Economy, Business And Markets

Uncertified Financial Firms Still Major Bugbear

Uncertified Financial Firms Still Major BugbearUncertified Financial Firms Still Major Bugbear

T he nuisance value of unauthorized institutions is prompting monetary officials, who seem bent on organizing them, to keep the heat on the illegal firms.

Peyman Ghorbani, vice governor of the Central Bank of Iran, on Monday announced that all institutions are illegal unless their names are included in the list of authorized institutions available on the CBI’s website.

The official also warned people against making deposits in the unlisted institutions “since they don’t act in accordance with the country’s monetary policies.”

“In case of any problem, the CBI is not responsible for the depositors’ loss,” IRNA quoted him as saying on the sidelines of an economic conference held in Noshahr – a city in northern province of Mazandaran.

Ghorbani laid emphasis on CBI’s main concern, which is about interest-free and cooperative funds that he said are now involved in “banking operations” to attract more deposits. He urged such financial funds to adhere to their original tasks.

 Using Effective Tools

In recent months, the central bank, in collaboration with the judiciary, is taking actions to close the illegal institutions. Experts suggest there are effective tools the CBI can take advantage of to tackle the problem before being turned into a crisis.

Abbas-Ali Abounouri, an academic in Tehran, believes the illegal credit institutions lack transparency and therefore can easily evade tax. “Their operation can be disastrous for the money market,” he warned, as reported by Banker news website.

The CBI has so far estimated their cash flow based on the legal institutions’ financial records, which is a flawed method, as savings are increasing in such institutes and contributing to the money supply, he argued.

The expert said the government needs to devise a “comprehensive plan” to regulate the institutions, instead of bringing criminal charges against them.

Kamran Nadri, another university professor, criticized the procedure leading to the mushrooming growth of credit firms, noting that “many of the non-banking institutions – mostly in the form of interest-free institutions – didn’t require the CBI’s permission, but surprisingly, they received their operation licenses from the Law Enforcement Forces.”

“As the money supply increased over time, the illegal firms expanded their monetary and financial activities while being unsupervised by the regulator,” he added. He called for immediate action against the unauthorized institutions, which have caused chaos in the money market by offering higher interests than those set by the regulator to deposits.

Citing another economic expert, Mehdi Taqavi, the website noted that the unauthorized institutions have 20 percent of the total money supply in their control. “As a large number of manufacturing enterprises have already deposited in such institutions, their insolvency would highly endanger the companies,” he warned.

Money supply and poor supervision over institutions are the main reasons behind the increasing number of illegal firms, whose number is estimated at 7,000, a lecturer at the University of Tehran, Jafar Ebadi, said.

“As they have 20 percent of the total money supply in control, they can affect the value of dollar and gold as well,” he argued, blaming the same institutions for the currency crisis in 2012, when the rial lost 70 percent of its value against all major foreign currencies. He, like many other experts, proposed that the regulator should give them permits or shut them down.

Analysts warn that the institutions, already under CBI pressure, could file for bankruptcy to evade their commitments to depositors if the pressure continues to rise. To avoid this, the government is advised to discuss the issue with the institutions’ stakeholders to come up with reasonable solutions; possibly, a merger that could be more beneficial than a closure.