Islamic treasury bills held the majority share of funding via the debt market, accounting for 44% of the total during the first ten months (March 21- Jan. 21) of the current fiscal year.
It was followed by manfa’at bonds with 19% share of finance, according to Reza Gholamalipour, an official with Iran Fara Bourse.
Selling bonds made 1,480 trillion rials ($10.5 billion) available to borrowers during the period, the Securities and Exchange News Agency quoted him as saying.
Islamic treasury bills are used as a debt instrument issued by the government of Iran and guaranteed by the government.
Manfa’at bond is an Islamic financial instrument that states ownership of a certain service or future profit of a lasting commodity transferred for a certain price. The security can help meet businesses’ immediate needs for liquidity, especially those lacking access to end-users.
Despite the expanding role of the stock market in funding businesses, Iran’s economy is largely reliant on banks for funds. But it has been reported that this is very likely to change in the not too distant future.
“Businesses prefer to approach banks simply because the yield on bonds is high… also it is more convenient to get funds from banks than the stock market” Gholamalipour was quoted as saying.
“Yield on bonds is the first issue. However, as long as interest rates on bank deposits are high, the yield on bonds will also be high. This is a challenge for companies wanting to borrow from the debt market.”
In addition, getting funds from banks is relatively easier because applicants are obliged to offer collateral to qualify for the loan.
This is while companies undergo more complicated procedures to be listed on the bourse. “They have to present their financial statements regularly and find underwriters to subscribe their shares,” Gholamalipour elaborated.
Despite the fact that companies still heavily depend on banks for funding, they are gradually turning to the stock market for funds, apparently because of the limited lending ability of banks most of which are saddled with bad debts, NPLs and stressed assets.
A report by Tehran Chamber of Commerce, Industries, Mines and Agriculture recently said funding via the stock market registered a whopping 196% growth in the first nine months (March- Dec 2019) of this calendar year that ends in March compared to the corresponding period last year.
The head of Securities and Exchange Organization, Shapour Mohammadi said the stock market contributes to 15% of government and corporate funding.
Bonds issued by the government had the biggest share of finance as corporate bonds accounted for the 3.5% of the bond market, according to TCCIM.
