Government Preparing Law on Lease Financing

The government is preparing to introduce a law on lease financing. A recent Cabinet meeting, based on a proposal from the Ministry of Finance, has granted in-principle approval to draft the Lease Financing Bill.

Announcing the Cabinet decisions on Wednesday, Minister for Communications and Information Technology Prithvi Subba Gurung said the finance ministry has been authorized to prepare the bill.

Lease financing is an arrangement in which the owner of an asset allows another party to use it for a specified period in exchange for periodic payments. Ownership of the asset remains with the lessor, while the lessee enjoys usage rights under mutually agreed terms and conditions.

Currently, businesses in Nepal are largely dependent on bank loans secured by collateral to purchase machinery, vehicles, or other fixed assets. Once the new law is enacted, industries and entrepreneurs will have the option to acquire such assets on short- or long-term leases without transferring full ownership, paying only lease installments to the leasing company.

Officials at the Ministry of Finance said the absence of a dedicated legal framework has hindered the development of lease financing in Nepal. “At present, most asset purchases rely on bank loans and collateral-based lending. Some installment-based purchases exist, but they are limited to banking practices and internal directives,” said a senior government official. “The new law will introduce a separate system where the ownership of the asset remains with the leasing company, while users pay rent to operate it, under proper regulation.”

The official added that the law is expected to encourage capital investment, enhance productivity, promote entrepreneurship, and contribute to overall economic growth. Businesses will benefit from access to expensive equipment, machinery, or vehicles without needing to buy them outright.

What is Lease Financing?

In lease financing, the owner of an asset (lessor) retains ownership while allowing another party (lessee) to use it by paying periodic installments. The lessor earns steady income from the asset, while the lessee gains access to necessary equipment or property without the burden of large upfront costs or collateral requirements. This system provides a cost-effective alternative for businesses seeking to expand operations.