Since the beginning of the calendar year in late March banks and credit institutions gave 990 trillion rials ($3.12 billion) loans to help encourage youth marriage and childbirth and support citizens wanting to rent a home.
Mehdi Sahabi, the official in charge of the CBI’s Credit Department, said banks accepted 400,000 applications for childbirth loans worth 162 trillion rials ($511.2 million) since the beginning of current fiscal year (March 21), newswires said.
Lenders were obliged in mid-April to lend to young parents to encourage childbirth. The money is given to couples who had a child in the previous fiscal year (March 2021-22) and after.
The first-time parents are eligible for 200 million rials for the birth to the first child, 400 million rials for the second child, 600 million rials for the third, 800 million rials for the fourth and 1 billion rials for five children and more.
Banks gave 700 trillion rials ($2.2 billion) in marriage loans to 507,000 applicants in the same period.
Marriage loans are interest-free repayable in seven years. Couples can apply up to two years after the pronouncement of their marriage.
The government doubled marriage loans for this year. As per the 2022-23 budget, each partner who ties the knot is eligible for 1.2-billion-rial loan. To help encourage early marriage, lenders are required to grant 1.5 billion rials per partner if the bride is below 23 years and the groom under 25.
Increase in lending is to help boost population growth. In recent years sociologists have warned that the population is ageing and the youth are mostly disinclined to start a family or have children due to the unstable economic conditions, galloping inflation, prohibitive housing costs and an uncertain future.
According to the CBI official, lenders gave security deposit loans worth 53.5 trillion rials ($168 million) to 94,000 applicants wanting to rent a home.
Security deposit loans were announced by the government in 2020 as a coronavirus aid package for the large numbers unable to rent a home due to the historic increase in rents and home prices.
Lenders are required to provide eligible applicants loans for renting a home up to 1 billion rials in Tehran City, 700 million rials in other big cities and 400 million rials in different urban areas.
Impact on Banks
Lenders are obliged to continue lending in the Qarzol-Hassanah (interest-free microcredit) schemes amid rising concern over its detrimental impact on bank finances.
The subsidized loan schemes demanded from banks has undermined the already tight situation of lenders, says a renowned economist and university lecturer.
“The government is grappling with a ballooning budget deficit. In pushing the loan agenda, it encroaches on public and private finances. For instance, if it wants to grant cheap housing or corporate loans, it orders banks to pick up the slack,” Vahid Shaqaqi Shahri was quoted by the news agency IBENA as saying.
The economist recalled that in the past several years governments announced measures that demanded huge financial resources. “However, since its own resources were few and far between, it turned to public and private banks and in the process transformed them into its piggy bank.” Shaqaqi Shahri said.
“For a country saddled with 40% inflation plus mandatory policies, like the subsidized loans, result in losses for banks. Our banks are stressed and are struggling with huge financial imbalances. These unhelpful and uninformed [lending] policies make a bad situation worse.”
In the 1990s, the economist recalled, governments borrowed excessively from the central bank to plug their deficit holes and offer cheap loans. The pattern led to major defaults harming the overstretched banking system in the process.
“Later, economists warned that borrowing from the CBI was increasing liquidity and by extension inflation, and urged the government(s) to rethink.
Unfortunately, governments one after the other have been piling up budget deficits due to the sheer lack of financial discipline and hunt for new ways to control [the crisis]. Using up bank resources is the central avenue governments resort to to tackle the [forever] budgetary challenges.”
