MONGABAY.COM
Mongabay.com seeks to raise interest in and appreciation of wild lands and wildlife, while examining the impact of emerging trends in climate, technology, economics, and finance on conservation and development (more)
WEEKLY NEWSLETTER
|
|
Iran
Index
Western-style banks and insurance came late to Iran, but
protected and stimulated by the government and fed by expanding
economic activity, banking became one of the fastest growing
sectors of the economy in the 1960s. The insurance industry had
barely started in 1960 and had a negligible role in the
accumulation of funds to finance development, largely because
insurance was not used by most of the population.
Before the modern era in Iranian banking, which dates to the
opening of a branch of a British bank in 1888, credit was available
only at high rates from noninstitutional lenders such as relatives,
friends, wealthy landowners, and bazaar moneylenders. In 1988 these
noninstitutional sources of credit were still available,
particularly in the more isolated rural communities. Institutional
banking spread rapidly in the late 1960s; by 1988 almost all small
towns were served by at least one bank. None of these operations
were private because banks were nationalized in 1979.
In 1960 Bank Markazi Iran was established as the central bank.
Later legislation further defined its powers and responsibilities.
The bank issued notes and acted as banker for the government,
keeping accounts, marketing government securities, maintaining
foreign exchange reserves, and overseeing international
transactions. It also set standards for the supervised financial
institutions, established credit and monetary policies, and took
measures to enforce credit and monetary policies. The banking laws
limited foreign participation to 40 percent in any banks operated
in Iran (except the Soviet bank, which had been founded much
earlier). Subsequently, the Central Bank limited foreign ownership
in new banks to 35 percent.
By 1977 the banking system consisted of the Central Bank,
twenty-four commercial banks, twelve specialized banks, and three
savings and loan associations (these numbers decreased after the
Revolution). The commercial banks had more than 7,400 branches,
including a few in other countries. The specialized banks focused
mostly on a particular kind of lending (e.g., industrial or
agricultural loans), although three regional banks specialized in
financing local development projects. In addition, in 1977
approximately seventy foreign banks (primarily from the major
industrial nations) had representative offices in Iran, but they
conducted no local banking business. Their purpose was to
facilitate trade relations.
All domestic banks and insurance companies in Iran were
nationalized in 1979. In 1980 the twenty-nine domestic banks
remaining after the Revolution were consolidated into nine units.
Foreign banks in Iran declined in number to thirty by 1987 and
included the representative office of a small Soviet bank that
financed trade. French banks were excluded from the Iranian market
in 1983, leaving those of the Federal Republic of Germany (West
Germany), as well as Swiss, Japanese, and British banks to finance
about 30 percent of total trade.
Immediately after the Revolution, the government called for the
establishment of an Islamic banking system (which became law in
March 1984) that would replace interest payments with profit
sharing. In Islamic terms, this meant that profit (interest) was
acceptable only if a lender's money were "not at risk." The
introduction of Islamic banking procedures was gradual; confusion
and delays disrupted the initial stages of implementation. In March
1985, the Islamic code was extended to include bank loans and
advances. By late 1987, however, only certain banks were fully
Islamicized, and only about 10 percent of private deposits were
subject to Islamic rules.
The Central Bank controlled the issuance of letters of credit.
These were deferred payment instruments that relieved the cash-flow
problem Iran experienced after oil prices began to decline in 1983.
The government financed many imports with these high-interest
letters of credit. Originally a letter of credit was to be repaid
within 180 days, but by 1987 Iranian customers wanted 720 days'
credit. Up to US$4 billion in letters of credit remained
outstanding in early 1987, but the government did not include these
supplier credits when assessing its foreign debt.
The Central Bank established a good reputation in international
banking circles in the 1980s. It had practically no long-term
foreign debt in early 1987--only US$5 million--and was recognized
as an international creditor. Between 1979 and 1984, the government
paid cash for US$66 billion worth of imports, and it repaid
immediately US$7 billion of existing debts. The Central Bank's
reputation for honoring its financial obligations, however, did not
change the attitudes of West European bankers, who, in a 1987 poll,
expressed their unwillingness to lend money to Iran. To help
relieve its cash-flow problem after 1983, the government sought
repayment from several countries of money they borrowed from Iran
during the reign of the Mohammad Reza Shah.
In the first quarter of 1986, Iranian deposits in international
banks fell by US$570 million, reducing Iran's holdings to US$7.1
billion. This reduction coincided with the continued fall in oil
revenues, and foreign exchange deposits were expected to decrease
further in the late 1980s.
Data as of December 1987
|
|