Banks are overstretched with the swelling demand for small loans and lack resources to meet the trend, a deputy governor of the Central Bank of Iran said.
"Bank resources are insufficient to meet the high and rising demand for microloans as most of their funds are used for mandatory lending," Abouzar Soroush, the deputy for supervisory affairs was quoted as saying by the semi-official news agency ISNA.
Despite the constraints, microcredit accounted for about 40% of total loans in the first seven months of the current fiscal year (started March 2022), Soroush said.
"Banks should be required to earmark clearly defined amounts for microcredit," he said. "At this juncture lenders have been told to prioritize production units in extending loans."
Qarz al-Hasanah banks and institutions allocate larger amounts to applicants of microcredit, he added.
Banks gave an estimated 23,312 trillion rials ($66.02 billion) in loans in the first seven months of the current fiscal year – up 47.2% on the same period last year.
The CBI earlier said individual borrowers accounted for 7,468 trillion rials ($21.15 billion) or 32% of the loans while the major part ($44.8b) went to businesses.
Banks and credit institutions gave 1,347 trillion rials ($3.8 billion) in mandatory loans to encourage youth marriage and childbirth since the beginning of the calendar year in late March
Lending to individuals increased by 55% year-on-year and to companies it was 43.8% higher.
The report reflected on bank performance vis-à-vis microloans, i.e. loans worth 2 billion rials or less. Banks processed 4,855 trillion rials ($13.7b) in microloans in the seven months -- 39.4% higher on the same period last year.
Total loans above 2 billion rials per person jumped 87%. Observers say the growing demand for housing loans is one important reason for the growing demand on banks.
Banks and credit institutions gave 1,347 trillion rials ($3.8 billion) in mandatory loans to encourage youth marriage and childbirth since the beginning of the calendar year in late March.
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 castigated the Majlis for imposing the extra burden and hefty obligations on banks to keep lending beyond their ability and capacity.
The government initially projected mandatory lending by banks at 6,000 trillion rials ($19.3b) in the current fiscal year. But MPs increased that 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.
He recalled that over the past years governments announced mandatory lending a large part of which is still outstanding for a variety of reasons, not the least being the deteriorating economic climate and the apparent inability of companies to meet their financial commitments.
