The Central Bank of Iran is planning to increase “Productive Credit Certificates”, known by its Persian acronym Gam, from 260 trillion rials ($797.5 million) now to 2,000 trillion rials ($6.13 billion), the CBI governor said.
"CBI’s goal is to channel liquidity towards production…We want to diversify financial instruments and issue more credit instruments because such instruments have no inflationary impact," IBENA quoted Ali Salehabadi as saying during a meeting with provincial officials and the private sector in Fars Province.
Gam is a market-oriented financial instrument that can be traded in the money and capital markets. Lenders assist credible businesses by offering tradable credit certificates similar to LCs. The certificate can be given to suppliers of raw materials, machinery and equipment.
Like bonds, certificates have maturity dates. The supplier can cash the certificate by selling it in the stock market but money is not exchanged between the beneficiaries.
Gam is one of the integral components of the government’s policy to implement supply chain finance (SCF). The CBI recently revised guidelines to make the best use of Gam within the SCF scheme.
The SCF program was unveiled by the CBI in January to improve lending efficiency and navigate bank resources toward cash-starved production units.
SCF focuses on credit instruments rather than direct borrowing, minimizing the diversion of bank resources into non-production and speculative markets, plus improve and expand oversight of lending to manufactures.
Salehabadi said commercial banks, especially private lenders, need to sell their excess assets to be able to improve lending. "We have formed a working group to prevent bank overdraft, as it is a highly effective tool for taming inflation."
The CBI says it has controlled bank borrowing from the CBI since 2020 partly by implementing open market operations (OMOs).
The OMO is implemented to control the monetary base and interbank rates. Using bonds as collateral to borrow from the CBI is an integral component of the CBI monetary policy.
Easing Microfinance
The senior banker elaborated on the status of loan settlement in the banking sector saying that small defaulters are no cause for concern.
"Major defaulters who have enough money to repay the loans but refuse to do so must be dealt with."
To assist small borrowers banks have been told to diversify the types of collateral they demand, he said.
Mohammad Nadali, head of the CBI department for monetary and credit operations, said this week that apart from common collateral, banks are allowed to accept SIM cards, Justice Shares, bank deposits and property for securing loans.
He emphasized the importance of loan applicants' credit rating, which can and should help ease the lending process and curtail the bloated bureaucracy.
As per an earlier CBI announcement, record of past loans, a borrower’s check transactions and their record in paying traffic fines and utility bills also are among the criteria for assessing the eligibility of borrowers.
Under the new framework, banks will limit the access of unruly clients even if they put up enough collateral but failed to settle their debts in a timely manner in the past.
The CBI says in the absence of robust supervision and lack of a centralized data, banks in the past tended to give loans without proper checks and balances resulting in growing NPLs.
To increase oversight of loans, the CBI said it has designed a system that accesses data banks and allows direct interaction among banks, sharing customer data and enabling lenders to better monitor the eligibility of borrowers.
Back in March, the Majlis obliged lenders to diversify assets that can be used as collateral.
The CBI in collaboration with Economy Ministry should create online systems to enable shares, securities and units of exchange-traded funds to be put up as collateral with banks.
