In a report on ‘Barriers to Eliminating Usury from Iran’s Banking System and Corrective Measures’, the research arm of the Central Bank of Iran – the Monetary and Banking Research Institute – has outlined challenges to usury-free banking and provided some solutions.
When the Usury-Free Banking Law was approved in 1983, it was generally thought that usury is a thing of the past in Iran’s banking system and Islamic banking has taken hold. But as years passed by and banking operations grew, little has been done to update the regulations and install supervisory tools proportionate to the needs of usury-free banking.
The report suggests that the most important barriers to the elimination of usury from the banking system needs to be identified and necessary directions be given.
“To achieve the goals set by the Islamic economic system, an Islamic bank needs to operate within the confines and rules of the sharia and Islamic finance. Since the forbiddance of usury is one of the most important principles of Islamic banking, removing the barriers to eliminating usury is the first step toward real Islamic banking”, the report said as quoted by banker.ir.
Regulatory Shortcomings
fcThe MBRI cites “faults in the collective laws and regulations of the banking system, superficial contracts and their incorrect implementation, failure to understand and realization of Islamic banking principles and banking contracts” as the main impediments.
The research body – established in 1990 – provided a number of solutions saying the main problem seems to be regulatory. It said the Banking Reform Bill currently in parliament must be pursued with speed and vigilance. Another solution would be to create financial instruments in order to set up efficient monetary policies based on the principles of the Islamic sharia.
Officiating the stance of CBI’s sharia council and creating a sharia supervisory authority within banks and monetary institutions under the control and changes in internal regulations, were among other points put forward by the MBRI.
According to the research center, criteria and rules of Islamic banking deals should be conveyed clearly to people working for the banking network and also to the people in general by way of higher education and social media.
Establishing institutional and legal ways of calculating the difference between regular returns on deposits and year-end dividends and also setting up suitable and accessible internet portals that can answer questions clients may have regarding Islamic banking and banking deals, were among the more technical recommendations made by the MBRI.
