The Industries Ministry signed a memorandum of understating with five banks to involve them in a new plan of action initiated by the Central Bank of Iran to fund industries.
In January the CBI unveiled the supply chain finance (SCF) program to help improve lending to manufactures,
Five private and state-run lenders have now joined the CBI’s financing initiative, namely Bank Keshavarzi (agro bank), Tose'e Ta'avon Bank, Ayandeh Bank, Iran Zamin Bank and Middle East Bank, the Industries Ministry website reported.
Seven lenders responded to the program earlier in the pilot phase, namely Bank of Industry and Mine, Bank Saderat, Bank Melli, Bank Mellat, Tejarat Bank, Parsian Bank and Bank Maskan.
SCF is a set of solutions that aim to lower financing costs and improve business efficiency for buyers and sellers in a sales transaction.
It operates by automating transactions and tracking invoice approval and settlement processes, from initiation to completion. Under this paradigm, buyers agree to approve supplier invoices for payment by a bank or other outside financier.
Addressing the ceremony, Mehdi Niazi, the industry’s planning deputy, said “the SCF will [help] ease monitor banks’ lending practices.”
According to details published by the CBI, the new SCF is geared to foster economic growth by facilitating the financing process of manufacturing companies in non-inflationary ways.
It will focus on “credit instruments” rather than direct borrowing, reduce bank resources flowing into non-production and speculative markets and increase oversight.
The new lending procedure is already used for a limited number of businesses. In the next phase, it will be first used to fund big economic enterprises and later to SMEs, farmers, distribution networks, households and end consumers.
Banking and financial experts say the mechanism will go a long way in easing pressure on banks and help control money supply.
To implement the SCF plan, 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”.
Gam is a market-oriented financial instrument traded in money and capital markets. The certificate should be submitted to suppliers of raw materials, machinery and equipment. Like bonds, certificates have maturity dates. The supplier can cash the certificate in the stock market.
