EghtesadOnline: Electronic negotiable instrument will become tradable in the equities market in the near future, an official at the Economy Ministry said.
According to Ebrahim Sayami, head of the ministry’s Research and Economic Information Management Department, the move would be in line with a new financing program in collaboration with the Central Bank of Iran.
In January the CBI unveiled the supply chain finance (SCF) program to improve lending efficiency and navigate bank resources more toward the production sector.
“This is in line with efforts to diversify financing instruments to help meet the need of businesses for working capital,” Sayami told IBENA, the news agency of the Monetary and Banking Research Institute.
Negotiable instrument is one of the tools to implement the SCF scheme along other instruments developed by the central bank.
A negotiable instrument is a signed document that promises a sum of payment to a specified person or the assignee. The document may also appear in electronic format.
SCF works by automating transactions and tracking invoice approval and settlement processes, from initiation to completion. Under this paradigm, buyers agree to approve supplier invoices for financing by a bank or other outside financier.
The Productive Credit Certificate, known by its Persian acronym “Gam”, is another similar tool that the CBI intends to employ in the SCF program.
Gam is a market oriented financial instrument traded in the money and capital markets. Through this instrument lenders help companies by offering a tradable credit certificate similar to LCs.
The certificate is submitted to suppliers of raw materials, machinery and equipment. Like bonds, certificates have maturity dates. The supplier can cash the certificate in the stock market.
So far 12 banks and credit institutions have said they are ready to join the new financing program, which, among other things, seeks to curb the diversion of bank resources from flowing into speculative markets, facilitating the finance process of manufacturing companies in non-inflationary ways and increase oversight on lending by banks.