EghtesadOnline: The Ministry of Industries, Mining, and Trade is planning a bigger role for the stock market in funding the industrial sector, the Minister said.
Speaking to businesspeople on Saturday, Reza Rahmani said his ministry is preparing new guidelines to help fund companies through different sectors of the capital market, such as finance via investment funds and bonds.
Pointing to the credit crunch as one of the myriad challenges industries are grappling with, Rahmani referred to similar agreements in the past between the ministry and banks as main lenders to companies, Financial Tribune reported.
“As per the agreements, the ministry is supposed to introduce high-priority industries to banks,” he was quoted as saying by Securities and Exchange News Agency.
Financial needs of struggling enterprises and manufactures has gained traction in recent months as the government strives to revive domestic manufacturing units to mitigate the detrimental effects of the new US economic sanctions.
The Central Bank of Iran has instructed banks to lend 1,000 trillion rials ($7.6 billion) to productive businesses in the agriculture, housing/construction, industries/mining, petroleum and tourism sectors.
A CBI press release said nearly half of this amount is to be paid to companies in the industrial and mining sectors.
While the Iranian economic system is heavily reliant on banks for funds, recent data speak of an expanding role for the stock market to help funding needs.
A report by the Economic Research Department of Tehran Chamber of Commerce, Industries, Mines and Agriculture shows that the percentage of capital market contribution to financing businesses increased from 5.1% at the end of the fourth month (July 22, 2018) in the last fiscal year to 12.7% by the end of the same month this year.
The report put contribution of the capital market to funding economic sectors at 813 trillion rials ($6.8 billion) during the first seven months (March 20-Oct 22, 2019) of the current fiscal year. This was a two-fold growth compared to the corresponding period last year.
Despite the increasing role and contribution by the stock market, businesses still rely on banks for funds. According to Mohammadreza Pourebrahimi, a member of Majlis Economic Commission, banks handle 80% of funding for companies.
He has called for a bigger footprint of capital markets on the economic scene because “the lending capacity of banks remains limited”.