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The new credit cards can become a suitable substitute for microloans.
The new credit cards can become a suitable substitute for microloans.

Chamber Sees Salvation in Credit Cards

Chamber Sees Salvation in Credit Cards

With the launch of the new credit card scheme, the first of its kind, in the coming days, the business community is expressing hope that it would help restore buying power that has significantly eroded in recent years due o the unstable economic conditions and galloping inflation.
In mid-August, the Central Bank of Iran announced in a statement that the banking system will start issuing credit cards to gradually meet customers’ needs for microcredit and help pull “the real economy” out of the prolonged recession.
Three kinds of credit cards will be offered: Golden, with a limit of 500 million rials ($15,900), Silver, with a limit of 300 million rials ($9,500), and Bronze, with a ceiling of 100 million rials ($3,190), based on the applicants’ creditworthiness measured by banks.
“With these cards people will be able to regain a part of their buying power that was lost during the economic recession,” said Ali Sanginian, the head of Money and Capital Markets Commission of Tehran Chamber of Commerce, Industries, Mines and Agriculture.
“In the hope of repaying their credit card debt by relying on future income, people can benefit from the credit these cards offer,” he was quoted as saying by IBENA.
While the economy registered some growth after President Hassan Rouhani took office in mid-2013, he has been heir to a negative growth pattern and runaway inflation that had gripped the economy in the final years of the former government. Analysts have traced the economic woes of 2012-13 partly to the international economic sanctions, but mostly see them as a result of rampant mismanagement and unhelpful policies.  
On whether or not the issuance of credit cards could impact the inflation rate, Sanginian noted that the government has succeeded in taming inflation during the past few years, saying “today, we are witnessing a stable and controlled rise in prices.”
The official was quick to add that besides keeping a leash on inflation, the government needs to spur economic growth, because “businesses and the production sector are struggling to sell their goods in the face of lackluster demand.”
While praising the credit card scheme, the TCCIMA board member noted that the credit cards should have been introduced much earlier.

 Anti-Recession Tools
Another official with the TCCIM also commented on the credit cards, saying they will be “extremely efficient instruments” in helping the country exit the painful recession.
“A significant part of the recession that has gripped the markets is due to consumers’ low purchasing power,” said Al’a Mirmohammad-Sadeqi, a veteran business leader.
Calling on the government to help improve the buying power of all the people, he referred to that cut in mortgage rates for the Housing Savings Account saying “if interest rates for all home loans are lowered, all classes of the society will be able to afford mortgages. If the numbers of loans increase, I believe a notable part of the recession will end.”
On August 29 Rouhani announced that the lending rates for the Housing Savings Account mortgages have been cut to single figures for the first time, being fixed at 8% for homes purchased in distressed urban areas and 9.5% for  non-distressed urban areas.
The Housing Savings Account is a scheme that has been devised exclusive to first-time homebuyers and requires the applicants to make an initial deposit and wait for a year to be eligible for the mortgage.
The government should encourage other banks to also give housing loans in addition to Bank Maskan (the agent bank in charge of housing mortgage), said Mirmohammad-Sadeqi, “because while banks are paying 15-18% interest on deposits, they are unwilling to offer loans with lower rates because it would entail losses.”
In conclusion, the official said the new credit cards can become a suitable substitute for microloans and indeed “this will happen automatically.”

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