Economy, Business And Markets

Pain Without Gain

Pain Without Gain Pain Without Gain

One of the biggest challenges the Rouhani administration has been facing since taking office in 2013 and which remains unresolved so far, is the toxic influence of uncertified credit and financial institutions on the national economy.

 Deputy head of the Parliament’s Economic Commission on Sunday singled out the Central Bank of Iran for failing to effectively reign in such credit institutions.

Mohammad Reza Pour Ebrahimi said these lenders are blatantly violating benchmark deposit rates set by the CBI, whereas commercial banks, both government-owned and private, are obliged to play by the rules.

“Due to lack of supervision in a competitive market like Iran, credit institutions are doing whatever they want to attract depositors while commercial banks, due to strict controls, are losing out in the competition,” he complained.

The CBI has been ignoring unauthorized banking operations and refrains from taming the informal money market which apparently translates into a form of punishment for law-abiding banks, IRNA quoted him as saying.

The lawmaker referred to the interest rate cut by the Money and Credit Council in April and its pledge to consider further cuts if the initiative is successful. He noted without elaboration that the “MCC seems to have lost its efficacy in the current mayhem of the market.”

After the landmark rate cut by MCC, focus again shifted towards the unauthorized credit and financial institutions which had long disrupted the market by offering exceptionally high interest rates and refusing to abide by CBI regulations.

 Mizan Again

In spite of CBI’s repeated warnings to press legal charges against the unauthorized financiers, unauthorized credit institutions like Mizan continue to hound their depositors.

Hadi Ghavami, another lawmaker, in an interview with IRNA last week, said some “new credit institution is set to replace the now defunct company, although the CBI has yet to approve the move.”

 The lawmaker did not explain how the measure will put an end to the ordeal of Mizan depositors in a case that has dragged on for nearly nine months.  

One of Mizan depositors who has fallen victim to the lender’s demise, losing a substantial amount of money, told Financial Tribune on condition of anonymity he had almost given up hopes for getting his money back. “False promises are all we have gotten,” he said.

“In March, a CBI deputy chief said on state TV that Bank Saderat will undertake the losses and clear the deposits by selling Mizan’s assets. Later they denied the whole thing.”

Later, it was arranged for depositors to be reimbursed by Mizan’s debtors but that too did not work.  

Mizan Credit Institution, with 930,000 depositors, had 2.6 trillion rials ($88.5 million at the official exchange rate) reserve money with the central bank, 1.6 trillion rials ($55 million) of which was released early to pay small clients with deposits of less than 30 million rials ($1,000).

“Close to 84% of minor depositors got their money bank and the plan was discontinued on July 20,” the unnamed victim of the unlicensed finance company said.

The credit institution avoided getting registered with the CBI during its 15 years of operation so it is not yet clear how the new company will be able to turn the situation around and compensate all the disgruntled victims.  

Mizan’s sorry state of affairs has seemingly pushed a handful of other unofficial companies to take the plunge and seek a legal standing with the regulator. Noor, was one such institution that recently won CBI approval to become a legitimate lender.  Samen, Arman and Mehr-e-Eqtesad bank are other notable financial companies which are now taking the final steps to win CBI approval.