As the Iranian economy opens up for business, regional Islamic banks are likely to benefit most as the country’s banking system is governed by Sharia.
Entry into Iran could be easiest for Islamic banks given that Sharia governs the conduct of business and banking regulation in the country. Iran was the first country in the world to fully convert all banking activities to follow Sharia principles with the enactment of the Usury Free Banking Law in 1983.
Currently Iranian banking system operates 100 percent according to Islamic banking principles, a unique feature compared to peers globally, albawaba business reported Sunday.
According to the Central Bank of Iran, the country’s banks and other financial institutions held 15,901 trillion Iranian rials ($558 billion) in total assets as of May 2015.
As a result of financial sanctions, the sector has limited links with the global financial system, relying only on domestic funding with limited interbank borrowing. Of the 29 banks operating in the country, three are commercial government-owned banks, five specialized government-owned banks, 19 are private-sector banks and two are special mandate banks.
“Given the sheer size of the banking system and the country’s financing needs, we expect a major boost to sukuk volumes,” said Khalid Howladar — senior credit officer at Moody’s. “However, Sharia harmonization across jurisdictions would likely remain difficult,” he said.
The country’s largest private-sector banks include Bank Saderat, Bank Tejarat and Bank Pasargad, all of which are listed on the Tehran Stock Exchange. In addition, there are more than 6,000 so-called ‘Qarz-al-Hassaneh’ institutions catering specifically to microfinance, consumer and SME financing.
Its banking sector is the largest contributor to the global total of Islamic banking assets estimated to account for 45% of $1.2 trillion market.
Some of the largest Islamic banks globally are based in Iran, with two of them — Bank Melli and Bank Mellat— both estimated to have in excess of $65 billion in assets, just behind the world’s largest Islamic Bank Al Rajhi in Saudi Arabia at $87 billion.
