The Central Bank of Iran is giving the finishing touches to a plan to tap into the newly-developed credit instruments in trade of commodities at the Iran Mercantile Exchange.
In a meeting with CEOs of state banks, the CBI Governor Ali Salehabadi said the Productive Credit Certificate is one such instrument that would be traded at the IME next week.
Known by its Persian acronym Gam, the certificate is a market-base credit instrument that can be traded in the money and capital markets. Lenders will assist strong businesses by offering tradable credit certificates similar to LCs that can be given to suppliers of raw materials, machinery and equipment.
“Through this method, a company at the IME can purchase goods using Gam securities and the seller can sell the securities in the secondary market or use them to buy raw material from another partner seller,” he was quoted as saying by the CBI website.
Salehabadi said the government is striving to improve funding for companies through non-inflationary methods, namely credit instruments.
Gam is a known credit instrument launched by the CBI almost a year and half ago. It is reported that companies have welcomed this instrument.
According to data presented by Salehabadi, lenders have issued close to 210 trillion rials ($680 million) worth of Gam securities since its inception.
The senior banker said issuing Gam instruments have shown noticeable pace in recent months with lenders issuing 135 trillion rials ($435 million) in two months.
Like bonds, these certificates have maturity dates. The supplier can cash the certificate by selling it in the stock market. Money does not change hands between beneficiaries.
The banker predicted that businesses will continue to further use the credit instrument in the near future, anticipating that 20% of the firms would do so in the coming year.
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 in the supply chain finance scheme.
The SCF program was unveiled by the CBI in January to improve lending efficiency and navigate bank resources toward manufactures.
The SCF will focus on “credit instruments” rather than direct borrowing, minimizing the diversion of bank resources into non-productive markets and speculative activities and improve lending to production units.
