سهيل آصفي
Soheil.asefi@gmail.com
We have interviewed economist and university professor, Dr. Behrooz Hadizenooz, about the recent decision of the Central Bank’s Monetary and Credit Council to allow foreign banks to open branches in Iran. Dr. Hadizenooz believes that Iran’s political and economic problems, together with restrictions set up by “Islamic banking” laws, make many prominent international banks unwilling to come to Iran.
Rooz (R): Dr. Hadizenooz, as you know the Monetary and Credit Council made a decision recently allowing foreign banks to open branches inside Iran. How effective can this measure be from an economic perspective?
Behrooz Hadizenooz (BH): In reality, since a long time ago, many foreign banks that had economic relations with Iran wanted to open branches inside the country, and even shared their request with the Central Bank. The Central Bank referred these requests to the Monetary and Credit Council, which finally approved the measure. But now we have to see what the cabinet’s decision would be.
R: Foreign banks already have offices in Iran. What is new about this measure?
BH: Yes, there is a precedent. But these offices are not allowed to engage in day-to-day baking affairs, like setting up checking accounts for the public. They are concerned mostly with carrying out inter-bank transactions. Now we have to see how much more and to what degree foreign banks are allowed to operate in Iran.
R: Would these banks adhere to the Islamic Republic’s monetary rules?
BH: The catch is that, if these banks want to open branches inside Iran and operate in a manner similar to domestic banks, they have to adhere to “Islamic banking” laws. It is therefore unlikely that these banks would adhere to these laws and agree to operate under these conditions, because essentially they are not even familiar with such laws.
R: Part of the problem is the bureaucracy that comes with “Islamic banking,” isn’t it?
BH: Yes, these laws require maintaining a very costly bureaucratic apparatus. Establishing a bank in Iran has its own special problems, although we are talking about opening a branch now.
R: How will they cope with Iran’s interest rates and rates of return?
BH: In addition to “Islamic banking” laws, we also have binding maximum and minimum rates for interest and returns. These rates are set by decree, not by free market mechanisms. This has brought our banking system to the brinks of bankruptcy, and has generated serious problems for our monetary system. These conditions also hinder the ability of foreign banks to operate inside Iran.
R: Some have suggested inviting “Islamic banks,” which can overcome these problems. How much international credibility do these banks have?
BH: Look, the reality is that, since credible international banks shy away from dealing with us right now, we have to conduct transactions with them through second- and third-grade banks. These middlemen inflict heavy costs on our businessmen, so I don’t think that Islamic banks can solve this problem easily, even if they are allowed to open branches inside Iran. Suppose a bank in Malaysia or Pakistan or Dubai says that we conduct “Islamic banking” and opens a branch in Iran. If this bank wants to open a credit line, it must have a foreign counterpart, so the situation will not be too different from what it is now.
