Iran to Establish Development Bank

EghtesadOnline: Iran Development Bank will be established in the foreseeable future to meet the country's production and manufacturing needs and foster job creation and thwart the fallout of the reimposition of US sanctions.

News ID: ۷۸۳۵۲۴

04 August 2018

The plan to establish the bank was approved by the parliament on July 25, ICANA, the official news outlet of the parliament, reported. Later, IBENA, a website affiliated with the Central Bank of Iran, disclosed more details of the plan.

"One of the major challenges of Iran is that because of the government's increasing current expenses, it is not possible to adequately finance the establishment of necessary, wealth-creating and job-creating infrastructures through public government funds," reads the introductory section of the plan, according to Financial Tribune.

"The low quality and high prices of some local products are symptoms of a myriad of factors that have an inefficient financing regime at the top. This inefficient financing system has caused manufacturers to receive their working capital with difficulty or at unreasonably high interest rates."

The plan says it has looked at the success stories of several developing East Asian nations that faced similar funding issues to define Iran Development Bank as a source of "cheap and targeted" resources for manufacturing units.

The plan includes 12 articles and 6 clauses.

Article 1 states that the entity will be affiliated with the Central Bank of Iran and established with the aim of "facilitating and accelerating the development of the country's infrastructures and vital industries, and create growth in productive and job-creating economic endeavors".

Article 2 decrees that the president will act as the chairman of the bank's board of trustees and other members include the minister of economic affairs and finance, the head of Plan and Budget Organization and the governor of the central bank. A parliamentarian will participate in the bank's board of trustees' meetings as an observer.

"The statute of the bank will be devised and approved by the Cabinet in a maximum one month after this law is approved," Article 2 adds, stipulating that the CBI governor will also act as the head of the bank that is set to be located in Tehran and have no branches or representative offices in any other provinces.

According to Article 3 of the plan, the bank is under no circumstances allowed to accept deposits from the private sector, including real and legal persons, and will be forbidden from engaging in traditional banking operations and services, except those clearly stated in the plan.

Mission

The plan's other articles have not been publicized, but the mission of the development bank has been defined as "offering long-term credits to finance macro development projects and providing a portion of short-term credits to manufacturing units to provide their required cheap working capital".

However, the plan also reportedly envisions changes to the statutes of some of the country's banks that already play a specialized role. It states that within three months of implementing laws pertaining to Iran Development Bank, the Ministry of Economic Affairs and Finance is obligated to change the statutes of the Bank of Industry and Mine, Export Development Bank of Iran, Tose'e Taavon (cooperatives development) Bank , Bank Maskan (agent bank of the housing sector) and Bank Keshavarzi (Agro Bank, the agent bank of agriculture sector) to transform them into "sectoral development banks".

"The mission of sectoral development banks is to provide a portion of the required cheap working capital to manufacturing and exporting units," it said.

The plan to transform Bank Maskan into a development bank has been long put forward by the administration of President Hassan Rouhani and emphasized by the Ministry of Roads and Urban Development. But the fact that the bank will require a significant capital boost to turn into a specialized development bank to support the ailing housing sector seems to have been the main issue hindering the process.

At present, the plan has seemingly expanded to include Iranian banks that could play the role of a specialized development bank in their own sector.