Developing a roadmap for Islamic banking is a necessity due to the challenges facing the country’s banking sector, said Valiollah Seif, governor of the Central Bank of Iran. The plan can also help boost the country’s role in Islamic banking and financing in the international arena, he said addressing a ceremony to honor the best bankers in the area of research.
“I call on experts, researchers and analysts in the field of Islamic banking to help the CBI in formulating a roadmap to help the banking industry move toward a more agreeable situation,” he said.
The CBI is the top institution overseeing reforms in the banking sector, he said, and added that revising banking laws is crucial to make them Sharia-compliant and usury-free, CBI’s website reported.
Seif stressed the importance of effective and up-to-date policies based on research in resolving the problems plaguing the banking sector. He commended the research arm of the CBI, the Money and Banking Research Institute, for helping it in professional counsel and research.
“The MBRI is instrumental when it comes to policymaking. It is now working on several research projects including one aimed at preparing a roadmap for Islamic banking. A study to wean the banking system of inefficiency, a project on the prospects of the financial system, and a plan for modernizing the banking sector are among the MBRI schemes, ” he added.
Research Key to Success
Seif pointed to the decade-old economic and banking sanctions saying they had deprived banks from interacting with their foreign counterparts. He pointed to Iranian banks’ lack of access to foreign assets and underdevelopment of the banking standards as two by-products of the international embargos.
The CBI governor referred to anticipated end of sanctions regime and called on banks and the MBRI to devote a part of their research to finding ways to utilize post-sanctions opportunities. “We should seize the opportunity and link research to banking activities. Research projects should focus on providing practical guidelines for decision makers, enhancing creativity in providing services and upgrading standards.”
Pointing to the layers of cumbersome rules and regulations, outmoded decision-making processes and outdated mind-frames, Seif stressed the necessity of reforms t o improve Iranian banking. “Researchers should consider new strategy for enhancing the efficiency of banking services as an integral part of their efforts.”
Seif stated that the banking system is plagued with serious problems both in structure and performance. He said reforms is a key priority. “The mountain of debts owed to banks and their balance sheets are just two of many ills. A number of other issues like banks’ speculative ventures, risk management, business management standards and the quality of services should also be addressed.”
He considered weak and outdated monitoring and supervision in the banking system as a serious drawback in need of urgent attention. Providing key strategies through research to upgrade the standards for supervising banks, rating them, assessing the transparency is of high priority.”
Woes of Manufacturers
The country’s manufacturing sector is facing a deepening credit crunch according to Seif.
“Insufficient capital has disabled producers from having access to short-term working capital. It has also left them bereft of money for financing new investments, “he emphasized.
Allocating more capital to production units is key to economic growth, he noted, and warned that injecting new money into manufacturing should be done with caution so as not to stoke inflation.