The Credit Commission of the Central Bank of Iran has agreed to raise the cap on Qarzol-Hassanah (interest-free microcredit) loans up to fourfold.
According to a press release posted on the CBI website Monday, the ceiling for emergency Qarzol-Hassanah microloans gas been increased to 2 billion rials ($7,692), from the present 500 million rials.
This is the second time the regulator has increased interest-free microloans in less than a year. Last August, the Money and Credit Council (MCC), the top banking and monetary decision-making body raised the loan ceiling from 300 million rials in the past to 500 million rials ($1,850).
Interest-free loans are given mostly to newlyweds and for employment needs to low-income households and people in the less privileged areas.
The CBI decision will also help in setting up small businesses. Accordingly, the ceiling for employment loans has been raised from 1 billion rials to 5 billion rials ($19,231).
Resalat Qarzol-Hassanah Bank and Qarzol-Hassanah Mehr Iran Bank are the two main banks that give low-interest loans. Commercial and specialized banks also allocate a portion of their resources to interest-free lending.
Given their usury-free mandate, interest-free microcredit institutions generate income from loan service fees ranging from zero to four percent. With this income they cover expenses, wages and administrative and operational costs. Qarzol-Hassanah lenders should not charge fees higher than four percent.
MCC in February agreed to extend the repayment period for interest-free microcredit from 36 months to 5 years.
The repayment period for employment loans is higher. The CBI on Monday said along with the rise in the loan ceiling, the maturity of employment loans can be a maximum of 84 months or seven years.
The MCC is the main decision-maker when it comes to interest-free lending. It regularly increases loan caps and maturity dates due to economic factors like the declining purchasing power and high inflation rates.
According to latest data released by the CBI, the outstanding amount of Qarzol-Hassanah loans given by banks was 2,751.9 trillion rials ($10.3 billion) in 12 months to Dec.21.
