With Iran’s capital markets just opening up, the money market has been the dominant force behind financing businesses in the recent past.
The money market has been financing 90% of business activities leaving a less than 10% stake for equity markets over the past three years, a report by Tehran Chamber of Commerce, Industries, Mines and Agriculture shows.
According to TCCIMA, Management and Planning Organization’s assessment of Iran’s economic data shows foreign investments account for less than 3% of all financing over the same period.
The MPO, in charge of preparing the government’s budget, analyzed data from the Central Bank of Iran and the Securities and Exchange Organization to assess Iran’s recent financing patterns.
The report shows the central role of the banking system in Iran’s economy, highlighting the need for diversifying the sources of financing in Iran.
Banks carried out 89.2% of financing during the 2013-14 fiscal year, the report shows.
Total bank lending, plus money raised through non-governmental Islamic bonds, stood at 3.42 quadrillion rials ($98.33 billion at market exchange rate at 932GMT) during the period.
Capital markets raised a meager 292 trillion rials, 7.6% of total financing, through capital increases, initial public offerings and the sale of Islamic corporate bonds, including Mosharekat, Morabehe and Ejare, in the last fiscal year.
Foreign investment was a trickle at best, during the 2013-14 fiscal year, as sanctions against Tehran’s nuclear energy program barred foreigners from business with Iran.
Foreign investment accounted for only 3.2% of total financing in Iran last year, with foreigners bringing 123 trillion rials to Iran.
However, at least one part of these trends is set to change soon. Foreign investment is likely to boom, as the historic deal between Iran and the P5+1—United States, Britain, France, China, Russia and Germany—is implemented.
The two sides signed an agreement, called the Joint Comprehensive Plan of Action, in July, which would remove nuclear-related sanctions against Tehran in exchange for limits on Tehran’s nuclear program.
The normalization of relations is expected to bring huge investments from around the world to a market nicknamed “the last frontier market”.
Tehran’s two stock exchanges, namely Tehran Stock Exchange and Iran Fara Bourse, will take far longer to gain a larger share in Iran’s financial system. They are introducing new financial products, such as options and futures, and improving efficiency and transparency to attract investors.
The recent recession in the economy has depressed lending and sent stocks to two-year lows.
