The final draft of a bill that seeks to reform the banking system will be given to the Cabinet for review soon.
The bill was drafted by the Ministry of Economic Affairs and Finance and the Central Bank of Iran, according to deputy minister Mohammad Parizi.
Iran's bank-based financial system has been facing challenges for the past few years. The government is seeking to restructure it to end the credit crunch and chaos weighing on Iranian businesses.
"We are currently having a quick review of the draft and we expect its examination by the Cabinet before presenting it to the Parliament to be fast," said Parizi, as quoted by IRNA.
The bill has two parts. The first part focuses on the central bank and shapes the money market's policymaking, regulations and oversight. The second reengineers banking practices, including lending, credit and how Islamic contracts are used.
It is still unclear how deep the reforms will be. It does not depend solely on what the Economy Ministry deems necessary.
Furthermore, executing the bill is an entirely different ball game. Reforming the money market requires the central bank to have a full view of the money market. However, with over 6,000 uncertified financial institutions, such an idea seems farfetched. The central bank's campaign to reign in these companies has moved at snail's pace so far.
Regardless, the bill will touch on key issues, including giving the government dominated central bank more autonomy and also executive powers to deal with rogue institutions. The changes will have lasting effects on the money market's landscape in the near future.
Major Challenge
An economic expert has blamed the nuisance value of unauthorized credit and financial institutions, handling 30% of the money supply, as the major challenge the Iranian economy has been facing in the recent past.
"To overcome the current economic downturn, the administration is required to initially tackle the issue, tightening supervision over the companies," said Amrollah Amini, an economist at Allameh Tabatabaei University, as reported by Banker news website on Sunday.
"The central bank had better organize their operation through imposing limits or offering encouragement instead of forcing them to dismantle at first," he said.
The uncertified institutions include interest-free credit unions, cooperatives, bureaux de change and leasing firms.
Apart from the 32 banks doing business in Iran, there are nine large credit institutions operating, only three of which have central bank permits. The Judiciary's reports show that 300 leasing firms are working unchecked, endangering the public money. Out of 1,600 bureaux de change operating in the economy, only 428 have the CBI's operation license. Moreover, over a quarter of 204 credit cooperatives lack the regulator's permit as well.
Amini said any disorder in the country's monetary and banking system would make the economy get into trouble. "In a healthy economy, the production volume should be in proportion to the money supply," he noted. "However, the operation of uncertified institutions has disrupted this proportion in Iran, making money in circulation considerably exceed in comparison to the production, exacerbating stagflation."
The expert believes there are two reasons behind the foundation of these institutions in the country.
"While some of the firms are connected to interest-free funds, in a move to justify their illegal operation; others were initially established in the form of credit cooperatives to expand their financial services," he noted.
The economic analyst said the institutions' operation harms the money market and the central bank is required to refer them to law-enforcement forces and the judiciary, which can take legal actions against them.
As the main duty of the CBI is to regulate the banking system and money market, Amini urged the central bank to put legalization of uncertified firms on its agenda to help the economy overcome the current recession.
