The Industries Ministry and seven banks signed a memorandum of understanding Saturday for a pilot program for a new supply chain finance (SCF) announced by the Central Bank of Iran.
The banks include state and privatized banks plus a fully private lender, according to a press release seen on the CBI website.
Bank of Industry and Mine, Bank Saderat Iran, Bank Melli Iran, Bank Mellat, Tejarat Bank, Parsian Bank and Bank Maskan are the banks in the pilot phase of the SCF plan designed to fund manufactures in the steel, auto, construction, kitchenware, food and petrochemical sectors plus machine makers.
“The scheme will be extended to other realms over time,” the CBI Governor Ali Salehabadi said.
Salehabadi has highlighted the benefits of the initiative.
“It will [help] reduce companies’ need for liquidity and ease pressure on banks, which is expected to lead to improvement in their balance sheets,” he told the MoU-signing ceremony.
“Given that the lending process has been regulated under this mechanism, we should witness decline in NPLs in the near future.”
In implementing the plan, the CBI will perform as policymaker and regulators and lenders as executors. To this end, the CBI has developed new financing instruments and optimized existing ones, namely electronic negotiable instruments and the Productive Credit Certificate, known by its Persian acronym “Gam”
As for other merits, he said it will focus on “credit instruments” rather than direct borrowing, minimize diversion of bank resources into non-production markets and speculative activities, and increase oversight on lending to the production sector.
The Industries Minister Reza Fatemi Amin said the supply chain finance will ease manufacturers’ access to loans and credits plus help banks better manage liquidity channeled into manufactures.
“The MoU is expected to enhance access of production units to financial resources by 30%,” the minister noted.
In the same vein, the Economy Minister Ehsan Khandouzi described the move as a “structural change” that would help restore discipline to lending procedures and reduce the final price of goods.
Supply chain finance is a set of solutions to lower financing costs and improve business efficiency for buyers and sellers.
SCF works by automating transactions and tracking invoice approval and settlement processes from initiation to completion.
The mechanism should help banks meet the pressing needs of manufacturing companies without creating “non-productive liquidity”.
Based on the operational framework unveiled by the CBI, the new SCF is geared to foster economic growth by facilitating the finance process of manufacturing companies in non-inflationary ways.
In implementing the plan, the CBI will perform as policymaker and regulators and lenders as executors. To this end, the CBI has developed new financing instruments and optimized existing ones, namely electronic negotiable instruments and the Productive Credit Certificate, known by its Persian acronym “Gam”.
A negotiable instrument is a signed document that promises a sum of payment to a specified person or the assignee. The document may also appear in electronic format.
Gam is a market oriented financial instrument traded in money and capital markets. Through this instrument lenders help businesses by offering a tradable credit certificate similar to LCs.
The certificate should be submitted to suppliers of raw materials, machinery and equipment. Like bonds, certificates have maturity dates and the supplier can cash the certificate by selling it in the stock market.
