Iran Private Sector Setting Up Its Own Guarantee Fund

The Iranian private sector is setting up its own guarantee fund to facilitate international finance for small- and medium-sized investments, the head of Investment Commission at Iran Chamber of Commerce, Industries, Mines and Agriculture said.

Ferial Mostofi added that the fund will support the "true private sector" as distinguished from the public and semi-privatized sectors that have easier access to state funding resources.

"The fund will support private sector initiatives in the absence of a viable sovereign guarantee fund backing ventures worth up to €50 million instead of projects costing €100-200 million," Mostofi said in response to a question by Financial Tribune.

According to the official, this will help foster production and employment, which have been chosen as the theme of the current Iranian year (started March 21) by the Leader of Islamic Revolution Ayatollah Seyyed Ali Khamenei.

Referring to the heavy presence of the state in the Iranian economy, Mostofi bemoaned the fact that state institutions tend to prioritize their own projects, leaving little resources for the private sector.

While not revealing the size of the fund, Mostofi said it will be "significant" enough so as not to use up the amount in the course of a year.

"The aim is to increase and diversify the number of companies that can utilize the guarantees," she said.  

The proposal to establish a guarantee fund exclusively to meet the private sector's needs was made during negotiations between Iran Chamber of Commerce and the renowned international consulting firm Deloitte.

On Monday, a gathering, attended by senior figures from the chamber and the banking system, was held at ICCIMA with representatives of Deloitte to discuss the firm's plans for Iran.

Asad A. Jafaree, a former consultant with the Central Bank of Iran who has recently rejoined the Deloitte group, also accentuated the benefits that a guarantee fund could entail for Iran in obtaining foreign finance in the face of a credit crunch besetting the country's banking system.

Noting that a representative office of Deloitte will be established in Iran this year, Jafaree also elaborated on issues facing the Iranian financial system, saying that addressing the banking system's problems is the main issue facing Iranian policymakers.

In the face of credit crunch and a shortage of capital, he recommended that Iranian banks and companies look to alternative ways of financing and reform themselves from "within", beyond what the regulating bodies recommend to become attractive for foreign investors.

"Iran is indeed attractive for multinationals and they are looking for ways to enter the country but there are some concerns holding them back," Jafaree said.

Hopes and Fears

According to the Deloitte official, the main two issues for multinationals eying the Iranian market are the fear of sanctions snapback and lack of effective banking channels to transfer funds.

"As for the sanctions snapback, that is a difficult issue for us to clarify to our customers and as for the banking channels, we are helping them find effective ways to resolve that," he said.

 Iran's Foreign Minister Mohammad Javad Zarif said in January that the snapback provision–which makes it possible for the US and other parties to instantly bring back sanctions if Iran violates the nuclear deal–indicated that the nuclear agreement had been reached on the basis of mutual distrust.

"On our part, snapback means that we can resume our nuclear programs anytime we want to but that is not the same for the other party because it will take time for them to re-implement the sanctions," he said at the time.

According to experts present at the chamber's Monday meeting, the issue of snapback is still misunderstood by foreign parties since that process does not happen overnight and has to be mandated by the United Nations, which will at least take two months to come into effect.

The US Treasury Department’s Office of Foreign Assets Control last year revised its Frequently Asked Questions guidance that concerns the reimposition of sanctions in the event of a sanctions snapback under the Joint Comprehensive Plan of Action (the formal name of Iran's nuclear deal with world powers).

It said that should the US reimpose certain sanctions pursuant to a JCPOA snapback, the US government would provide a 180-day wind-down period for payments related to contracts entered into and executed during the JCPOA period.

That guidance also clarified that "the United States will not retroactively impose sanctions for legitimate activity undertaken prior to any sanctions snapback".

According to an expert at the meeting , if investors  comprehend the niceties of the snapback and learn that proper "exit" measures can be inserted in any joint ventures between Iranian and foreign firms, it will become much easier for them to get over their fears.