Economy, Business And Markets

Think Tank Says Microcredit Essential

Think Tank Says Microcredit EssentialThink Tank Says Microcredit Essential

The Majlis Research Center has voiced support for the healthy operations of interest-free institutions (aka Qarzol-Hasaneh) saying the presence of the small-scale financial institutions is “necessary” for financing small and medium enterprises and covering the needs of low-income households.

The influential think tank is of the opinion that “regulating” these microcredit institutions is a better option than simply closing them down.  

A report released by the center Monday reflects on the ‘’role of Qarzol-Hasaneh funds in informal money markets,” and advocates the establishment of a strong oversight body for regulating small-scale financial institutions including Qarzol-Hasaneh funds.

According to the highly-influential research body, microcredit banks and institutions can help alleviate poverty and contribute to general welfare.


The report also criticized the CBI for removing single-branch Qarzol-Hasaneh funds from its supervisory sphere, which in the long-run could harm money markets and jeopardize people’s savings.

The report estimates the total number of Qarzol-Hasaneh funds to exceed 3,000 as there is no reliable data on their exact number.

Latest data on Qarzol-Hasaneh funds dating back to 2002 indicate the funds used 74.5% of their assets for micro lending.

“Lack of supervision would give rise to usury-based banking and corruption among fund owners, tax evasion and money laundering,” the report warned.

According to the Banking Law passed in 1972, the Central Bank of Iran is responsible for regulating operations of Qarzol-Hasaneh funds based on their annual financial statements. The Islamic Economy Organization, established in 1980, has been delegated the task of promoting and upgrading usury-free lending.

In 1991 the Law Enforcement Forces were also given authority to supervise usury-free funds, causing chaos in informal money market. Finally in January 2005, following an agreement with IEO, the CBI’s role was accepted as the sole watchdog of the financial markets.

The Majlis think tank also suggests using electronic systems for supervision of Qarzol-Hasaneh funds as is done by  banks because it “would help CBI oversee their operations” across the country.

“Javid Fund” in Tehran’s Grand Bazaar, founded almost five decades ago, was the first micro fund that officially registered for non-commercial activities. Currently, these funds include small entities run by family members or mosques, to larger ones like the microcredit banks and lending institutions.

As per the Law for Islamic Banking passed in 1983, Qarzol-Hasaneh is an interest-free, non-profit, loan extended to real or legal persons for a fixed period.