TCCIM Hails SCF Plan as a Big Step Forward

EghtesadOnline: A member of the Tehran Chamber of Commerce, Industries, Mines and Agriculture has welcomed the new lending policy initiated by the Central Bank of Iran to fund manufactures

News ID: ۷۸۷۶۸۶

26 January 2022

Abbas Argon told ISNA that the supply chain finance (SCF) mechanism is a big step in the right direction and will “help rescue businesses in dire need of working capital, which in turn would ease pressure on banks and curb money supply”.

Earlier in the month the CBI unveiled the SCF program to improve lending efficiency and navigate banks’ resources toward production companies.

SCF is a set of solutions that aim to lower funding costs and improve business efficiency. SCF automates transactions,  tracks invoice approval and settlement processes, from initiation to completion. Under the system buyers agree to approve their suppliers' invoices for payment by a bank or other outside financier.

Banking and financial experts concur that the mechanism will go a long way in easing pressure on banks and help curb the unprecedented money supply.

Argon, who heads the Business Environment Improvement Commission at the TCCIM, said lending mechanisms will significantly reduce manufacturers’ need for liquidity and help control the expansion of money supply by banks.

“After the SCF plan is launched, manufacturing companies [pressing] need for liquidity will decline to a third,” he was quoted as saying by ISNA.

“Under the framework, funds will go straight to production units,” he said, noting that it will also enhance transparency in loan allocations.

Argon added that the plan was initially proposed by the chamber in 2015 but authorities showed little interest at the time.

The new lending procedure has been used for a limited number of businesses.  The CBI earlier said the mechanism will be used to fund major enterprises in the initial phase

It will be extended later to SMEs, farmers, distribution networks, households and end consumers. Seven banks have already joined the initiative and other lenders are preparing the groundwork to join.

To implement the SCF, the CBI has developed new financing instruments and optimized existing ones, namely electronic negotiable instruments and the Productive Credit Certificate, known by its Persian acronym “Gam”.

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.

Gam is a market-oriented financial instrument traded in money and capital markets.  Through this instrument lenders help businesses 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 and the supplier can cash the certificate by selling it in the stock market.