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EghtesadOnline: Central Bank of Iran has allocated up to 700 trillion rials ($5.3 billion) to companies via the CBI’s new funding scheme dubbed the ‘Productive Credit Certificate’, the bank’s governor said.

The CBI will launch the new scheme, better known by its Persian acronym Gam, in the coming week that starts on Saturday, according to Abdolnasser Hemmati, Financial Tribune reported.

Gam is one of the pivotal measures of the regulator to assist distressed manufactures and optimize management of the liquidity given to the manufacturing sector. 

“The bottom line is to support and enhance production,” Hemmati told a prime TV program late on Tuesday, outlining monetary policies and addressing challenges the economy is facing. 

Gam is a market oriented financial instrument that can be traded in money and capital markets.  Lenders will help credible businesses by offering a tradable credit certificate similar to LCs.  The certificate should be submitted to suppliers of raw materials, machinery and equipment. 

Like bonds, certificates have maturity dates. The supplier can cash the certificate by selling it in the stock market.

CBI says the plan will pave the way to raise working capital for businesses with the help of guarantees provided by banks and credit institutions, and tapping private sector potential. 

The mechanism is also said to help banks meet the financial needs of manufactures without creating “non-productive liquidity”. 

Hemmati said earlier that the main objective of the scheme is to help tame inflation emanating from new liquidity. 

“By doing so, we are trying to fund manufactures without raising liquidity and in ways other than pumping new money,” he said. 

 

Ballooning Liquidity 

Liquidity is Iran surpassed 19,790 trillion rials ($152 billion) by end of third month of the current calendar year to June 21, according to the CBI. This indicates a 25.1% growth compared to the corresponding month last year. 

Hemmati gave good marks to banks insofar as lending to companies is concerned, saying that 6,260 trillion ($47 billion) was given in the first six months (March-Dec 2019) of the current fiscal year. 

About 71% loans went to boost working capital of business, the senior banker said.  Among the recipients were knowledge-based companies and SMEs, which respectively received 83 trillion rials and 280 trillion rials. In addition, 11 trillion rials were expended for creating sustainable employment opportunities. 

Production costs have surged in recent months following sharp volatility in the currency market last year that pulled the rial to unprecedented lows. By extension, this led to steep price rises of goods and services sourced from in and outside the country. 

Hemmati emphasized that “our plans are focused to let production sectors have the biggest share of the liquidity”. 

In November, the CBI instructed banks to lend 1,000 trillion rials ($7.6 billion) to the agriculture, housing, industries and mining, petroleum and tourism sectors. 

 

Boost Help Iran Central Bank of Iran Production CB Aid Manufactures funding scheme Productive Credit Certificate Gam