Economy, Business And Markets

New Bank Planned to Rescue SMEs

New Bank Planned  to Rescue SMEs New Bank Planned  to Rescue SMEs

A bank for supporting small businesses has been envisioned in the next five-year plan (2016-21), making it the first of its kind at the level of micro-finance in the country.

The Management and Planning Organization has proposed the creation of the bank by merging the ‘Omid Entrepreneurship Fund’-- a state fund also for supporting entrepreneurship and small businesses -- and has urged the government to establish the bank within six months after the development plan law is approved by the Majlis, which is expected between late this month  and early January.    

Ministries of industries, mines and trade, agricultural jihad, economy, and cooperatives, labor and social welfare as well as the Central Bank of Iran are also behind the idea of launching the bank.

Government attention to small and medium enterprises comes after a recent study by the Majlis Research Center indicated that nearly 40% of the difficulties faced by the SMEs are finance-related as they are indebted to commercial lenders and thus ineligible for new loans.

Small enterprises have also been given the short shrift in the past with 72% of loans being granted to the top 10% biggies while less than 1% was given to 10% of companies with the least assets.

 Tighter Oversight

Draft law of the sixth plan also calls on the CBI to ramp up its supervision of the banking system which is plagued by mismanagement, credit crunch, bad debts and the army of unauthorized finance and lending institutions.

The move also provides the CBI with some long-awaited clout to confront unruly financial institutions.  It envisages the power to impose penalties on these institutions up to 1% of their initial capital, curbs on dividends paid to shareholders and bonuses to managers, revoking shareholders’ voting rights or banning them from purchasing other banks’ shares or forcing them sell their stocks; and finally cancelling their licenses.

A new regulatory body, the ‘banking disciplinary committee’, would be in charge of making decisions on the unlawful practices of banks.

The draft also requires CBI to develop rules for financial institutions’ capital adequacy ratio, classification of their assets, their liquidity coverage ratio, and minimum standards of self-regulation.

According to existing rules, the CBI is the only body in charge of regulating and issuing operating permits to banks and non-banking financial institutions including credit institutions, qarzol-hasaneh (interest-free) funds, bureaux de change and leasing companies.

The proposed measure gives CBI increased power to crack down on uncertified credit institutions in coordination of the Law Enforcement Forces.