Central Bank of Iran Moves to Streamline Working Capital Loans

EghtesadOnline: The Central Bank of Iran is working on plans to adjust policies regarding working capital granted to manufacturing units to ensure the loans are actually used for boosting production and staving off inflationary effects.

News ID: ۷۴۷۷۸۷

07 July 2019

CBI Governor Abdolnasser Hemmati outlined various plans under the review of advisory committees to procure the funds needed by manufacturing units in an optimal manner, referring to a plan dubbed “productive working capital” on the CBI agenda.

In an Instagram post on Friday, Hemmati said rising production costs over the past year have given rise to the need for working capital and many manufacturing units have a hard time keeping their businesses running due to the fund shortages.

“Any plan undertaken to address the issue should in the first place ensure that the loans meet the working capital needs of businesses. Secondly, it should be utilized merely by the production sector, otherwise it would lead to inflation and price shocks,” Financial Tribune quoted him as saying.

Hemmati noted that despite the rising volume of liquidity in recent years, manufacturing units still have difficulty in procuring their working capital.

He was implying the fact that rampant liquidity over the past few years has not been used to help fund the working capital of manufacturing units. Rather, it had been injected in non-productive activities, particularly in foreign exchange, housing and auto markets which, in turn, increased public demands and consequently led to inflation.

According to CBI’s latest report, liquidity reached 17,645 trillion rials ($150billion) by the end of the ninth Iranian month last year (Nov. 22-Dec. 21), which indicated a 22.1% growth compared with the corresponding month of the year before.

Hemmati noted that “the productive working capital plan is designed to meet the working capital needs of the production chain, while preventing CBI resources from heading toward non-productive activities”.

He noted that the plan has been adopted after consulting monetary and banking experts as part of efforts to boost production and avoid stagnation.

In a report on loans paid to various sectors in the last fiscal year (ended March 20, 2019), out of a total 7,737 trillion rials ($51 billion) paid to various sectors,  4,319 trillion rials ($30.31 billion) were allocated to help raise the working capital of businesses. The amount accounts for 55.8% of all loans paid during the period.

CBI said the large share of working capital loans was largely due to the regulator’s concerns about manufacturers struggling in difficult economic conditions, coupled with the tanking of the rial, higher raw material costs and the mounting pressures of new US sanctions.