Economy, Business And Markets

Uncertified Institutions Told to Follow Rules or Disband

Uncertified Institutions Told  to Follow Rules or Disband Uncertified Institutions Told  to Follow Rules or Disband

A senior advisor to the minister of roads and urban development said unauthorized financial institutions should follow the rules or face closure.

Gholamreza Salami suggested that illegal institutions can become banks if they make changes requested by the Central Bank of Iran in their structure, Eghtesad News reported on Saturday.

However, he said, first the government needs to stop supporting them. “That would make people more cautious about putting money in such institutions, which offer high deposit rates.”

He discussed how hundreds of illegal credit institutions have been created during the past decade. Out of 7,000 financial institutions operating across the country, more than 6,000 have no license from CBI, while they hold a 20% share in the money market.

Salami, who is also a capital market expert, explained that in the years to 2001, it was easy for state-run banks to make huge profit out of customers’ deposits.

“The banks used to have monopoly in the money market. They could invest public savings on lucrative markets and gain profit, a move that encouraged many to join the business,” he said.

However, Salami said, the central bank prohibited the private sector at the time to establish a commercial bank, right after Eghtesad Novin, Parsian and Karafarin got permits to start operating as banks.

“The rest, whose applications were rejected, managed to establish credit institutions, offering high deposit rates that led to attraction of high amount of capital,” he added.

In recent years, the institutions have invested in risky businesses to meet their commitments to customers.

On the other hand, the expert said, the institutions have had no reserve requirement at the central bank. “If they had the reserve requirement, they would lower their cost by 2% and increase their lending power.”