Economy, Business And Markets

Credit Card Launch to Stoke Demand

Credit Card Launch to Stoke Demand Credit Card Launch to Stoke Demand

As the nationwide launch of credit cards by the Central Bank of Iran draws near, a private banker believes CBI is introducing the unprecedented measure to stimulate demand in the economy.   

“CBI has been focusing on the supply side of the market in recent months by providing loans to production units. However, the new plan is set to address the demand side that remains depressed,” Hossein Salimi, a board member of Karafarin Bank, was quoted as saying by Tehran Chamber of Commerce, Industries, Mines and Agriculture’s website on Tuesday.

Earlier this week, CBI announced that the banking system will start issuing credit cards to gradually meet the customers’ need for small loans and help pull “the real economic sectors” out of the prolonged recession.

Three kinds of credit cards will be offered: Golden, with a credit of 500 million rials ($14,000 at market exchange rate), Silver, with a credit of 300 million rials ($8,400), and Bronze, with a credit of 100 million rials ($2,800), based on the applicants’ creditworthiness, measured by banks.

Comparing the new plan with CBI’s earlier credit cards scheme, Salimi said the higher limit is the main advantage of the new credit cards.

“The new plan allows private banks to issue credit cards, unlike the previous scheme that was limited to state-owned banks,” he said.

Last year, CBI Governor Valiollah Seif unveiled an incentive package aimed at financing manufacturers and providing credit services to consumers.

Credit cards up to 100 million rials were to be issued to help consumers purchase domestic durable goods, while cardholders would be charged 12%.

However, the plan failed, due to the limited range of purchasable goods and shortage of eligible applicants.

Salimi elaborated on CBI’s guideline sent to the lenders, saying they do not impose any restrictions on purchasable goods.

“However, the rules emphasize that the credit limit of the cards should match applicants’ financial strength and creditworthiness, so that they would be able to repay their debts,” he added.

Banks are supposed to prepare the ground for implementing the plan by September 20, according to the banker.