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Credit Institutions Get Second Wind
Economy, Business And Markets

Credit Institutions Get Second Wind

Despite their bad rap as companies without monetary discipline, credit and financial institutions are seeing a surge in popularity. According to a report by Akhbar Bank news website, the wave of investors making new deposits in credit institutions, especially the fledgling ones, has grown significantly.
The renewed interest shown by depositors in credit institutions, despite their less-than complimentary history, underscores the old rivalry between commercial banks and credit institutions in Iran.    
Rising hope for credit institutions to get central bank’s approval, quick and easy loan services, and high interest rates on saving accounts are among attractive features that make institutions appealing to customers.
The potential for Iran and the six world powers to nail down a historic nuclear deal has also lifted the mood of investors.
Among these features, higher deposit interest rates compared to rates offered by commercial banks make credit institutions stand out from the crowd. Although most of the credit companies have lowered their formerly extortionate rates under pressure from the regulator, they are still high enough to lure customers away from commercial banks.  
The latest central bank report also indicates that private banks have done a better job in attracting depositors than public-sector banks, which again is not good news for state-owned banks already beleaguered by toxic loans.
Apart from the 32 banks doing business in Iran, there are nine large credit institutions operating, only three of which have central bank permits. Reports suggest that hundreds of credit institutions have been scattered throughout the country. Calls to organize these institutions have grown more strident in recent months, considering the fact that they hold a 20-30% share in the money market.
An ultimatum by the central bank to unlicensed firms to obtain permit within a year or get ready for closure has prompted many of them—especially the big ones—to make a scramble for appeasing the central bank by capitulating to its regulatory terms.
Last week, Noor credit institution became the latest credit company to receive an operating permit from the central bank. Other formerly unauthorized credit institutions that have succeeded to secure permits include Askarieh, Kosar and Tose’e. Arman Credit Institution and Mehr Eqtesad Bank are also awaiting thumps-up from the regulator which is expected to happen soon.    

 Half-Full Glass
Bashing credit and financial institutions is all the rage these days. Considered a serious threat to the country’s financial stability, pundits and officials agree on “organizing” them if not “cracking down” on them. The term “organizing” became the preferred weasel word used by central bank officials after it became clear that a heavy-handed approach would only backfire.
A notable case involved Mizan Credit Institution, which finally led to the arrest of its board of directors on judicial order back in May. The company was dismantled, leaving the future of the lost deposits hanging in the balance.
Monetary regulators now hope that by encouraging these institutions to embrace reforms and get their act together, a more even path to regulating the money market is on the horizon. 

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