According to Hoshyar Faqihi, an official with Iran Chamber of Guilds, the chamber has identified and introduced 57 groups of businesses to the government to receive coronavirus bailout, of which 25, including coffee shops, reception halls, beauty salons, clothing units and bag and shoe shops, have been found eligible to receive loans at the interest rate of 12%.
The monthly losses incurred by these 25 groups are estimated to stand at 143,000 billion rials ($812.5 million) and those of the remaining 32 groups at 122,000 billion rials ($693.18 million). The latter did not qualify for government loans.
“About 2.3 million people are working in sectors that were not found eligible for the bailout and 2.8 million people are working in guilds that will receive the government aid,” he was quoted as saying by ISNA.
Prohibitions and restrictions on businesses are gradually being lifted, amid attempts to restart economic activities.
In early May, the Central Bank of Iran updated and communicated to banks the list of businesses directly hurt by the outbreak of coronavirus, and therefore eligible to receive loans.
The list published on CBI’s website includes the following businesses and jobs:
1. Businesses, institutions and companies responsible for any meal prepared outside the home, including restaurants, reception halls and coffee houses. The Ministry of Industries, Mining and Trade is responsible for determining whether these businesses would be eligible to receive government aid.
2. Businesses active in the tourism and hospitality sector, namely hotels, apartment hotels, tourists centers, centers receiving pilgrims, guest houses, eco-lodges, leisure centers and museums. The onus is on the Ministry of Cultural Heritage, Handicrafts and Tourism to determine whether these businesses would qualify to receive government aid.
3. Transportation companies, namely air, road, rail and marine transportation firms. The Ministry of Roads and Urban Development is responsible for ascertaining which businesses are eligible to receive government aid.
4. Intra-city public transport companies. The Interior Ministry will be responsible to decide which ones qualify for government loans.
5. Travel agencies. The onus is on the Ministry of Cultural Heritage, Handicrafts and Tourism to determine whether these businesses would qualify for aid.
6. Apparel manufacturers and distributors. The Ministry of Industries, Mining and Trade will determine the eligibility of these businesses.
7. Manufacturers and distributors of footwear and bags. The Ministry of Industries, Mining and Trade will determine the eligibility of these businesses.
8. Confectioneries and shops selling nuts, dried fruits, ice-cream and fresh juice. The Ministry of Industries, Mining and Trade will determine the eligibility of these businesses.
9. Gyms, sports and leisure centers. The onus is on the Ministry of Sports and Youth to determine whether these businesses qualify to receive government aid.
10. Cultural, educational and art centers, as well as media groups. The onus is on the Ministry of Culture and Islamic Guidance, Education Ministry and the Ministry of Science, Research and Technology to determine whether these businesses qualify for the government’s financial support.
11. Handicraft manufacturers and distributors. The onus is on the Ministry of Cultural Heritage, Handicrafts and Tourism to determine whether these businesses would be eligible to receive government aid.
12. Health Ministry’s licensed private-run health and treatment centers, including laboratories and those providing para-clinical services.
13. Driving schools, barber shops and beauty salons. The Ministry of Industries, Mining and Trade will determine the eligibility of these businesses.
The Ministry of Culture and Islamic Guidance has been tasked with determining whether any bookstores or publisher would be qualified to receive government loans.
The lending rate for the government aid package will be 12% to be repaid within two years, Abdolnasser Hemmati, the CBI governor, said.
Commenting on the interest rate, Hemmati said it is reasonable, in view of the high inflation rate in the country.
“Even if banks set an 18% interest on loans, the real interest rate would still be negative when compared to annual inflation. Any rate below 12% would apparently impose further financial strain on banks,” he said.
Hemmati said only businesses that did not lay off workers during the corona crisis would be eligible for the loans. He instructed banks to process the loans soon and cut red tape.
Concerns Over Loans Heading for Non-Productive Sectors
Coronavirus bailout loans will ultimately lead to an increased money supply but that’s the lesser evil when it comes to making a choice between inflation and recession.
The 750-trillion-rial ($4.26 billion) rescue package that the government has prepared following the outbreak of coronavirus in March includes 400 trillion rials ($2.27 billion) in loans to help prevent small- and medium-sized companies from collapsing. As the payout process enters its final stages, concerns are raised about whether recipients will use the money to shore up production.
Zahra Karimi, university professor and economist, believes that companies receiving the loans are highly likely to spend a part of the money in high-yield markets such as the stock market rather than channeling it into the production cycle.
“Economic stability has decreased; the outlook for production is gloomy. There is no guarantee to see all loans go to the manufacturing sector because on the one hand, some financial markets like the stock market, gold coin, housing and car markets are proving to be stronger money-spinners and on the other hand, manufacturers might argue the fact that by investment in high-yield markets they intend to raise money and recoup some of their losses,” she said.
“By and large, production has lost its attraction and everyone is after quick profit economic activities. Some manufacturers might invest a fraction of the loans they receive in production to keep their businesses afloat.”
In an interview with Persian-language daily Shahrvand, Karimi said injection of turbulence in different markets and the growth of money supply and inflation are the direct consequences of loans not entering the production cycle.
“That has been predicted by the government, but there is no other option as closure of economic enterprises, with the ensuing unemployment, would drag the economy into a much worse condition,” she said.
Noting that some distressed business owners might be shut out of the government’s rescue program, Karimi said, “Unlike other countries, the law has not envisioned a serious penalty for fraudulent claims.”
Asked about a smart way to detect troubled businesses, the economist said, “The government needs to invite guild factions to supervise the distribution of facilities. Cooperation between the private sector, i.e. the guilds and the government, must improve as the latter cannot control everything on its own.”
According to the latest reports, more than 18,000 employers and economic operators have registered at the Ministry of Cooperatives, Labor and Social Welfare’s Kara.mcls.gov.ir for coronavirus bailout assistance since May 13.
About three million insured employees are working with more than one million coronavirus-stricken economic enterprises, according to Alaeddin Azvaji, a senior official with the ministry.
“The Cooperatives Ministry will grant 120 million rials [$681] in loans for each employee, provided businesses retain workers and maintain their payroll at this unprecedented time. Businesses that were forced to shut down will receive 160 million rials [$941] for each employee. The two-year repayment period will start as of October,” he was quoted as saying by Tasnim News Agency.