The procedures taken by commercial banks to provide loans to individuals and firms have long been subject to criticism by economic experts and the public. Now with hopes to avoid further legal discrepancies and to help industries have easier access to loans, the Central Bank of Iran (CBI) has issued a directive urging the banks to adhere to already existing regulations on loans, Banker News reported.
Contrary to the mandates of the usury-free banking, state and private owned banks have taken the loan’s interest upon giving the loan and not at maturity, which effectively drives up the interest rate offered on the loan. The directive also stresses the eradication of such “unlawful” practices.
The directive emphasizes that loan applicants should not be required to deposit money prior to receiving loans. Additionally, the banks are by no means allowed to withhold any portion of the loans as a method with which the banks try to increase effective interest rates.
To further promote financial discipline and avoid later misunderstandings by customers, the CBI has urged lenders to provide loan applicants with clear-cut information while adhering to practiced privacy policies.
On the other hand, the CBI has encouraged banks to assist the manufacturing units, faced with cash flow problems, with loans as long as they pledge to closely conform to their pay-back schemes.
