Iran's financial industry is expanding rapidly. Since changes were made in Iran's financial laws in 2008, many new financial services firms and various financial instruments have sprung up. This is especially evident in the increasing role of corporate bonds and newly established investment banks.
Last year (which ended on March 20), non-state companies issued over 16 trillion rials ($481.3 million at market exchange rate) of Islamic bonds, SENA reported on Sunday. Iran's handful of investment banks handled their underwriting – their sale to the public – and their market making – selling and buying to ensure their liquidity.
The increasing role of sukuk in Iran is a sign that financial innovation and Islamic law have finally started to work together. Islamic scholars have shunned bonds in the recent past, because they thought them usurious. That is changing. Currently, there are three different sukuk or Islamic bonds on offer in Iran's financial markets, called Mosharekat, Ejare, Morabehe securities.
According to SENA, nearly half of all the issued sukuk were Mosharekat, in which investor's share in the profits of an activity with the issuing company. They had a total value of 7.8 trillion rials. Ejare securities – which pool investor's money to buy goods for a company and then receive the rent for the usage of those goods – consisted of 45 percent of the issued sukuk worth 7.2 trillion rials. The newer Morabehe sukuk took up six percent of the corporate bond market with one trillion rial value.
Apart from the rising value of sukuk in Iran, they are also likely to grow in diversity. There are 14 types of sukuk based on the 14 Islamic contracts outlined by sharia – religious law, only three of which have so far been introduced in Iran's money markets. So, new sukuk seem to be on the way.
Investment banks are also new to Iran's financial industry. The oldest, Amin Investment Bank is only seven years old. But their role in the financial industry is increasing as new financial products are introduced to the market.
Seven investment banks handled the corporate sukuk that were sold last year. Parsian Lotus, partly owned by Parsian Bank, managed five trillion rials or 31 percent of all the securities. Omid, standing at the second spot, conducted underwriting and market making for 22 percent of all sukuk. Third came Amin, which processed 16 percent of the securities, according to the report.
Although Omid was second in total sukuk handled, the bank had a dominant position in Mosharekat securities trading, handling 19 percent of them. This was while Parsian Lotus took a more diverse approach. It managed a quarter of Ejare securities and was the only investment bank managing Morabehe securities, earning the investment bank the top spot in total.
Investment banks are also playing a growing role in other forms of corporate financing including IPOs. With the economy growing again, and Iran's fortunes in the international arena improving, the stock market is likely to start an uptrend this year. Something Iran's infantile financial services industry is betting on.
