Banks paid close to 5,151 trillion rials ($10.5 billion) in loans in two months to May 21 -- up 26% on the year before.
The Central Bank of Iran said on its website that individual borrowers accounted for 665.6 trillion rials ($1.3 billion) or 12.9% of the money and businesses took 4,485.4 trillion rials ($9.15 billion) or 87.1%.
Regarding sectoral shares, CBI data showed that the industries and mining got 40.7% of the total and services companies 40.1%.
Most loans— 3,537 trillion rials ($7.21 billion) or 78.9% -- to business owners were to help meet working capital needs. Nearly 16% of the total went for starting new businesses while those wanting to expand business qualified for barely 3.6%.
Nearly 44.6% of individuals borrowed to buy goods. Marriage loans, emergency (interest-free) loans and mortgages were the other types of borrowings.
CBI data showed that 82.2%% of payment to industrial and mining units was to help boost working capital. From the total paid to companies in the housing and construction sector, 53% was for starting a new business, which was the highest compared to the loans for the similar purpose to other sectors.
The purpose of 77% of total loans to the services sector was to help raise working capital. The share was 90% in commercial sector.
During the period, banks gave 109.9 trillion rials ($224.2 million) in social assistance loans to low-income households largely for youth marriage, childbirth and to those wanting to rent a home.
According to the CBI public relations department, banks accepted applications for childbirth loan worth 25.2 trillion rials ($51.4 million) during the two months.
Bank Melli Tops the List
According to a recent report by the way2pay website, Bank Melli accounted for the largest portion of childbirth loans during the first month of the fiscal year or one-third of the total loans. Bank Refah was next with 19% of the childbirth loans.
Some 81.6 trillion rials ($166.5 million) were marriage loans, up 37% y/y. Marriage loans are interest-free repayable in seven years. Couples can apply up to two years after the pronouncement of their marriage.
Banks gave security deposit loans worth 2.9 tillion rials ($5.9 m) to people wanting to rent a dwelling place.
Security deposit loans were announced by the former government in 2020 in the framework of the coronavirus aid package for those unable to rent a home due to the unprecedented increase in rents and home prices and the declining purchasing power of fixed-wage earners.
Earlier this month, the parliament agreed to raise the ceiling for security deposit loans to support the low-income strata wanting to rent. Henceforth banks should lend those in need up to 2 billion rials in Tehran City, 1.5 million rials in other big cities and one billion rials in smaller urban areas,
Mounting Concerns
Banks are obliged to lend in the form of as Qarz-ul-Hassanah schemes (interest-free microcredit) despite mounting concern about the detrimental impact of such loans on the already troubled and oft-censured banking industry.
Subsidized social support loans have further undermined banks’ already overstretched resources and pushed many in a precarious condition.
Prominent economists and senior bankers have censured policy and decision-makers for imposing such heavy burden on banks obliging to keep lending beyond their ability and capacity.
In a recent meeting, Tahmasb Mazaheri, the former governor of the CBI, referred to the problems caused by obliging banks to pay interest-free loans. "Banks will soon be seen as the main culprit [of all the economic problems], while this is not the case," he argued. Most economists and academia do not agree with him.
"If we accept that the root cause of the excessive liquidity growth in the country's economy is these obligatory facilities, we can tackle it,” he said, "Of course, I do not deny that some banks have failed to use all the control levers before granting loans."
He called for putting an end to obliging banks to pay loans, “although it cannot be achieved in one go.” "It is clear that the CBI and the banking system cannot do this overnight.”
The former CBI boss offered a solution to address this issue. "The central bank should gradually reduce the ceiling for social protection loans by 20% annually… The CBI must inform the government that if it does not accept reducing such costly loans, the CBI itself will do so based on its own priorities."
In fiscal 2023-24 banks were ordered to allocate up to 2,000 trillion rials ($4.92 billion) in interest-free lending for government-led programs like loans to newlyweds, for childbirth and to support households struggling with the worsening cost-of-living crisis.
The Majlis Social Commission last year raised the ceiling for marriage loans. Debating the new budget, lawmakers decided to increase the loan by at least 25%. Lenders gave a total of 44,485 trillion rials ($84.89 billion) in loans in fiscal March 2022-23 up 45.3% on the year before.
1.9M Loan Applicants
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 rent homes.
Banks accepted 824,900 applications for childbirth loan worth 330 trillion rials ($647.5 million) last year. Some 1,230 trillion rials ($2.4 billion) were marriage loans to 896,000 applicants, up 55% y/y. Recently, the CBI Credit Commission agreed to raise the cap on Qarz-ul-Hassanah (interest-free microcredit) loans by 50%.
According to a CBI press release, 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).
