The Central Bank of Iran is stepping up efforts to promote funding for economic enterprises through non-inflationary methods, the CBI governor said.
Speaking on state TV late on Thursday, Ali Salehabadi said supply chain finance (SCF) methods have been welcomed by businesses in the last two years.
“Up until last year, business owners used to borrow directly from banks for working capital. With the spread of SCFs, this practice has diminished,” he was quoted as saying by the CBI website.
Lenders issued an estimated 200 trillion rials ($670 million) in Productive Credit Certificates in two years, the senior banker said.
Known by its Persian acronym Gam, the certificate is a market-oriented financial instrument that is traded in money and capital markets. Lenders assist credible businesses by offering tradable credit certificates similar to LCs. The certificate can be given to suppliers of raw materials, machinery and equipment.
Salehabadi said issuing Gam instruments has gained momentum with lenders issuing 110 trillion rials ($380 million) such certificates in two months.
Salehabadi said issuing Gam instruments has gained momentum with lenders issuing 110 trillion rials ($380 million) such certificates in two months
“This is while barely 8.8 trillion rials ($30 million) worth of Gam bonds were issued in the past year and a half ending in June,” he recalled.
Like bonds, certificates have maturity dates. The supplier can cash the certificate by selling it in the stock market. Liquidity is not exchanged between beneficiaries in this manner.
The CBI boss was of the opinion that more businesses will use this credit instrument in future, anticipating that 20% of enterprises would use it in the next fiscal year starting in March.
Gam is one of the integral components of the government’s new initiative to implement supply chain finance (SCF). The CBI recently revised guidelines to make the best use of Gam within the SCF scheme.
The SCF program was unveiled by the CBI in January to improve lending efficiency and navigate bank resources toward the production sector.
The SCF will focus on “credit instruments” rather than direct borrowing, minimizing the diversion of bank resources from flowing into non-productive speculative activities and increase oversight on lending to help manufactures.
The new lending procedure for now is operational for a limited number of businesses. In its initial phase it is being used to fund big businesses and is planned to be extended to SMEs, farmers, distribution networks, households and end consumers.
Banking and financial experts concur that the mechanism, if implemented efficiently, will go a long way in easing pressure on lending institutions and help control money supply that has reached unprecedented levels in recent years.
