Economy, Business And Markets

Community Funds Still Popular

Community Funds Still PopularCommunity Funds Still Popular

In Iran there has been a culture among families to create small funds to meet members’ demand for financial support. People create the family funds without requiring paying any, or in some cases very low, commission fees or interest rates when they receive loans. On a larger scale, similar funds are developed in mosques as well as within the Grand Bazaar of Tehran that has enjoyed the support of Bazzar’s merchants for many years.

Such informal funds do not feel the need for official permission or supervision of the central bank and their clients also never seek to verify their status in this respect. To justify the need for the community funds, a 25-year-old applicant, who had applied for a loan from a fund in a mosque in eastern Tehran explained that banks “do not usually give small loans and if they do, it takes a long time,” Eghtesad News reported.

Community funds only require the applicant to provide a check and allows for repayment in 10 months with only about two percent interest rate, the applicant added.

A middle-aged woman believes that being a member to family funds help her regularly save some money without which she would not do so, the report said.

In the meantime, the family and mosque funds have kept up with the pace of technology and enjoy a variety of electronic means in their operations such as internet bank, money transfer through ATMs and POS terminals which is welcomed by the majority of members.

Community funds, however, operate amid recent occasional warnings from the banking regulator on the need to address the issue of unauthorized financial institutions and their funds.

A banking expert believes that there is always some degrees of risk to the intervention of the central bank in the framework of the permission it grants and that the central bank cannot interfere in the work of unauthorized institutions. “In the case of community funds, there is no point or interest in obtaining permissions from the central bank for neither of the beneficiaries,” Kazem Doost-Hosseini, the expert told Eghtesadnews.

The central bank’s permission is worth millions and is issued to enable broad financial and monetary activities while community funds operate at small scale without extensive promotion and logically should not need permission from the central bank.

The central bank has the supervisory mechanism and can redirect the small monetary resources that are vested in community funds by fostering a competitive environment in the banking sector where people see and feel the advantage of depositing their even small savings in the formal banking sector, Doost-Hosseini added.

Recently the central bank has confronted some authorized banks and financial institutions that have huge capital and have set high interest rates on deposits, a move that has been seriously discouraged by the regulator. This kind of supervision has to increase and all financial and credit institutions should join Interbank Information Transfer Network (Shetab) as a monitoring tool, the expert recommended.