Funding Priorities of Iran Banks Notified

The Central Bank of Iran has notified the lending priorities of the banking system for the current fiscal year (started March 21), outlining the roadmap for lenders as they seek to support business and industries still reeling from a biting recession that hit nearly all economic sectors.

There is also a special focus in the directive on businesses and projects in need of capital instructions and the credit needs of small- and medium-sized enterprises.

With the ultimate aim of sustaining production, maintaining current employment, generating new jobs and boosting the economic growth of the country, it has been decreed that 10,000 businesses and 6,000 unfinished projects with a physical progress of at least 60% will receive funds while 5,000 business units will be renovated.

In order to achieve this goal, 300 trillion rials ($8 billion) are to be allocated by the banking system, 200 trillion rials ($5.33 billion) of which "will be for working capital needs and financing unfinished projects" with the remaining 100 trillion rials ($2.66 billion) for "rebuilding and renovating business units that meet technical, financial and economic justifications", according to the official news website of CBI.

While stressing that SMEs are "the first priority for receiving the earmarked credits", the central bank directs lenders to coordinate with the Ministry of Industries, Mining and Trade to register the information in the integrated databank—called Behinyab—considered for this purpose.

Since many guilds are in the supply chain of commodities needed by SMEs and their role in productive and distributive activities is indispensable to the economy, and since they do not need to be registered in the system, CBI advises banks to put maximum efforts in supporting them in tandem with SMEs.

Supporting the ailing SMEs was one of the top priorities of the Iranian banking sector in the previous fiscal year, which goal was achieved following the allocation of 170 trillion rials ($4.53 billion), higher than the initially designated 160 trillion rials ($4.26 billion), to SMEs in line with President Hassan Rouhani's focus on boosting production and employment.

SME Focus

In a statement published on its website on Saturday, CBI also commends the performance of lenders in the previous year, which "strived to pull SMEs out of recession and improve economic conditions, especially in the industries sector, by optimally employing the resources and correctly guiding the funds".

According to the central bank, this performance was a driving force behind the 1.9% economic growth, excluding the oil sector, and a 5.8% growth in the industrial sector in the first three quarters of the previous year.

Furthermore, CBI notes, GDP growth minus oil also increased and reached 4.6% in the third quarter of last year (Sept. 22- Dec. 21, 2016).

The central bank, led by Governor Valiollah Seif, has set out guidelines for allocating funds to small- and medium-sized enterprises if their workforce during the past year had been fewer than 50 and between 50 and 100 individuals respectively.

It decrees that the businesses must be introduced by a "provincial task force for easing and removing hurdles to production" and approved by an agent bank as having technical, financial and economic justification, while their activities must have entirely or partly halted as a result of a cash crunch.

 Enterprises that have spent the previously received loans prudently, businesses that had not been able to repay their loans to the banking system as a result of not receiving their dues from a "state organization or affiliate" and businesses that boast a "higher sustainable job creation rate and viability" will also be eligible for the fresh round of funds.

CBI's directive also includes a number of other articles, asserting that the amount of non-performing loans of SMEs must not be higher than the amount of loans they are requesting and their total bounced checks must not exceed 25% of the value of requested funds.

Furthermore, CBI strictly forbids agent banks from appropriating applicants' loans in return for their bad debts or bounced checks, saying it is "in contrast with the supportive goals of the overarching plan to boost production".

The directive allows lenders to reallocate working capital to businesses "at a maximum amount equal to the value of their previous loans", should the business manages to pay off all or part of its previously obtained funds within the set repayment period.