Iran Gov’t to Boost Lending to SMEs

EghtesadOnline: The Central Bank of Iran Tuesday issued instructions to lenders updating support policies for small and medium-sized enterprises.

News ID: ۷۸۷۸۳۳

27 April 2022

While adequate lending to all SMEs is emphasized, the regulator has given priority to some, according to a press release posted on the CBI website.

Accordingly, SMEs designated by the special provincial taskforces will top the list albeit if they are economically and technically viable.

Furthermore, priority is given also to companies whose goods are in demand. Businesses that either are shuttered or operate below nominal capacity are also prioritized, provided that their closure was due to shortage of working capital.

It appears that the regulator is concentrating on enterprises with sustainable employment plus those that defaulted on their debt because administrative bodies and government-affiliated companies failed to reimburse their arrears to such companies

SCF Schemes

Under the new instructions, bank can tap supply chain finance (SCF) methods and use “credit instruments” to support the struggling SMEs.

SCFs work by automating transactions and tracking invoice approval and settlement processes, from initiation to completion. Under this paradigm, buyers agree to approve supplier invoices for payment by a bank or any other outside financier.

The CBI in particular pointed to the role of Productive Credit Certificates, known by its Persian acronym “Gam”, which is a financial instrument, for trading among banks and the capital market.

Gam is similar to a letter of credit assisting credible businesses by offering tradable credit certificates.  The certificate can be given to suppliers of raw material, machinery and equipment.

Like bonds, the certificates have maturity dates. A supplier may cash the certificate by selling it in the stock market. No money changes hands between the beneficiaries.

The scope of Gam securities, the CBI said, will be expanded to include both natural and legal entities. Previously, they could be used only by manufacturers and legal entities.

To encourage businesses to use Gam bonds, loan applicants can borrow amounts to the tune of 120% of sales in the last fiscal year based on the financial statements of the company.

Industry Ministry data show that small and medium-sized enterprises took out 200 trillion rials ($720 million) in loans in 11 months to Feb.19. The money went to 4,881 applicants.

SMEs play an important role in Iran’s economy. They outnumber large firms, employ more people and are generally entrepreneurial and innovative. SMEs constitute 92% of Iran’s 85,000 manufacturing firms.