The Credit Commission of the Central Bank of Iran has agreed to raise the cap on Qarzol-Hassanah (interest-free microcredit) loans by 50%.
According to a press release posted on the CBI website, the ceiling for such microloans is raised to 3 billion rials ($6,200), from 2 billion rials.
This is the third time the regulator has increased interest-free microloans in less than a year. Last time, the Money and Credit Council (MCC), the top banking and monetary decision-making body, raised the ceiling from 500 million rials to 2 billion rials ($4,100).
The CBI move is expected to help in setting up small businesses. Accordingly, the ceiling for small businesses and knowledge-based company loans has been raised from 5 billion rials to 7.5 billion rials ($15,000).
Interest-free loans are given mostly to newlyweds and for employment needs to low-income households and people in the less privileged areas.
In the last fiscal year (ended March 20), banks gave 1,690 trillion rials ($3.3 billion) in social assistance loans to 1.94 million low-income applicants largely for youth marriage, childbirth and to those wanting to rent a home.
Resalat Qarzol-Hassanah Bank and Qarzol-Hassanah Mehr Iran Bank are the two main banks that give low-interest loans. Commercial and specialized banks also allocate a portion of their funds to interest-free lending. According to CBI data, 3,000 interest-free funds operate in the country.
The CBI is more inclined towards Qarzol-Hassanah instruments to help enhance financial inclusion and improve financial services across the country. The government too wants to expand the scale and scope of such financial institutions.
It has reportedly started implementing measures to strengthen such lenders. Last year, two Qarzol-Hassanah banks were allowed to double their capital.
It was also announced that the government has plans to eliminate fees on interest-free loans less than 100 million rials to create space for people to take out microloans without paying bank charges.
Given their usury-free mandate, interest-free microfinance institutions generate income from loan service fees ranging from zero to four percent. With this income they cover expenses, wages and administrative and operational costs. Qarzol-Hassanah lenders cannot charge fees over four percent.
MCC last year agreed to extend the repayment period for interest-free microcredit from 36 months to 5 years. The MCC is the main decision-maker when it comes to interest-free lending. As a matter of policy, it often increases loan caps and maturity dates due to the difficult economic conditions such as the plunging purchasing power of the large majority of the people and galloping inflation.
According to latest data released by the CBI, the outstanding amount of Qarzol-Hassanah loans was 2,751.9 trillion rials ($10.3 billion) in 12 months to Dec.21.
