Economy, Business And Markets

Credit Cards Hold Promise for Business

Credit Cards Hold Promise for BusinessCredit Cards Hold Promise for Business

Credit cards are among lucrative microeconomic ventures throughout the world and the trend has been on the rise in many countries. However, Iran has been left out of the trend due to a variety of reasons, namely lack of related infrastructure, absence of credit rating institutions and high risk associated with default on credit card bills.

The government’s recently released stimulus package may help change this as it has proposed, among other things, the issuing of credit cards by domestic banks. These cards are said to contain a maximum of 100 million rials ($3,300) in credit and should be specifically used for buying domestic products. Officials seem hopeful that the initiative would help improve consumer spending and boost demand for domestic goods.

In a recent interview with the weekly Tejarat-e-Farda -- a sister publication of the Financial Tribune -- director of the Central Bank of Iran’s IT department Naser Hakimi, delved into the issue of credit cards and the promise it holds for local businesses.

Hakimi said the plan to issue credit cards is not a temporary one aimed at stimulating demand in the short run. He asserts that the introduction of credit cards in the incentive package is the first step in a series of schemes to encourage widespread use of credit to buy goods. He, however, admits that outdated understanding of the banking industry, lack of sufficient knowledge and the banks being state-owned are the main impediments.

Differing Policies

“In Iran banks are thought of as state-owned institutions which have the task of absorbing the people’s small deposits and pumping them into industries to stimulate production,” he says.

The CBI official drew attention to Iranian banks’ different strategies compared to those in developed economies where lenders regard credit cards as one of the most lucrative and least risky ways of attracting funds.

“Banks give credit to customers and by extension improve the customers’ purchasing power. This in turn leads to higher demand and directs banks’ resources toward production,” he explains.

Hakimi believes that the ground is now ready for the introduction of credit cards on a large scale saying that banks can issue the cards within four days.

The CBI is waiting for government institutions to send their employees’ payroll data so that they could start the process of credit ratings and issuing cards.