Economy Minister Ehsan Khandouzi says the government wants to expand the role of Qarz al-Hasanah (usury-free) financial institutions in providing microloans.
"Qarz al-Hasanah loans have the potential to address the people’s demand for small loans. We as policymakers are committed to pave the way for its expansion and take measures to remove the hurdles," Tasnim News Agency quoted him as saying. He did not elaborate on the hurdles.
Khandouzi said that the government has started implementing measures to strengthen such lenders. "Earlier this year, two qarz al-hasanah banks were allowed to double their capital. The Money and Credit Council (MCC) has approved measures to reorganize qarz al-hasanah funding."
Resalat Qarz Al-Hasanah Bank and Qarz Al-Hasanah Mehr Iran Bank are the two main banks that accept requests for low-interest loans. Commercial and specialized banks allocate a portion of their funds to interest-free lending.
Given their usury-free mandate, interest-free microcredit institutions generate income from loan fees ranging from zero to four percent. With this income they cover expenses, wages and administrative and operational costs. Qarz al-hasanah lenders cannot charge fees higher than four percent.
Khandouzi said the government is planning to eliminate fees on interest-free loans less than 100 million rials to create space for the people to take out microloans without paying bank fees/charges.
"We have held talks with state organizations to use interest-free accounts to pay wages to the employee," he said, "This can and will help boost Qarz al-Hasanah banking."
The MCC in February agreed to extend the repayment period for interest-free microloans from 36 months to five years.
In March, the Credit Commission of the Central Bank of Iran agreed to raise the cap on interest-free loans fourfold. The ceiling for emergency microloans was increased to 2 billion rials ($7,692), from the present 500 million rials.
It was the second time the regulator has increased interest-free microloans in less than a year. Last August, it raised the loan ceiling from 300 million rials to 500 million rials.
The MCC is the main decision-maker when it comes to interest-free lending. It regularly increases the caps on loans and maturity dates largely due to the difficult economic climate, declining purchasing power and galloping inflation.
According to the latest CBI data, outstanding Qarz al-Hasanah loans given by banks was 3592.9 trillion rials ($11.3 billion) up until July. This was up 16% on the beginning of the current fiscal year in March.
CBI data shows that interest-free loans accounted for 9.5% of total outstanding loans during the said period. The CBI has set the cap for lending rates on other loans at 18%.
