The banking reform draft bill which is pending debate in the Majlis requires banks to offer risk-adjusted returns on investment fund deposits, rather than a fixed rate, a new report shows.
Banks have been using alternative methods to offer higher interest rates in order to lure savings including establishing investment funds or providing attractive loans to selected customers.
In the new measure, however, returns on deposits must be offered based on banks’ earnings in the previous fiscal year, Fars News Agency reported on Saturday.
The proposed bill also requires the Central Bank of Iran to publish weighted average of interest rates on a weekly basis for lenders to use as a basis for the rate decisions.
Banks will be barred from using qarzol-hasaneh (zero-interest) schemes to lend their own employees because “zero-interest loans must be reserved only for the needy.” Banks can offer zero-interest loans for justifiable causes like marriage, childbirth, funeral costs, healthcare or bailing out debtors.
Issuing Sukuks
The proposal also allows for the issuance of Sukuks either at fixed rates or adjusted rates which would be calculated at the end of the contracts.
Lawmakers are also deliberating the founding of a body at the CBI, mainly to supervise banks’ compliance with Sharia-based regulations. The body would comprise the CBI governor, CBI deputy for supervisory affairs, five Muslim clerics with expertise in banking and monetary issues and a legal expert.
The plan is developed under 13 headings and includes 205 articles. It is expected to be debated in parliament in the coming days.
Banking reform in the bill envisions the dominance of the real economy on monetary decisions and seeks to restore the banking system to its initial mission of financial brokerage.
Simplifying banking services, improving efficiency, adjusting interest rates with real economic conditions and upholding Islamic banking norms are among other measures clustered under the heading.
Iran’s banking laws have not been revised in almost four decades. The last set of rules concerning Islamic banking was passed in the early 1980s. The obsolete and outdated rules make it ill-prepared for the post-sanctions era when banks are expected to play a bigger and efficient role in reconnecting Iran to the highly competitive global markets.
