Islamic Republic of Iran: Heart of Islamic Financ
Iran featured among Goldman Sachs’ “Next 11” most promising countries in 2007, before a new round of Western sanctions dragged down the entire economy. In terms of profits, Iran is one of the [most] profitable countries in the world. Mid-term yields on bonds and deposits range between 20 percent to 30 percent in local currency, and many of these returns are adjusted to inflation and foreign exchange variations.
Iran is one of the pioneers of Islamic finance. In 1983, four years after the revolution led by Ayatollah Khomeini overthrew the Shah, the Islamic government passed the Riba-Free Banking Act, forcing local banks to rebuild their business around sharia-compliant products. More than 30 years on, the Iranian banking industry remains completely regulated by sharia law and is by far the world’s largest center of Islamic banking. Yet its experience is unique within the global Islamic community, as it is inspired by Shia jurisprudence, which often diverges from mainstream Sunni jurisprudence.
Iran, the only Muslim country besides Sudan where the entire financial industry is obliged to be consistent with the principles of sharia law, accounts for more than 40 percent of the world’s total Islamic banking assets. Trailing far behind is Saudi Arabia with 18.5 percent, Malaysia with 9.56 percent, and the UAE with 7.36 percent. However, years of western sanctions have prevented its bonds from reaching the international markets, leaving the leadership of the global sukuk market to Saudi Arabia, and above all, Malaysia.
Over the last 20 years, the development of the Islamic finance industry has accelerated. Global Islamic banking assets stood at roughly $1,560 billion by the end of 2014, according to figures from the Islamic Financial Service Board (IFSB). At the same time, outstanding sukuks, or Islamic bonds, grew by an annual 20.7 percent between 2008 and 2013, amounting to $294.7 billion at the end of September 2014, IFSB figures show.
Cash-strapped Iranian state and private companies are keen to tap the international debt market and address the shortage of hard currency they are facing as a result of years of crippling international sanctions. About 180 companies are considering Islamic bond sales in 2016, a Bloomberg report noted in April, quoting estimates from a local financial analyst. Foreign investors will be equally keen to chip in given Iran’s economic and intellectual potential based on its massive hydrocarbons resources and human capital and a domestic market of 77 million people.
“Unfortunately, the Iranian banking system has so far failed to maintain a constructive cooperation with pioneer countries in the field of Islamic banking,” Farhad Nili, head of the Monetary and Banking research institute within the Central Bank of Iran, wrote in a 2014 research report. “Hence the international community knows little about the theoretical foundations and practice of riba-free banking in Iran.”
Iran is one of the pioneers of Islamic finance. In 1983, four years after the revolution led by Ayatollah Khomeini overthrew the Shah, the Islamic government passed the Riba-Free Banking Act, forcing local banks to rebuild their business around sharia-compliant products. More than 30 years on, the Iranian banking industry remains completely regulated by sharia law and is by far the world’s largest center of Islamic banking. Yet its experience is unique within the global Islamic community, as it is inspired by Shia jurisprudence, which often diverges from mainstream Sunni jurisprudence.
Iran, the only Muslim country besides Sudan where the entire financial industry is obliged to be consistent with the principles of sharia law, accounts for more than 40 percent of the world’s total Islamic banking assets. Trailing far behind is Saudi Arabia with 18.5 percent, Malaysia with 9.56 percent, and the UAE with 7.36 percent. However, years of western sanctions have prevented its bonds from reaching the international markets, leaving the leadership of the global sukuk market to Saudi Arabia, and above all, Malaysia.
Over the last 20 years, the development of the Islamic finance industry has accelerated. Global Islamic banking assets stood at roughly $1,560 billion by the end of 2014, according to figures from the Islamic Financial Service Board (IFSB). At the same time, outstanding sukuks, or Islamic bonds, grew by an annual 20.7 percent between 2008 and 2013, amounting to $294.7 billion at the end of September 2014, IFSB figures show.
Cash-strapped Iranian state and private companies are keen to tap the international debt market and address the shortage of hard currency they are facing as a result of years of crippling international sanctions. About 180 companies are considering Islamic bond sales in 2016, a Bloomberg report noted in April, quoting estimates from a local financial analyst. Foreign investors will be equally keen to chip in given Iran’s economic and intellectual potential based on its massive hydrocarbons resources and human capital and a domestic market of 77 million people.
“Unfortunately, the Iranian banking system has so far failed to maintain a constructive cooperation with pioneer countries in the field of Islamic banking,” Farhad Nili, head of the Monetary and Banking research institute within the Central Bank of Iran, wrote in a 2014 research report. “Hence the international community knows little about the theoretical foundations and practice of riba-free banking in Iran.”
