Head of the Management and Planning Organization said Iran is aiming for an average annual growth of 8% over the course of the next five years and to achieve this ambitious goal, the banking sector needs to extend 1.8 quadrillion rials ($ 57.6 billion ) in credits to private firms. Mohammd Baqer Nobakht added that the country’s growth target and its commitment to turn itself into a regional power hub by 2021 is simply a “must” and not some “option.”
“Financing through the money market takes center stage here and banks as the most important finical intermediaries should be able to provide 24% of the resources to businesses in need,” he said in the opening remarks to the 27th Annual Islamic Banking Conference in Tehran on Tuesday.
Achieving 8% growth is a tall order for the country emerging from nearly a decade of punitive sanctions over its nuclear program. While it has succeeded to regain most of its share in the global oil market, the Islamic Republic is still facing challenges to attract foreign investment in other sectors and dispel the fears of major international banks in doing business with it.
Nobakht, a trusted ally of President Hassan Rouhani, referred to dismal growth rates of the past including the minus 6.8% rate when Rouhani took the helm of the government in mid-2013 with 380 trillion rials ($12.1 billion) of debt to the banking system alone. While in the three months ending March 20, 2015 the country secured a 2.9% growth, and 4.4% growth for the first quarter of the current fiscal year (started March 20), most of other periods have been marked by lackluster performance. The government has set its eyes on 5% growth this financial year.
Part of the growth target will have to come from investment at about 15.4%, according to Nobakht. This would require 7.2 quadrillion rials ($230.5 billion) in annual investment. Given the critical status of banks and the heavy reliance of the country on the banking system for funding, domestic and foreign investment would provide a breath of fresh air to the economy.
As part of the sixth five-year development plan (2016-21), the government wants to engineer 8% growth, by supplementing banks’ business lending with 370 trillion rials (11.8 billion).
As part of its plans to revive the economy, the government has also identified some 7,500 struggling production units, singling them out for 160 trillion ($5.1 billion) in new loans.
Nowbakht said the 2,000-page plan blueprint is the most carefully-devised blueprint devised for its practicality and efficiency. “Some of its articles have even been clarified down to the operation level.” The sixth plan is now being reviewed in parliament.
Alluding to this year’s theme of the Islamic Banking Conference, “Interaction of Usury Free Banking and International Banking –Nobakht acknowledged that long-time isolation had widened the gap between the accounting and banking standards and those of global banks, calling for officials and experts to end this disparity.
Islamic Banking on the Rise
Governor of the Central bank of Iran, Valiollah Seif, told the conferees Iran has the largest financial system based on Islamic, or Sharia law. He said Islamic banking assets have are now being used by 2 billion people and Iran’s Islamic banking assets account for over 37% of world’s total.
Iran’s Islamic banking assets are $482 billion, according to Dubai government data from 2014. That’s more than in Saudi Arabia, Malaysia and the United Arab Emirates combined.
“The Islamic Republic is among the few countries that have adopted Islamic banking principles and now some non-Muslim individuals are embracing usury free banking on moral grounds,” he said.
The CBI chief noted that a long-term vision for the promotion of Islamic banking is in the making to make Iran a hub of Islamic finance. He also highlighted the need for upgrading the codes of conduct governing the Iranian banking system in line with international standards.
Current Iranian banking laws were first ratified in 1983 and remained unchanged throughout the years. But two recent bills–one concerning banking laws and the other central banking regulation – is pending the lawmakers’ approval . The bills call for major changes in the banking laws and ensure a stronger and effective regulatory role for the CBI.