The financial system in Iran, as a wholly Shariah compliant financial market, is composed of the banking and capital market sectors as the two pillars of its financing system. 2020 was, in brief, a year in which due to the presidential elections many managerial changes took place in both the economic and social environments. The banking system witnessed a new governor taking the seat and the capital market welcomed a new president of the market regulator.
Review of 2021
Similar to the rest of the world, Iranians were greatly challenged by the undesirable financial circumstances due to COVID-19. The Central Bank of Iran took the initiative to provide more efficient Islamic social finance instruments by introducing low profit rate Murabahah facilities.
Likewise, the capital market introduced crowdfunding platforms to finance socially related projects. As another Islamic social finance mechanism, the banks provide Shariah compliant facilities to assist the community in paying their house rents.
Tradability of the justice shares was another important Islamic social finance initiative which took place in 2021. During the period of 2006 until 2021, the shares were not tradable in the market and hence, the owners were not able to convert them to cash.
Initially, only the lowest income groups were eligible to receive the shares, but in recent years around 49 million people, around 60% of Iran’s population, have received the shares. In 2021, the shares became tradable in order to assist the people to get financing in compliance with Shariah principles.
The second important issue which the financial markets witnessed in 2021 was in relation to crypto assets and cryptocurrencies. Herewith, due to its investment attractiveness, many people are curious as to how the crypto asset market will be in the future. This is still an issue on the table for Shariah experts, and neither the Shariah Council of the central bank nor the Shariah committee of the Securities and Exchange Organization has issued any resolutions about the Shariah aspects of crypto assets.
I should emphasize that the policymakers are still trying to manage the introduction of a national crypto asset.
Nevertheless, as at the end of September 2021, the value of outstanding Sukuk plus Islamic treasury notes in the capital market reached over IRR4.3 quadrillion (US$102 billion) which was a 30% increase in comparison with the corresponding figure at the end of the 21st March 2021 (ie the end of the Iranian year).
As at the end of September 2021, the value of outstanding Sukuk issued by the government, municipalities and corporations reached more than IRR2.79 quadrillion (US$66 billion). However, on the same date, the government issued more than 86.5% of the financial products while the rest were issued by corporations and the municipalities.
In the capital market, 11 investment banks and five data processing companies have received operation licenses. Likewise, 30 portfolio managers and 244 funds are providing services to their clients following the regulations which the regulator had announced.
Nevertheless, in the banking system, eight state-owned banks in addition to 20 private and semi-private banks were actively providing services to their clients. Additionally, two Qard Hasan banks are technically operating in the field of Shariah compliant microfinancing.
Preview of 2022
For the Iranian new year (beginning from the 21st March 2022), financial market practitioners expect a better economic situation in Iran, especially in terms of managing the high inflation rate that currently exceeds 33%. Clearly, the new central bank governor should do the best in this regard.
2022 will hopefully see improvement in the Shariah supervision of both the capital market and banking system. The capital market needs to be backed by more experienced Shariah experts who can materialize the resolutions of the Shariah committee. Islamic financial literacy is an important initiative on the table for both markets.
Structuring government financing instruments such as general Sukuk Wakalah and finalizing the issuance of Shariah compliant white certificates are other notable plans.
We can expect some notable changes and improvements in 2022 in terms of financial conditions and subsequently improvement in a better way of servicing the citizens of Iran. While COVID-19 is still a very challenging issue, many experts hope to have its bad financial effects reduced considerably.
The financial policymakers learned lessons the hard way in 2021. The Iranian Islamic financial market has a lot to do in order to realize its Islamic finance goals, hence, we can expect much more developments to take place. Hope is a key word in this regard and this is a great opportunity for the government to provide better services to the people. Here’s to 2022 with great wishes for the betterment and development of the Islamic finance and banking industry.
Majid Pireh is the secretary of the Shariah committee at the Securities and Exchange Organization of Iran. He can be contacted at [email protected]