.

(2) They shall come into force at once.

2. Definitions. - (1) In these Rules, unless there is anything repugnant in

the subject or context ,-

(a) “Certificate of investment” means a certificate of investment issued by a

leasing company under these rules;

(b) “Commission" means the Securities and Exchange Commission of

Pakistan established under Securities and Exchange Commission of
Pakistan Act , 1997(XLII of 1997);

(c) “company” means a company incorporated under the Companies

Ordinance, l984 (XLVII of l984);
(d) "documents" include vouchers, bills, promissory notes, securities for
leases, advances and claims by or against the company and other
documents supporting entries in the books of the leasing company;

(e) "equity" includes paid up share capital, free reserves,

unappropriated profits and subordinated loans excluding deferred tax
reserves and treasury stocks;

(f) "exposure or facilities" include fund based and non-fund based facilities;

(g) "Form" means the Form annexed to the rules;

(h) "Government securities" include such types of Pakistani rupee and foreign
currency obligations of the Federal Government or of a Corporation wholly
owned or controlled, by the Federal Government or Provincial
Government and guaranteed by the Federal Government as the Federal
Government may, by notification in the Official Gazette, declare to the
extent determined from time to time, to be Government securities;

(i) "leasing company" means a company engaged wholly in the business of

leasing or which invests in such business at any one time an amount
equivalent to at least seventy per cent of its assets.

Provided that cash and bank balances and investment in

government securities shall be excluded to calculate investment in leasing
business for purposes of this definition;

(j) "lease key money" means lease security deposit;

(k) "major shareholder" means any person holding five per cent or more of
the paid-up share capital;

(l) "NBFI" means a Non-Bank Financial Institution and includes a DFI,

Modaraba, Leasing Company, Housing Finance Company, Investment
Bank, Discount House and Venture Capital Company;

(m) “Ordinance” means the Companies Ordinance, l984 (XLVII of l984);

(n) "person" includes an individual, a Hindu undivided family, a firm, an

association or body of individuals whether incorporated or not, a
company and every other juridical person;

(o) "records" includes ledgers day books, cash books and all other manuals
or magnetic records used in the business of the leasing company; and

(p) "small entrepreneurs" mean individuals, firms and companies having fixed
assets excluding land and building of the value of not more than twenty
 million rupees and facilities allowed to the software exporters or software
houses and information technology companies;

(2) The words and expressions used in these rules but not defined shall have
the same meanings as are assigned to them in the Companies Ordinance, 1984 (XLVII
of 1984).

3. Eligibility conditions for the establishment of a leasing company.- A

leasing company may be established if each of its sponsors, proposed directors, chief
executive and chairman of the Board of Directors fulfills the following terms and
conditions, namely:-

(a) he has not been associated with any illegal banking business, deposit
taking or financial dealings;

(b) he and companies in which he is a director or major shareholder, have no

over-due loans or instalments outstanding towards banks or NBFIs;

(c) neither he nor the companies in which he is a director or major

shareholder has defaulted in the payment of taxes as on the date of
application;

(d) he has not been sponsor, director or chief executive of a defaulting co-
operative finance society or finance company;

(e) he has never been convicted of fraud or breach of trust or of an offence

involving moral turpitude or removed from service for misconduct;

(f) he has neither been adjudged as insolvent nor suspended payment of his
debts nor has compounded with his creditors; and

(g) except for a nominee director, his net-worth as per wealth statements
submitted with the tax authorities is not less than twice the amount to be
subscribed by him personally;

4. Permission to form a leasing company.- (1) A person desirous of

forming a leasing company shall make an application to the Commission as set out in
Form-1 providing information, as given in Annexure thereto, along with all the relevant
documents and receipt evidencing the payment of non-refundable processing fee
amounting to one hundred thousand rupees.

(2) The Commission may, if it is satisfied that the persons seeking permission
to form the leasing company has fulfilled the terms and conditions specified in rule 3,
permit by an order in writing such person to establish a leasing company.

(3) The permission granted under sub-rule (2) shall be valid for a period of six
months unless extended for a maximum period of three months under special
circumstances, on the application of the promoters made before the expiry of said six
months.

5. Conditions for grant of licence.- A leasing company shall not be

granted licence unless it fulfills the following conditions, namely;

(a) it is incorporated as a public limited company under the Ordinance;

(b) it has a minimum paid-up share capital of two hundred million rupees;

(c) it has allotted at least fifteen per cent of the paid-up share capital to the
promoters;

(d) its promoters and directors have given undertaking that they shall not
dispose of their shares for a minimum period of three years from the date
of commencement of business except with the prior approval of the
Commission;

(e) appoints its chief executive who does not hold such office in any bank or
Non-Bank Financial institution or insurance company or investment
company;

(f) it has given an undertaking that no change in the Memorandum of

Association and in the directors shall be made without prior authorization
of the Commission and that all conditions of rule 3 shall be complied with;
and

(g) it has given undertaking that the conditions of operation set out in these
rules or specified by special order of Commission shall be duly complied.

6. Commencement of leasing operations.- (1) A leasing company shall

commence business and its operations only after it has been issued a licence under
these rules.

(2) A leasing company shall make an application for obtaining a licence in

Form- II.

(3) The licence to carry on business as a leasing company shall be granted

by the Commission as set out in Form- III.

(4) Without prejudice to the terms and conditions set out in rule 7, the
Commission may while granting licence, or subsequently, impose any other conditions
as it may deem necessary.

7. Terms and conditions of operation.- A leasing company shall operate

in accordance with the following conditions, namely:-

(1) it shall -
(i) invest its assets in leasing business as provided in clause (i) of rule
2;

(ii) appoint as its chief executive and at least one of the directors having
senior management level experience in financial sector preferably
in leasing sector for at least five years ;

(iii) appoint its chief accounting officer who is a chartered accountant or

a Cost and Management Accountant or a person having Master’s
Degree in Commerce or Business Administration with finance
specialization and experience of at least five years of accounting in
a responsible position;

(iv) disclose all facilities exceeding thirty per cent of its equity in its
accounts;

(v) maintain accounts of leasing operations having regard to the

International Accounting Standards notified under sub-section (3) of
section 234 of the Ordinance and technical releases issued by
Institute of Chartered Accountants of Pakistan;

(vi) create reserve fund to which shall be credited -

(a) an amount not less than twenty per cent of its after tax profits till
such time the reserve fund equals the amount of the paid up
capital; and

(b) thereafter, a sum not less than five per cent of its after tax
profits:

Explanation.- Issuance of bonus shares shall only be made

from the reserves available after appropriation created under
clause (b) and since such bonus shares will increase the paid
up capital, the leasing company shall transfer further amounts
to the reserves in order to comply with condition of clause (a);

(vii) ensure, while granting any facilities, that total facilities availed by any
borrower or lessee from Non-Bank Financial Institutions and Banks
does not exceed ten times of the equity of the borrower or lessee
and obtain copy of accounts relating to the business of each of its
borrower/lessee for analysis and record in the following manner,
namely :-
 Explanation .- Surplus arising on revaluation of assets determined in
accordance with International Accounting Standards by a firm of
Chartered Accountants approved by the Commission for this purpose
may be considered for the purpose of calculating the exposure limit
under this rule. The surplus on revaluation of assets so determined is
required to be reflected in the balance sheet of the borrower or
lessee.

(viii) ensure, while granting any facility exceeding one million rupees, that
-

(a) current asset to current liabilities ratio of the borrower/lessee

does not fall below 1:1: or any ratio as prescribed from time to
time, however, this condition may be relaxed in case of facilities
upto two million rupees by recording reasons itsof.
 Provided that current maturities of long term debt not
yet due for payment may be excluded from the current liabilities
for the purpose of calculating this ratio;

(b) long term debt equity ratio does not exceed 60:40 or any other
ratio as prescribed; and

(c) due weightage is given to credit report relating to the borrower

or lessee and his group obtained from Credit Information
Bureau of the State Bank of Pakistan. If the credit reports
indicate default, the further facilities shall be extended only after
recording reasons to do so;

Explanation.- "Group" means a set of business companies or

concerns under joint control or associated together or
subsidiaries of a holding company; and

(d) lessee is registered tax payer and has paid its utility bills.

(ix) provide facilities at least five per cent of its fund based facilities to
small entrepreneurs.

(x) acquire and maintain membership of Leasing Association of Pakistan

(LAP) and follow the code of conduct prescribed by the said
Association.

(xi) follow guidelines issued to safeguard leasing company against their

involvement in money laundering activities and other unlawful trades,
it shall add to or reinforce the following precautions, a leasing
company may have been taking in this regard; namely :-

(a) leasing company shall make reasonable efforts to determine the

true identity of the customer before extending their services and
particular care shall be taken to identify ownership of all
accounts and those using safe custody facilities, effective
procedures shall be instituted for obtaining identification from
new customers and an explicit policy shall be devised to ensure
that significant business transactions are not conducted with
customers who fail to provide evidence of their Identity;

(b) leasing company shall ensure that business is conducted in

conformity with high ethical standards and that rules and
regulations are adhered to. It is accepted that leasing company
normally does not have effective means of knowing whether a
transaction stems form or forms part of wrongful activity.
Similarly, in an International context, it may be difficult to ensure
that cross border transactions on behalf of customers are in
 compliance with the regulations of another country.
Nevertheless, leasing company shall not set out to offer
services or provide active assistance in transactions which in
their opinion are associated with money derived from illegal
activities; and

(c) leasing company shall establish specific procedures for

ascertaining customer status and his sources of earning for
monitoring of accounts on a regular basis for checking identities
and bonafides of remitters and beneficiaries, for retaining
internal record of transactions for future reference. The
transactions, which are out of character with the normal
operation of the account involving high deposits, withdrawals
and transfers, shall be viewed with suspicion and property
investigated.

(xii) keep the information upto date provided in annexures to Form I and
II by communicating changes and modification therein within
fourteen days of such change or modifications.

(xiii) provide return on deposits which may be different for different

volumes of deposits provided uniformity is observed within each
category but deposits etc. of listed companies, recognised charitable
trusts and statutory bodies shall, however, be exempt.

(2) It shall not -

(i) make exposure to a single group for more than twenty per cent of
the net investment in leasing finance, however, in arriving at
exposure per person under this rule, the following shall be
excluded, namely :-

(a) ninety per cent of certificates of deposit and certificates of

investments of the lessee under lien with the leasing
company;

(b) face value of FIBs lodged by the lessee as collateral; and

(c) Pak rupee equivalent of the face value of Special US Dollar

Bonds converted at official rate, lodged by the lessee as
collateral.

(ii) allow facilities to any of its directors or to individuals, firms or

companies in which it or any of its director is interested as partner,
director or guarantor, as the case may be, its chief executive and
its major shareholders, including their spouses, parents and
children or to firms and companies in which they are interested as
 partners, directors or major shareholders of that concern without
the approval by the directors of that leasing company:

Provided that the director interested in seeking such

approval shall not take part in the proceedings of the approval of
the facility;

(iii) allow unsecured facilities or facilities secured only by guarantees

except the facilities provided against bank guarantees, the end use
of which will be verified by the leasing company to be productive;

Provided that the bank providing guarantee shall have rating

grade not lower than BBB;

(iv) grant unsecured facilities to or allow facilities on the guarantees of

its chief executive, directors and major shareholders including their
spouses, parents, and children or to firms and companies in which
they are interested as partners, directors or major shareholders of
that concern;

(v) appoint or elect more than twenty-five percent of its directors from
the same family, including spouse, dependent lineal ascendants
and descendants and dependent brothers and sisters;

(vi) undertake the business of real estate or provide funds to the

construction companies, builders and developers and companies
dealing in real estate:

Provided that a leasing company may lease machinery,

equipment and vehicles to the construction companies;

(vii) hold, deal, or trade in real estate except for use of leasing company
itself;

(viii) engage in leasing operations pertaining to -

(a) open land;

(b) buildings, other than factory building and office building

located within or outside the factory premises to be used
exclusively as such by a lessee, subject to a maximum of one
hundred and twenty square feet per employee and residential
undertaking and warehouses; and

(c) furniture or furnishing of any type:

 Provided that the company may lease hard furniture
excluding carpets and curtains upto five per cent of its
portfolio;

(ix) fix the period of lease for less than three years in the case of any
lease agreement except in case of computers and other equipment
used in information technology;

(x) remove any of its records or documents relating to its business

from Pakistan to a place outside Pakistan without the prior
permission of the Commission;

(xi) allow facilities for speculative purposes;

(xii) make change in its chief executive and board of directors excluding
director nominated by creditors and sponsoring financial institutions
without prior approval of the Commission; and

(xiii) make investment in un-quoted shares of any company without the

approval of the Commission

(3) The companies granted licence before the commencement of these

Rules, shall raise the paid up capital to two hundred million rupees by 30th June, 2001.

8. Limits on exposure.- (1) Liabilities, excluding contingent liabilities, of a

leasing company shall not exceed seven times of its equity during first two years of its
operations and ten times of the equity in the subsequent years.

(2) Contingent liabilities of a leasing company shall also not exceed seven
times of its equity during the first two years of its operations and ten times of the equity
in the subsequent years.

9. Margin against facilities.- (1) Following minimum margins shall be

maintained against various facilities and all guarantees will be backed by 100%
realizable securities -

(a) in case of performance bonds, the condition of 100% cover of

realizable securities may be relaxed subject to minimum compulsory
realizable security cover equivalent to 20% of the amount of the
performance bond;

(b) in case of guarantees issued against mobilisation advance, the

condition of 100% cover of realizable securities may be relaxed
subject to the following conditions, namely :-

(i) guarantees issued should contain a clause that the

mobilisation advance shall be released by the beneficiary
through the guarantor leasing company only; and
 (ii) at the time of issuing such a guarantee the beneficiary should
sign an agreement with the leasing companies that releases
out of mobilisation advance would be covered by realizable
assets; and

(c) in case of bid bonds issued on behalf of domestic consultancy firms

bidding for international contracts where the consultancy fees are to
be received in foreign exchange, the requirement of 100% cover by
realizable securities may be waived off, and this relaxation would
also be available to all suppliers of goods and services bidding
against international tenders.

(2) No leasing company shall provide unsecured facilities to finance subscription

towards floatation of share capital of public limited companies or allow facilities against
its own shares or shares of its associated undertaking and subsidiaries thereof or
shares of companies not listed on the Stock Exchange and shares of listed companies
obtained as collateral shall be subject to the following minimum margins,
namely :-

(a) where the current market value does not exceed the preceding
twelve months average market value, 20% of the current market
value;

(b) where current market value exceeds the preceding twelve months'
average market value but does not exceed twice the preceding
twelve months' average market value, 40% of the current market
value; and

(c) Where the current market value exceeds twice the preceding twelve
months' average current market value, 50% of the current market
value.

Provided that no leasing company shall hold shares in any

company as pledgee or mortgagee, of an amount exceeding thirty
percent of its own equity or thirty per cent of the paid-up capital of
that company whichever is less.

(3) Certificates of deposit of banks with investment grade will be subject to a

margin of 15% and COIs/COMs, TFCs with investment grade rating but not lower than
BBB will be subject to a margin of 25% of face value or market value whichever is less.

(4) Facilities against pledge of trading stocks shall be subject to a margin of

25%.

(5) Facilities against hypothecation shall be subject to a margin of 50%.

 10. Provisioning for non-performing assets:- Every leasing company shall
follow prudential guidelines in the matter of classification of its assets and provisioning
there against as specified below:

A. Short Term Facilities:-

Nature Of For Finance Lease, Provisions to be made

Classificat-ion Operating Lease and
Term Loans
1. Overdue Where rentals, profit or No provision is to be made.
mark up or principal are
overdue (past due) by
180 days from the due
date.

2. Substandard Where rentals, profit or Provision of 20% of the difference

mark up or principal are resulting from the outstanding
overdue (past due) by balance of net investment in lease
181 days but less than finance and principal less the
one year from the due amount of liquid assets realizable
date. without recourse to a Court of Law
and forced sale value of leased
assets as valued by valuers
fulfilling prescribed eligibility
criteria, in accordance with the
guidelines provided in this rule.
3. Doubtful Where rentals, profit or Provision of 50% of the difference
mark up or principal resulting from the outstanding
are overdue (past due) balance of net investment in lease
more than one year but finance and principal less the
less than two years amount of liquid assets realizable
from due date. without recourse to a Court of Law
and forced sale value of leased
assets as valued by valuers
fulfilling prescribed eligibility
criteria, in accordance with the
guidelines provided in this rule.

4. Loss Where rentals, profit or Provision of 100% of the

mark up or principal difference resulting from the
are overdue (past due) outstanding balance of net
beyond two years from investment in lease finance and
the due date. principal less the amount of liquid
assets realisable without recourse
to a Court of Law and forced sale
value of leased assets as valued
by valuers fulfilling prescribed
eligibility criteria, in accordance
 with the guidelines provided in this
rule.

B - Long Term Facilities:-

Nature Of For Finance Lease/ Operating Provisions to be made

Classification Lease/ Term Loans
1.Overdue Where rentals, profit or mark up No provision is to be made.
or principal are overdue (past
due) for one year from the due
date.

2.Substandard Where rentals, profit or mark up Provision of 20% of the

or principal are overdue (past difference resulting from
due) by one year but less than the outstanding balance of
two years from the due date. net investment in lease
finance and principal less
the amount of liquid assets
realizable without recourse
to a Court of Law and
forced
sale value of leased assets
as valued by valuers
fulfilling prescribed
eligibility criteria, in
accordance with the
guidelines provided in this
rule.

3. Doubtful Where rentals, profit or mark up Provision of 50% of the

or principal are overdue (past difference resulting from
due) by more than two years the outstanding balance of
but less than three years. net investment in lease
finance and principal less
the amount of liquid assets
realisable without recourse
to a Court of Law and
forced
sale value of leased assets
as valued by valuers
fulfilling prescribed eligibility
criteria, in accordance with
the guidelines provided in
this rule.

4. Loss. Where rentals, profit or mark up Provision of 100% of the

or principal are overdue (past difference resulting from
due) beyond three years from the outstanding balance of
 the due date. net investment in lease
finance and principal less
the amount of liquid assets
realisable without recourse
to a Court of Law and
forced
sale value of leased assets
as valued by valuers
fulfilling prescribed eligibility
criteria, in accordance with
the guidelines provided in
this rule.

Notes.-

1. Where profit is overdue (past due) by one hundred and eighty days or more from
the due date, unrealised profit shall be put in a Suspense Account and shall not be
credited to Income Account.

2. Liquid assets mean realizable amount of bank deposits, certificates of deposit,

government securities, shares of listed companies, NIT units, certificates of mutual
funds, gold ornaments, inventories pledged to leasing companies with possession with
'perfected lien' duly supported with flawless documentation.

3. Subjective evaluation of performing and non-performing lease portfolio shall be

made for risk assessment and where considered necessary the category of
classification determined on the basis of time based criteria shall be further
downgraded. Such evaluation shall be carried out on the basis of adequacy of security
inclusive of its realizable value, cash flow of lessee, his operation in the account,
documentation covering advances and credit worthiness of the lessee, etc.

4. The rescheduling or restructuring of non-performing lease facilities shall not

change the status classification of a lease facilities etc, unless the terms and conditions
of rescheduling/restructuring are fully met for a period of at least one year (excluding
grace period, if any) from the date of such rescheduling / restructuring. Accordingly,
leasing companies are directed to ensure that status of classification as well as
provisioning is not changed in relevant reports merely because of the fact that a lease
facility has been restructured or rescheduled. However, while reporting to the CIB,
such lease facilities may be shown as "rescheduled/restructured" instead of "default".

5. Leasing companies will continue to classify their lease facilities portfolio and
make provision there against in accordance with the time based criteria prescribed
above. However, where a leasing company wishes to avail of the benefit of collaterals
held against lease facilities, they can consider the realizable value of mortgaged or
pledged assets for deduction from the outstanding principal amount of lease rentals
against which such assets are mortgaged/pledged, before making any provisions. The
realizable value shall be the value that could currently be obtained by selling the
mortgaged or pledged assets in a forced/distressed sale conditions. Accordingly,
leasing companies shall take into account only forced sale value into consideration
while determining the required provisions. Lease rentals against which securities are
not available, or which have not been valued according to these guidelines and verified
by the external auditors, shall continue to be classified and provided for according to
the time-based criteria. Leasing companies shall follow the following uniform criteria,
for determining the realizable value of mortgaged, pledged or leased assets, namely:-

(i) Only leased assets having registered mortgage, equitable mortgage

(where NOC for creating further charge has not been issued by leasing
company) and pledged/leased assets shall be considered. Assets having
pari passu charge shall be considered on proportionate basis;

(ii) hypothecated assets and assets with second charge and floating charge
shall not be considered;

(iii) valuations shall be carried out by an independent professional valuer who

should be listed on the panel of valuers mainted by the Leasing
Association of Pakistan (LAP) for this purpose. LAP shall lay down the
minimum eligibility criteria with the prior approval of the Securities &
Exchange Commission of Pakistan for placement of valuers on the panel
to be maintained by it. The valuer while assigning any values to the
mortgaged, pledged or leased assets, shall take into account all relevant
factors affecting the saleability of such assets including any difficulty in
obtaining their possession, their location and condition and the prevailing
economic conditions in the relevant sector, business or industry. The
realizable values of mortgaged, pledged or leased assets so determined
by the valuers must have to be a reasonably good estimate of the amount
that could currently be obtained by selling such assets in a
forced/distressed sale condition. The valuers should also mention in their
report the assumptions made, the calculations/formulae/basis used and
the method adopted in determination of the realisable values;

(iv) valuation shall be done at least once in three years. For example, any
valuation done on 1st November, 1999 would be valid for consideration
for the accounting periods ending on December 31, 1999, and December
31, 2001 and for subsequent accounting periods a fresh valuation would
be required. If valuation is older than three years as explained above, a
re-valuation should be done, otherwise the valuation shall be taken as nil;

(v) the categories of mortgaged, pledged or leased assets to be considered

for valuation along with discounting factors to be applied would be as
under (no other assets shall be taken into consideration) :-

(a) Liquid assets : Valuation of Liquid Assets, excluding pledged

stocks, which are dealt with at (d) below, shall be determined by
the leasing company itself and verified by the external auditors.
 However, in the case of pledged shares of listed companies values
should be taken at market value as per active list of Stock
Exchange on the balance sheet date and as per guidelines given in
the TR-23 issued by the Institute of Chartered Accountants of
Pakistan. Moreover, valuation of shares pledged against lease
rentals after issuance of this circular shall be considered only if
these have been routed through Central Depository Company of
Pakistan (CDC), otherwise these will not be admissible for
deduction as liquid assets while determining required provisions;

(b) Land and building : Valuation of land and buildings would be

accepted as determined by the valuers in accordance with the
criteria given at point 5(iii) above and no further discounting factor
would be applied on forced sale value determined by them; and

(c) Plant and machinery : Entries of classified lessees shall be

divided into following categories at the balance sheet date and
discounting factors shall be applied to forced sale value as
specified below :

Category Discounting factors to be applied

to forced state value

A. In operation No discussing factors to be applied

B. In operation at the time • 15% of forced sale value on the

of valuation but now date of closure.
closed/in liquidation • 1st year after closure - 25% of
forced sale value.
• 2nd year - 50% of forced sale
value.
C. Closed / in liquidation • After valuation - 1st year 25% of
at the time of valuation forced sale value.
and no change in • 2nd year - 50% of forced sale
situation. value.

(d) Pledged stocks : In case of pledged stocks of perishable and non-

perishable goods, forced sale value should be provided by valuers,
which should not be more than six months old, at each balance
sheet date. The goods should be perfectly pledged, the operation
of the godowns should be in the control of the leasing company
and regular valid insurance and other documents should be
available. In case of perishable goods, the valuer should also give
the approximate date when these are expected to be of no value.

(vi) for valuations of mortgaged or leased assets carried out within a period of
twelve months prior to December 31, 1999, these may be considered
 provided they were carried out by an independent professional valuer and
a revised certificate is obtained from the valuer regarding the forced sale
value of the assets as on the date the valuation was carried out. These
valuations should then be subject to the discounting percentages and
other criteria as laid down in this Circular.

(vii) the values of mortgaged/pledged/leased assets determined by the valuers

shall be subject to verification by the external auditors, who may reject
cases of valuation, which in their opinion, do not appear to have been
professionally carried out and values determined are unreasonable, or in
the case of which valid documentation of mortgage, pledge or lease,
supported by legal opinion wherever required, is not available on record.

6. Investments and other assets.- Subjective evaluation of lease portfolio and

other assets shall be carried out by the leasing company. Classification of such assets
and provision required thereagainst shall be determined keeping in view the risk
involved and the requirements of the International Accounting Standards.

7. Timing of creating provisions.- Leasing companies shall review, at least on a

quarterly basis, the collectibility of their lease rentals portfolio and shall properly
document the evaluation so made. Shortfall in provisioning, if any, determined as a
result of the quarterly assessment shall be provided for immediately in their books of
accounts by the leasing companies.

8. Verification by the Auditors.- The external auditors as a part of their annual

audits of leasing companies shall verify that all requirements of this rule in classification
of assets and determination of provisions required thereagainst have been complied
with. The Securities and Exchange Commission of Pakistan shall also check the
adequacy of provisioning during on-site inspection.

11. Overdues and defaults - recovery thereof:- (1) Every leasing company
shall furnish the Commission with a list of defaulters on prescribed format, on quarterly
basis. A list of rescheduled and restructured facilities would also be submitted to the
Commission in the similar manner on prescribed format. A person, whether natural or
juristic, shall be deemed to be defaulter if he (or his dependent family members or
concerns owned or controlled by him or concerns in which he or his dependent family
members are major shareholders) has failed to pay off or liquidate any fiduciary
obligation towards any leasing company in Pakistan as was agreed upon or required
under the terms and conditions of availment of the financing facility or to do or perform
an act agreed to or undertaken in writing to be done or performed by him and such
failure has continued for a period of 360 days from the date on which he was required
to make the payment or to do or perform the act.

(2) Every leasing company shall nominate an officer as recovery officer or

constitute a section as recovery section depending upon the magnitude of defaults.
 (3) Besides the measures presently instituted by each leasing company, the
leasing company will set quarterly recovery targets as a percentage of the overdue
obligations and communicate the same on quarterly basis to the Commission.

(4) A progress report on the recovery in relation to the targets shall be

submitted to the Commission on quarterly basis. The leasing company will also be
required to explain deficiency if any, in meeting the targets and the strategies evolved
with a view to ensuring achievement of subsequent targets.

(5) Wherever considered legally appropriate by the leasing company, cases

of default may be referred to the Courts. The list of such cases and progress of
recovery shall also be sent to the Commission on a quarterly basis.

l2. Bar to certain transactions.- No leasing company shall -

(a) transfer ownership of controlling shares, merge with, acquire or

take over any other leasing company unless it has obtained prior
approval of the Commission to the scheme of such merger,
acquisition or take over; or

(b) employ as a broker, directly or indirectly, any of its directors,

officers, or employees, or a person, or a major shareholder who
beneficially owns, whether individually or in association with close
relatives more than five percent either of the equity or other
securities with voting rights, if any, issued by the leasing company.

Explanation.- "Relative" means spouse, brothers, sisters, father,

mother, grand father, grand mother, other lineal ascendants and
descendants, sons, daughters, grand sons and grand daughters.

13. Rate of mark up and fees.- A leasing company may charge rental, mark
up, commitment fee or other charges on its facilities as the case may be in accordance
with the prevailing rates.

l4. Insurance coverage.- A leasing company shall -

(a) obtain sufficient insurance coverage on its own or on its clients’

benefit against any losses that may be incurred as a result of
employees’ fraud or gross negligence;

(b) ensure that properties being financed by it have adequate

insurance cover; and

(c) provide full insurance cover for its deposits/COIs etc. of less than
one hundred thousand rupees.
 15. Internal audit.- Every leasing company shall have an Internal Audit
Department whose head will report to its chief executive directly and shall, inter alia, be
responsible for compliance with these rules and establish an effective means of testing,
checking and compliance with its policy and procedures established by it.

16. Places of business.- (1) A leasing company may open further places of
business but it shall intimate the same to the Commission within fifteen days.

(2) A Leasing Company shall also intimate to the Commission the closure of
any of its places of business within fifteen days.

17. Issue of certificates of investment.- (1) A leasing company which fulfils

the following conditions, may apply to the Commission for its permission to issue
certificates of investment, namely:-

(a) the company has been actively engaged in leasing business for a
period of two years;

(b) the corporate and fiduciary conduct of the company and its
directors has been satisfactory; and

(c) the company has obtained credit rating of minimum investment

grade from a credit rating agency registered with the Commission
under the Securities and Exchange Ordinance, 1969 (XVII of
1969), and such credit rating shall be updated each year during the
currency of the issue:

Provided that the company shall publish the credit rating in

each financial statement, advertisement and brochures.

(2) If the Commission is satisfied that the company, fulfils the conditions of
eligibility specified in sub-rule (1), it may give permission to such company to issue
certificates of investment.

(3) All leasing companies issuing certificates of investment shall observe the
following conditions, namely:-

(a) a certificate of investment issued under these rules shall be

registered in the name of the person to whom it is issued;

(b) the maturity period of certificate of investment shall not be less than
three months and more than five years:

Provided that a certificate shall be redeemable before its

maturity period but no return shall be paid if redeemed earlier than
three months;
 (c) no advertisement inviting the general public for making investment
in such certificates shall be published unless prior approval of the
Commission to this effect has been obtained and such
advertisement shall contain the credit rating;

Provided that if no decision of the Commission is conveyed to the

leasing company within fifteen days of the receipt of application,
the advertisement shall be deemed to have been cleared for
publication; and

(d) not less than fifteen per cent of the resources raised through
certificates of investment shall either be invested in registered
National Investment Trust units, Government securities or listed
securities subject to the conditions as prescribed in the rules made
for investment of provident fund in listed securities excluding the
certificates of investment held by financial institutions.

18. Eligibility of banks and NBFIs to undertake leasing business .- (1)

Banks and NBFIs may undertake leasing business subject to licence to be granted by
the Commission.

(2) The Commission may, while granting the licence under sub-rule (1),
impose such conditions as it may deem necessary.

l9. Submission of reports, etc..- (1)The Commission may, by general or

special order, require a leasing company, to prepare and send to members, the
registrar, any authority, a stock exchange and any other person such periodical
statement of accounts, information or other reports in such forms and manner and
within such time, as may be specified in the order.

(2) The Commission shall monitor the general financial condition of a leasing
company, and, at its discretion, may order special audit and appoint an auditor to carry
out detailed scrutiny of the affairs of the company, or appoint both an auditor and an
inspector, provided that the Commission may, during the pendency of the scrutiny, pass
such interim orders and directions as may be deemed appropriate.

(3) On receipt of the special audit report or report from the inspector, the
Commission may direct the company to do or to abstain from doing certain acts and
issue directives for immediate compliance which shall forthwith be complied.

(4) Every leasing company shall submit returns as may be prescribed by the
Commission from time to time.

20. Penalties.- (1) Whoever fails or refuses to comply with, or

contravenes any provision of these rules, or knowingly and willfully authorises or
permits such failure, refusal or contravention shall, in addition to any other liability under
the Ordinance, be also punishable with fine which may extend to two thousand rupees
and where, the contravention is a continuing one, with or further fine which may extend
to one hundred rupees for every day after first during which such contravention
continues.

(2) Notwithstanding anything contained in sub-rule (1), in case of

contravention of any provision of these rules, the Commission may cancel the licence of
the leasing company after issuing a show cause notice and giving such company an
opportunity of being heard or pass any other order deemed appropriate by the
Commission.

21. Repeal.- The Leasing Companies (Establishment and Regulation) Rules,

1996 are hereby repealed.

FORM-I
[See rule 4(1)]
APPLICATION FOR PERMISSION TO FORM A LEASING COMPANY
Dated, the
To

The Securities and Exchange

Commission of Pakistan,
Islamabad.

Dear Sir,

We hereby apply for grant of permission under rule 4 of the Leasing Companies
(Establishment and Regulation) Rules, 2000, to form a leasing company under the
name and style of ----------------------------------------------------------------------------------------
The information and documents as required in the Annexure to this form duly
verified and signed by all promoters and proposed directors along with five spare copies
of this application and an affidavit by them as to the correctness of the details, is
submitted.

We undertake to keep this information upto date by communicating changes or

modifications therein within fourteen days of such changes/modifications.

A receipt of Rs.---------------------being the processing fee, deposited in--------------

on ------------------------is enclosed.

Yours faithfully,

------------------------
Verification by
Oath Commissioner.
 ANNEXURE

[See rule 4(1) and 7(1) (xiii)]

INFORMATION TO BE SUPPLIED FOR OBTAINING

PERMISSION TO FORM A LEASING COMPANY
AND SUBSEQUENT CHANGE IN DIRECTORSHIP AND CHIEF EXECUTIVE

1. Full name, former name if any, father’s or husband’s name, nationality,

residential and business address, national tax number, present occupation of each
sponsor, proposed director, proposed chief executive and proposed chairman of the
Board. (Institutional sponsors shall mention their names and addresses only instead of
giving all these particulars of their nominee directors).

2. Names and addresses of companies, firms and other organizations of which the
aforesaid sponsors, proposed chief executive and proposed chairman are or have been
directors, partners or office holders during the last ten years. Copies of annual
accounts of such companies and firms for the last three years alongwith summary of
their paid-up share capital, free reserves, profit after tax and dividend payment to be
provided.

3. Financial standing, educational as well as professional qualifications and

experience of persons mentioned in paragraph 1 above, supported by documentary
evidence.

4. Percentage of capital, each sponsor proposes to contribute in the proposed

company.

5. Feasibility report of the proposed company.

6. Evidence of payment of income tax and wealth tax by the sponsors in individual
capacity as well as by the companies, firms, etc., wherein they are or have been
directors during the preceding five years.

7. Net-worth certificate of each sponsor supported by a duly authenticated copy of

the latest wealth statement filed with the taxation department. In the case of
sponsors/directors residing in countries where filing of wealth statement is not the
requirement of law, a certificate of personal net-worth and general reputation issued by
a bank of international repute shall be acceptable.

8. Names of the bankers of the sponsors alongwith their account numbers.

9. Draft of the Memorandum and Articles of Association.

10. Affidavit from each person mentioned in paragraph 1 above, stating that-

(i) he has not been associated with any illegal banking business, deposit
taking or financial dealings;
 (ii) he and companies in which he is a director or major shareholder have no
over-due loans or installments outstanding towards banks or other
financial institutions;

(iii) neither he nor companies in which he is a director or major shareholder

has defaulted in paying taxes as on the date of application;

(iv) he has not been sponsor, director or chief executive of a defaulting

cooperative finance society or finance company;

(v) he has never been convicted of fraud or breach of trust or of an offense

involving moral turpitude or removed from service for misconduct;

(vi) he has neither been adjudged an insolvent nor has defaulted in making
payments, to his creditors;

(vii) his net-worth is not less than twice the amount to be subscribed by him
personally (not applicable to a nominee director).

FORM-II
[See rule 6(2) and 7(1)(xiii)}
APPLICATION OBTAINING FOR LICENCE TO OPERATE
AS A LEASING COMPANY
Dated, the--------------
To,
The Securities & Exchange
Commission of Pakistan,
Islamabad.

Dear Sir,
We hereby apply for grant of licence under rule 6 of the Leasing Companies
(Establishment and Regulation) Rules, 2000, to operate as a leasing company.

2. We hereby furnish the following information:-

(a) Date of incorporation as a limited company.

(b) Authorised, subscribed and paid-up share capital of the company
(sponsors' equity indicated separately).
(c) Names and addresses of directors and number of shares held by each of
them.
(d) Directors' interest, direct or indirect, in any other company(ies) with details
of such interest.
(e) Details of persons or group controlling the company including major
shareholders with number and value of shares held.
(f) Name(s) of holding, subsidiary and associated undertaking(s), if any.
(g) Details of qualified staff engaged.
(h) Reasons for selecting the proposed place of business with statistical data.
 (i) Additional facts in support of this application.

3. Certified copies of the Memorandum and Articles of Association and Certificate

of Incorporation are enclosed.

4. An affidavit as to the correctness of the above information by the chief executive

and two director is also furnished herewith. We undertake to keep this information upto
date by communicating changes or modifications therein within fourteen days of such
change or modifications.

Yours faithfully,

Signature-----------------
(To be signed by all the directors)

FORM -III
[See rule 6 (3)]
Securities & Exchange Commission of Pakistan
Islamabad, Dated, the __________
Registration No. _________

LICENCE TO CARRY ON THE BUSINESS OF A LEASING COMPANY

The Securities & Exchange Commission of Pakistan having considered the

application for grant of licence under rule 6 of the Leasing Companies (Establishment
and Regulation) Rules, 2000, by *_____________________________________ and
being satisfied that the said * ________________________________________ is
eligible for the licence , hereby grants, in exercise of the powers conferred by sub-rule
(3) of rule 6 of the Leasing Companies (Establishment and Regulation) Rules, 2000,
licence to * ______________________________________ subject to the conditions
stated herein below or as may be prescribed or imposed hereafter.

Signature of the Officer

______________________________________________________
* Name of the Company
----------------------------------------------------------------------------------------------------------------

(HIZBULLAH SIDDIQUI)
Joint Director

No.F. 3(5A)/Misc/LES/96 dated _______ 22nd September, 2000