Banks and credit institutions are mandated to allocate up to 2,000 trillion rials ($4.92 billion) in interest-free lending for government programs including loans to newlyweds, for childbirth and to support needy families.
This is included in the budget bill for fiscal March 2023-24 submitted by President Ebrahim Raisi to the parliament last week.
Banks are obliged to lend in the form of as Qarz-ol-Hassanah schemes (interest-free microcredit) amid valid concerns about the detrimental impact of mandatory lending on the already troubled banking industry.
Economists and senior bankers have always censured policy and decision making bodies for imposing the extra burden and massive obligations on banks to keep lending beyond their ability and capacity.
The subsidized loan schemes demanded from banks has undermined their already overstretched financial resources.
Lenders were obliged in April last year to give loans to new parents to encourage childbirth. The money is given to low-income households who had a child in the previous fiscal year (March 2021-22) and after.
First-time parents are granted 200 million rials for the birth to their first child, 400 million rials for the second child, 600 million rials for the third, 800 million rials for the fourth child and 1 billion rials for five children and more.
Marriage loans are interest-free repayable in seven years. Couples can apply for loans up to two years after the pronouncement of their marriage.
The government doubled marriage loans this year. Per the 2022-23 budget, each partner who ties the knot is eligible for 1.2-billion-rials.
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 population growth. Many sociologists have warned that the population is ageing and the youth are disinclined to tie the knot, start a family or have children due to the lack of jobs, worsening economic conditions, galloping inflation, prohibitive housing costs and an uncertain future.
Lenders are also obliged to pay cheap loans to a wide spectrum of needy families as well as knowledge based companies.
CBI figures show that banks and credit institutions gave 1,390 trillion rials ($3.42 billion) in loans to encourage youth marriage and childbirth since the beginning of the calendar year that ends in March.
The Central Bank of Iran said the money was given to 1.57 million hard up applicants in nine months.
“Banks processed 643,330 loan applications worth 259 trillion rials [$637 million] to promote childbirth,” the CBI website showed.
Almost 1,027 trillion rials ($2.52 billion) in marriage loans went to 743,000 applicants -- up 51% on the same period last year.
According to the CBI, lenders also gave security deposit loans worth 105 trillion rials ($258 million) in the same period to 183,000 low-income people wanting to rent a home.
Security deposit loans were announced by the government in 2020 after the Covid-19 struck. The move was to support those unable to rent a home due to the historic increase in rents and home prices that has continued unabated, making home ownership for many a fantasy.
Budget Bill
Highlights of the next budget include 19,840 trillion rials ($49.6 billion) in operating budget (including revenue mainly from tax and export tariffs) and 1,800 trillion rials ($4.5 billion) exclusive to ministries and government institutions, which bring the total budget to 21,640 trillion rials ($54.1 billion).
The budget for state companies, banks and for-profit organizations has been set at 30,976 trillion rials ($77.44 billion). The ceiling set for the total budget is 52,616 trillion rials ($131.54 billion).
All the numbers therein indicate a significant increase compared to fiscal 2022-23 and considering the galloping inflation is not unusual.
The budget forecasts sale of 1.4 million barrels of crude oil at $85 per barrel.
Lawmakers will debate the draft budget before it becomes law and is approved by the powerful Guardian Council, a watchdog that ensures laws are in line with the constitution and Sharia.
