MESOP NEWS SUMMARY & SAMPLER – The detailed financial roots of Iranian demonstrations

The Wall Street Journal this week provided an in-depth report on the role of Iran’s unregulated financial and credit institutions in the current demonstrations.

The article reminded us of the outstanding and prescient analysis by Al-Monitor columnist Bijan Khajehpour, who in June 2017 warned of the risks if the Central Bank of Iran (CBI) did not license Iran’s unregulated credit and financial institutions.

Khajehpour wrote that “a sizable segment of the Iranian financial sector has become dominated by mostly unlicensed CFIs [credit and financial institutions]. These are usually affiliated with religious foundations, which claim the financial institutions are an extension of the religious responsibility of their umbrella organizations to extend interest-free loans to applicants. For a long time, the CBI was unable to challenge these entities as they claimed they were not engaging in mainstream banking and financial activities.”

Khajehpour wrote, “One apparent reason why there is a market for such institutions is that licensed public or private banks are not fully equipped to satisfy the demand for personal and business loans in the market, hence pushing many loan applicants to enter into a contract with CFIs. In other words, CFIs have filled a gap that has existed in the country’s money market in the absence of a more developed financial sector. At the same time, the mushrooming of unregulated CFIs and various cooperative funds across the country has led to unhealthy disruptions in the money market.”

He concluded, “Beyond the planned mergers and a potentially more stringent supervision by the CBI over CFIs and banks, the remaining core problem is a culture of corrupt dealings that needs to be addressed. In particular, entities closely affiliated with religious and political power centers have engaged in embezzlement schemes that have undermined the economic and social well-being of the country and further delegitimized the Islamic Republic as a political regime that can manage the complexities of a modern economy.”