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EghtesadOnline: The Monetary and Banking Research Institute has proposed a series of proposals to supplement previous measures to cope with negative impact of Covid-19 on the economy.

While the virus dislodges economies around the world, MBRI said it has had a stronger impact on Iran’s economy as the country was already grappling with “oppressive sanctions” imposed by the United States. 

The US economic penalties have hurt the government’s oil-dependent revenues and its financial resources to cope with the pandemic. 

Despite the shortage of funds in the banking system, the CBI has announced expansionary fiscal policies aimed at propping up businesses by injecting 1,000 trillion rials ($5.8 billion) into the economy, according to the MBRI website.     

The research wing of the Central Bank of Iran, has proposed two categories of monetary/banking measures along with financial measures. 

Under the monetary and banking category, the MBRI suggests increasing efforts to expand the use of the so-called “productive credit certificate” known locally as Gam, to offer immediate support to supply chains.

Gam is a market-based financial instrument that can be traded in money and capital markets.  As per the scheme lenders will help credible businesses by offering a tradable credit certificate similar to a LC.  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.  

As per the other proposal, the regulator was asked to extend low interest credit (lower than interbank market) to lenders that have a credible track record in lending to the SMEs. 

In short, if the CBI is to implement expansionary policy by injecting credit into the economy, it is well-advised to link the credit to lenders in proportion to their financial support to businesses struggling due to the deadly infection.

The MBRI called on the monetary policymaker to ease rules and procedures based on which outstanding loans are lumped together under non-performing loans for now due the onslaught of the virus that has decimated economies of all sizes. 


Scrapping Non-Financial Assets  

In another proposal the institute calls for tightening obligations on banks to expedite selling their non-financial assets to improve their lending ability. 

“Despite the fact that lenders are asked to scrap their non-bank assets in the mid and long terms, expediting the process will not only help improve balance sheets of banks, but also prevent further expansion of the monetary base” as it would make them less dependent  on the CBI for credit. 

With regard to financial measures, the MBRI proposed that the government extend deadlines to low-income families and enterprises in the production and services sector to pay their taxes, utility bills and other fees. 

The research center argues that by postponing the deadline of such payments for a few months will not inflict huge costs on the treasury, but help ease the mounting financial burden of companies and low-income households. 


Resorting to Bonds 

Administrative bodies in charge of the health sector are advised to meet a part of their funding needs by issuing Islamic bonds. 

Back in March, Iran Fara Bourse, the junior market for trading bonds and equities, launched an altruistic crowdfunding campaign to help fund efforts to fight the virus.

The initiative was launched in coordination with the Health Ministry to address financial concerns of medical research groups and manufacturers of medical equipment in the coronavirus season.

To collect people’s funds, the IFB has issued special charity securities, dubbed locally as “Nikoukari”, with a nominal price of 10,000 rials.

Buyers are required to buy at least one bond to take part in the rare philanthropic endeavor. 

The pandemic has hit a wide range of businesses in Iran since its outbreak in mid-February. Conditions worsened after the government ordered mass business closures as part of the social distancing scheme in March. 

For weeks, fears over the virus shuttered many businesses, forced others to work below capacity, compelled staff to work from home or furlough workers.  Among others, the hospitality, tourism and transportation have borne the brunt. 

Confirmed coronavirus cases in Iran passed 155,000 on Monday, as lockdowns are being eased despite a sharp rise in daily infections, according to the Health Ministry spokesman Kianoush Jahanpour. 

The deadly virus has so far claimed 7,878 lives, making Iran the hardest hit region in the Middle East.  




banking economy monetary COVID-19