The banking sector performs key tasks in today’s economy and is viewed as one of the main economic players of a country.
Fighting poverty is not among banks’ duties, although they can help increase employment and reduce poverty indirectly by stabilizing economic growth, said Nasser Zakeri, an economist, in an article for the Persian daily Shargh. A translation of the text follows:
Article II of the Law on Interest-Free Banking, which enumerates 16 tasks of the banking system, does not include a clause regarding poverty alleviation, although the performance of the country’s banking system can have a serious impact on reducing or increasing poverty.
According to statistic released by the Ministry of Cooperatives, Labor and Social Welfare, the population below the poverty line has exceeded 38%, while some experts and researchers put the figure higher.
A comprehensive survey can shed light on the most important factors affecting the spread of poverty. However, I believe that you can’t blame a researcher who claims that one of the drivers of poverty is the unfavorable performance of the country’s banking system and its misguided policies. We need to turn our attention to the following facts in order to provide a fair judgment about the truth or falsity of this claim:
The country’s banking network has expanded significantly in the past three decades, which is indicative of the prosperity of the banking industry. However, this quantitative and qualitative improvement has not contributed much to the country’s economic growth. The low rate of economic growth means the failure to increase the employment rate and productivity of the labor force, and as a result, the failure of policies designed to reduce poverty.
Large loans for special customers account for a considerable share in the overall loans granted by the banking network; the performance of banks has always been questionable in this regard. These loans give a golden opportunity to “the favorites” to collect wealth, the same opportunity that has been denied to the general public and applicants of micro loans. The banking system has supported the wealthy in the competition between the rich and other strata of the society, and helped widen the rich-poor income gap.
Over the past years, banks failed to effectively support the real manufacturing sector, because of which double-digit inflation and sanctions enfeebled production. On the other side, the brokerage sector flourished, thanks to the strong support it garnered from the banking network.
Notably, banks are not the only creators of this problem. The growth of brokerage activities and fake producers has broken the back of national production. As a result, small and large production enterprises closed, unemployment increased, and dealers and fake producers gained a huge income. In other words, banks have generously put their resources at the disposal of their favorite middlemen (and not even their favorite producers) and consequently helped the growth of inequality.
*** Bitter Irony
By collecting cash from micro clients and then granting large facilities to special customers, with the double-digit inflation raging, banks have actually turned the general public into losing creditors and special customers into winning debtors.
With the passage of time, the value of the money of small depositors disappeared, and instead, large facilities for special customers, which were generally turned into real-estate, helped them increase their wealth. The bitter irony of the story is that in 2015-16, following the decline in inflation rate, the government waged a war against low-income groups by claiming that the interest rate on the deposits should also decrease given the reduction in inflation rate, whereas during the inflationary period, no statesman put forward the same argument.
With a booming real-estate, banks, just like their special customers, invested in this market, which move, accompanied by the negligence of the government, led to an excessive and sudden growth in housing prices.
In 2016-17, when banks were required to hand over their surplus properties, one of the banks offered nine properties in just one auction, the base price of these properties was 3.7 times the total registered capital of the bank. The astronomical price of housing in the current situation can be blamed on the performance of the banking network.
In Iran, the level of support extended by the banking system to real-estate buyers is minimal. The share of the housing sector in the total banking facilities in the US is about 22% compared with less than 6% in Iran. Banks don’t play a serious role in the real-estate market; they have left housing applicants in a lurch, but this is not the whole story.
In fact, the small share of the housing sector in the total bank portfolio is not necessarily available for the neediest groups of the society; a group of people have managed to purchase a substantial number of properties using these loans. Banks have, in fact, tightened the noose on housing applicants through their disproportionate distribution of loans; after all, with the acquisition of several residential properties by one bank customer, the chances of buying a home for other applicants decline.
To make the long story short, I hope to see spokespersons of the banking system respond to this writing with a positive view and open the chapter of expert dialogue about one of the most important economic issues of the country. Undoubtedly, such a dialogue will lay the foundation of reforming the future course of the banking system and benefit the national economy.
