The plan, which can be named as a ‘scheme to revise the decades-old banking regulations’, includes different sections covering ‘usury-free banking’, making amendments in structure of the Central Bank of Iran (CBI) and establishment of the Islamic Republic of Iran Development Bank.
The pros and cons of the plan, however, have developed a confrontation between banking experts and the Parliamentarians.
Proponents of the plan, who are mostly the MPs, assert that the plan has been prepared by experts of the Iranian Parliament since under US sanctions Iranian banking, monetary and financial system is in dire need for a revival. It is modifiable and open for being discussed and criticized, they underline.
The plan’s advocates believe the newly approved scheme will provide the Central Bank of Iran (CBI) with a higher level of independency for applying and implementing macro-policies and gives it a free hand for providing production and industrial units with low-price facilities.
Those backing the plan also note that it has been prepared paying a specific attention to traditional Islamic jurisprudence (Fiqh) to addresses the concerns discussed by Islamic Marja’s about usury.
On the other hand, opponents to the approved plan are banking experts, bankers and mainly the CBI governor Abdolnaser Hemmati, who announced his sharp disagreement about the Islamic Banking Plan, in an open Parliament session.
“Under the conditions that the CBI is sanctioned, its structure must not be changed by the ratified plan,” Abdolnaser Hemmati said.
“I am not convinced about the plan and want MPs to vote against it,” he added.
“The plan includes 205 articles,” he said, “Is it possible to do such a number of amendments in the banking system?”
He urged the MPs not to pass the plan into a law and let the government initially prepare a related bill then submit it to the parliament.
“Having the plan implemented, CBI would need almost two years to regain its stability,” he noted, “Under the present sanctions, it is not vital to make such amendments.”
Banking experts do not reject the positive aspects of the bill but note that it includes major weaknesses. They believe that the bill had to be prepared initially by the banking system and experts and after getting investigated by the government would be eventually ratified by the Parliament. Lamenting about its large number of articles, they claim that approved bill has been planned unilaterally by the Parliament members without considering views of experts from domestic state-run or private banks.
The ratified bill is called a naïve scheme that has been prepared hastily without taking advantage of experts’ views on the threshold of the next round of the Parliament elections.
It has also been labeled as a propaganda since it comprises too many unnecessary modifications in domestic banking system, while the country is coping with the toughest US sanctions
To shed light on the issue, Mehr news agency conducted an interview with Iranian banking expert, Bahaoddin Hosseini Hashemi.
“The plan has not been passed to become a law yet,” he said, “The ‘usury-free banking’ law was initially planned and ratified by the Parliament in 1983 and was to be reviewed after fives years from its ratification. But it was not. Therefore, the Parliament has still the right to make a review over or make its desired amendments in its 36-year-old plan. “
In addition, the banking expert noted that “The MP’s plan, focused on domestic banking system, includes banking network, the CBI and the whole structure affiliates to banking procedures. Therefore, it deals with various issues such as appointment or dismissal of the CBI governor besides his impeachment in a Parliament session.”
As he elaborated, “CBI governor is not presently a member of the Cabinet, due to present regulations, MPs cannot impeach him and to find answers to their questions about functionality and measures of the CBI, MPs have to summon the finance minister or the President. Through the proposed plan, MPs seek to modify CBI fundamental rules to have the right for questioning its governor while respecting his authority and independency.”
As he went on, “banking officials always confirm the need for some modifications in banking system regulations, however, they assert that the impracticalities of this system are rooted in causes other than the current laws and regulations.”
“For years, Iran has been under the US sanctions and experiencing an economic stagnation. It is a long time that the government has been receiving loans from the country’s banks to compensate its budget deficiency but it was not able to fulfill its commitments,” he noted.
“Accordingly, banks had to deal with a large volume of arrears that they had not been paid to. Besides they were cut out from international financial resources,” he added.
“The conditions made state-run banks and private ones compete. Since the state-run ones were in charge of supplying financial resources of the private banks, the private ones commenced granting more interests and advantages to lure customers. They, in result, made the governmental banks encounter a liquidity risk i.e. state-run banks lost their financial resources and could not receive back the resources they allocated to customers as facilities and loans before the pre-determined deadline,” he described.
“Capital adequacy ratio (CARs) of governmental banks dropped, consequently. They could not grant loans as before, which attracted a chorus of criticism among Iranians,” Hosseini Hashemi said.
“Criticisms suggested MPs that banks prevent providing loans to applicants despite having required financial resources or because they are running firms or acting as relators,” he added.
MPs, as the nations’ representatives, were accordingly convinced that the banking regulations must be modified. They prepared and ratified the recent plan in the Parliament despite bankers’ disagreement.
“Bankers and banking officials believe that the practicality of Iranian banking system has reduced due to some reasons other than bad regulations or its structure. Thus, the CBI and banking experts did not accept to help MPs get this plan prepared and it was planned fully by the Parliament. Bankers assert that impracticality is rooted in economic status quo, the applied monetary and financial policies,” the expert reiterated.
All across the globe, banks are acting as mediators i.e. they take money from depositors and grant it to the investors in cash or in form of credits. Banks in the world do not interfere more and just act as supervisors via assessing the possible risks and credits. However, in Islamic banking the wage or interest banks receive to act as mediators puts them in place of creditors against loan takers, which is called usury. To resolve the issue, in Islamic banking banks are appointed as the lawyers and the customer are their clients. Banks are allowed then to use the deposits in real economic investments. This pulled banks into investing activities and running firms. The procedure, in better words, dragged banks out of their mediating roles into running economic projects. The whole routine has been imposed to the banks by the implemented policies through the times. Banks were also asked to provide the government with loans, which have not been cleared yet.
Being asked about the practically of the MPs’ plan in case of being passed into law, Hosseini Hashemi said, “Probabilities for passing the plan into a law by the end of the current Parliament (May 2020) is low.”
“Regarding the described complex conditions, making any amendments in banking system regulations will worsen the conditions. Even a group of banking experts and top economists would not be able to improve the situation by revising the whole banking regulations from A to Z,” he added.
Answering a question about the possible solution for the predicament, Hosseini Hashemi said, “The prescription is embedded in economic improvement. The government needs to minimize its budget deficiency, seek privatization, pay its arrears to the banks, improve ties with international and foreign banks to be able to take advantage of international credits.”
Besides the discussed deficiencies of the MP’s plan, experts are gradually putting forward further shortfalls.
For instance, the plan has not considered any specific connection between the required monetary and foreign exchange rate policies, despite the significant influence of the forex rates on various economic sectors of Iran, some claim.
In a letter to the Parliament Speaker, a group of Iranian bankers and experts have urged the parliament to reject the plan due to its ‘fundamental deficiencies’. The plan, in their view, is unilaterally designed by MP’s without reflecting the views of banking system professionals.
MNA/