Industries Financed Mainly by Lenders

EghtesadOnline: Banks met nearly 57% of industrial units' capital need in the last Iranian fiscal year (ended March 2019), says a deputy minister of industries.

News ID: ۷۴۸۴۳۸

15 September 2019

"Industries wanted 2,890 trillion rials ($25 billion) for working capital alone last year…the banking system provided 1,640 trillion rials," Saeid Zarandi was quoted as saying by IRNA.

The official blamed rising cost of production and high foreign exchange rates for the wide gap between the loans paid and demand from industries struggling to survive, Financial Tribune reported.

"Producer Price Index for the industrial sector is expected to hit 25% by the end of the current fiscal year," he said. "This would increase industrial units' total working capital need to 3,600 trillion rials… which would be the function of banks".

Lenders' unwillingness or inability to fully meet industries' demand for funds will push them towards private lenders and informal markets, Zarandi warned.

"Higher cost of funding and financial resources will have a negative effect on manufactures and their competitiveness," the senior official said without elaboration.

Total Loans

CBI statistics show out of the total 7,737 trillion rials ($67 billion) loans paid in the last fiscal year (ended March 2019), 4,319 trillion rials ($37.3 billion) was allocated to raise working capital of businesses grappling with rising costs, declining sales and higher wages.

According to Central Bank of Iran data, industries and mining sectors accounted for 27% of the total loans or 2,089 trillion rials. The purpose of 78% of the money lent to the sector was to help meet their need for working capital.

CBI has been working on plans to adjust policies regarding the working capital paid to manufacturing units to ensure that the loans are actually used for boosting production and curtailing inflationary effects.

CBI Governor Abdolnasser Hemmati outlined plans under review at advisory committees to procure funds needed for manufactures in an optimal manner, referring to the ‘Productive Working Capital’ plan on the bank’s agenda.

President Hassan Rouhani has urged banks to follow a path that channels funding toward productive economic sectors and draw on the full economic potential of the country by providing working capital to productive units.