Since the beginning of the calendar year in late March banks and credit institutions gave 1,080 trillion rials ($3.22 billion) loans to low-income people , namely to bolster youth marriage and childbirth and support citizens wanting to rent a home.
Mostafa Qamari Vafa, the head of the public relations department of the Central Bank of Iran, said banks accepted 478,000 applications for childbirth loans worth 192 trillion rials ($573 million) in the last seven months, newswires reported.
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.
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 800 trillion rials ($2.38 billion) in marriage loans to 580,000 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 should give 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 73.1 trillion rials ($218.2m) to 128,000 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 unprecedented 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.
Negative Impact on Banks
Lenders have been ordered to continue lending in the Qarzol-Hassanah (interest-free microcredit) schemes amid rising concern over its detrimental impact on bank finances.
Banks reportedly lent 19,540 trillion rials ($59.4 billion) since the beginning of the fiscal year in late March -- up 49% on the same period last year.
Senior bank and economic authorities have routinely censured the Majlis for imposing extra burden and hefty obligations on banks too keep lending beyond their ability and capacity.
The government initially had projected mandatory lending by banks at 6,000 trillion rials ($19.3 billion) in the current fiscal year. But MPs increased it to 13,000 trillion rials ($42b) apparently oblivious to the weak performance of banks most of which are already struggling with troubled balance sheets.
The subsidized loan schemes demanded from banks has undermined the already tight situation of lenders, Vahid Shaqaqi Shahri, a renowned economist and university lecturer said recently.
Shahri recalled that in the past several years governments announced mandatory lending 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," he complained.
Bad News
“For a country saddled with 40% inflation, mandatory policies like subsidized loans is bad news for banks. Our banks are stressed and are struggling with huge financial imbalances. These unhelpful and uninformed [lending] policies make a bad situation worse.”
"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]. Drawing on bank resources is the central avenue governments resort to tackle the [unending] budgetary challenges."
In the 1990s, the economist recalled, governments borrowed excessively from the central bank to plug their deficit holes and to offer cheap loans. The pattern led to major defaults harming the overstretched banking system.
Later, economists warned that borrowing from the CBI was increasing liquidity and by extension inflation, and urged the government(s) to rethink.
