Banks in Iran officially started offering credit cards from Saturday as part of a nationwide scheme to help stimulate demand and replace the defective micro-lending methods prevalent in the banking sector to this day.
Ali Asghar Mir Mohammad Sadeqi, director of CBI’s credit department, said that the central bank’s main goal is to spur consumer demand.
“Credit cards will ease the process of offering small loans to the public,” Mehr News Agency quoted him as saying on Thursday.
Card holders will be charged with no interest if they clear their debts within a month, according to the official. “Otherwise, they will be given 12-36 months to settle debts at 18%– the lending rate cap set by the Money and Credit Council [in June.]”
According to the Central Bank of Iran’s statement on Thursday, credit cards will be offered in three types: Golden, with a limit of 500 million rials ($14,000 at market exchange rate), Silver, with a limit of 300 million rials ($8,400), and Bronze, with a ceiling of 100 million rials ($2,800), based on the applicants’ creditworthiness measured by banks.
The measure is yet another effort by the CBI to prop up weak demand in an economy long battling recession and runaway inflation.
However, enquiries by Financial Tribune on Sunday revealed that bankers are less than enthusiastic about the scheme–an apathy that has taken few analysts by surprise given the dire conditions of many banks.
The leading financial newspaper, Donya-e-Eqtesad has traced the lenders' unwillingness to consecutive rate cuts imposed by authorities in recent months, and a shortage of capital that has become a common feature for many banks in recent years.
Except for the state-owned Bank Melli Iran which announced it had implemented the plan, a handful of other banks surveyed by the Financial Tribune said they had not received the relevant guidelines yet. These banks included Bank Mellat, Bank Saderat Iran and Bank Pasargad Iran.
A BPI employee noted that private banks are not interested in the plan, something echoed by a BMI clerk who said private lenders are "not willing" to offer credit card loan at 18%.”
Last week, Kourosh Parvizian, Parsian Bank’s CEO and head of the Association of Private Banks said that private lenders would welcome the plan.
However, he suggested giving banks a 30-40 day period to settle the money with sellers. “Such mechanism would help fulfill [CBI] goals for pepping up demand.”
Some banks said the plan is limited to their own employees in the first phase, whereas other lenders expressed lack of knowledge about the scheme.
The privately owned Ayandeh Bank however, announced on Thursday that it issued more than 12,000 credit cards for its customers.
“Following the CBI’s announcement last month, Ayandeh started taking a series of measures to prepare the needed infrastructure for issuing credit cards,” the bank's public relations office said.
A teller at Ayandeh confirmed that his bank was offering the cards, but added that one must deposit a specific amount of money with the bank for a year, in order to receive the cards.
While the nationwide scheme is the first of its kind, Iranian banks had been issuing credit cards for special customers based on a similar practice for a long time.
A Plan in the Making
According to central bank officials, the credit card scheme is expected to replace the thorny and often dysfunctional process of obtaining small loans from the banking sector. Banks pay a considerable amount of loans each year. However, small loans account for a meager portion of the total lending.
Even though auto loans, student loans, loans for purchasing home appliances range between 150-200 million rials at the most, only a tiny fraction of applicants manage to meet the strict loan conditions of banks.
Banks require borrowers to pay higher interest on such loans. They sometimes hold 25% of the money as collateral against the loan– which is already secured by two creditworthy sureties.
According to the CBI's Mir Mohammad Sadeqi, credit cards will be offered to the public with no restrictions for purchasing goods and services, “unlike previous schemes that only targeted civil servants.”
Last year, CBI Governor Valiollah Seif unveiled an incentive package aimed at financing manufacturers and providing credit to consumers.
Credit cards up to 100 million rials were to be issued to help consumers purchase domestic durable goods and they would be charged 12%.
However, the plan failed, due to restrictions on purchasable goods and eligible applicants.
The CBI has also required banks to do their best in promoting the use of credit cards in the country. The regulator also has warned banks their operations are under close scrutiny.
