L. A. ANDREEV

Post-graduate student of the ISAA of Lomonosov Moscow State University

Keywords: Iran, finance, credit, microfinance

In the last two decades, the practice of micro-crediting has gained wide popularity in the banking environment. The UN has declared 2005 the International Year of Micro-credit1.

The first micro-loan of $27, issued by the Bank of Bangladesh in 1976, was the embodiment of the idea of Muhammad Yunus, a professor at the University of Chittagong2. The young doctor of economics, who returned to his homeland after studying in the United States, wanted to improve the situation of the country's poorest residents, whose suffering he watched daily.

It turned out that the main problem was the tough position of local loan sharks, who in case of late payments on the loan could take away goods produced with borrowed funds from customers. As a result, people were left with neither the opportunity to earn nor the money. The only way out was a new loan, which effectively meant slavery.

Having understood what to do, M. Yunus turned to the bank, which, after months of disputes, agreed to give money to the poor on the condition that Yunus would act as a guarantor. Over time, the loans were repaid, the professor's case was continued, and in 1983 the Grameen Bank was founded, which is still engaged in microcredit in many countries of the world. In 2006, Muhammad Yunus was awarded the Nobel Peace Prize for his work.³

In addition to official credit institutions like Grameen Bank, informal microfinance organizations can often be found in various countries. These may include mutual aid funds, credit and savings clubs and unions, loan sharks, and mutual insurance companies4.

MUTUAL AID CASH REGISTERS IN PERSIAN

The experience of such institutions is quite widespread in the world, and it can hardly be called unique when considering any individual country. However, in Iran, among others, cash registers or interest-free lending funds, called san duk-e garz-ol-hasaneh, still stand out for their origin and Muslim specifics.

In Islamic banking, there is only one type of interest - free loan-garz-ol-hasane (good loan)⁵. Its essence consists in providing funds for a certain type of activity or subject matter free of charge (only the cost of servicing the loan is compensated). This is due to the fact that, according to Islamic laws, money must serve the material world, and any credit operation must have a specific object (you can say collateral). Moreover, in case of failure of the agreement due to the borrower's inability to pay the debt, the risks are distributed between the intermediary and the investor, since, according to Islamic norms, they are full participants in the transaction and bear the risks associated with it. At the same time, there are often insurance mechanisms that, if necessary, cover the costs.

It should be noted here that in practice, Islamic banks use different contracts, which differ mainly in the method of risk distribution and the object of lending. At the same time, the interest-free principle remains unchanged, although with reservations that will be discussed later. Islamic microloans are also provided under a similar scheme.

Muslim micro-credit originated in Iran during the Shah's rule, but it began to play the greatest role for the country's economy after the 1979 Islamic Revolution.The center of economic, political and social life in Iran traditionally served as a bazaar, where a system of providing various financial services has long existed, which is partially preserved to this day. In most countries, this system is considered illegal, because its speed and efficiency allow it to compete with conventional banking instruments and take significant amounts out of the state's control.

It is based on one of the main institutions of the Islamic community - trust. It is embedded in all transactions in the bazaar, including financial ones. Through the transmission of rumors, market agents accumulate data on the integrity of certain individuals, their reputation and creditworthiness. So, for example, a person with a good reputation could vouch for another, sacrificing not money, but his good name.

Of course, this mechanism has its drawbacks, since, for example, it can only cover a certain circle of people who are familiar with each other and

people living in the same territory (district, village, city), which to some extent prevents people from outside from participating in economic life. However, the reliability and efficiency of such a system are time-tested.

The general nationalization of the Iranian banking system in 1979 and the adoption of the law on interest-free banking in 1983, as well as the unstable post - revolutionary situation, supplemented by the Iran-Iraq war (1980-1988), led to serious consequences for the state's credit sector. The banking system, subject to government orders, directed the bulk of funds to the public sector of the economy. ⁶ Due to the increase in the cost of conducting financial transactions, in particular, waiting time in queues, it became more difficult for private sector agents to obtain credit from state-owned banks, which led to the expansion of the informal sector of the economy.

Interest-free loans to Garz-ol-Hasan are the second, often shadow, credit system of the post-revolutionary era. They appeared in the bazaar during the Pahlavi dynasty. Thus, in 1961, a group of merchants in the Tehran bazaar founded the Javid Foundation and began providing gratuitous loans, as well as conducting charity events.⁷ Before the revolution, such funds were located in mosques and had close ties with clerics and entrepreneurs of the bazaar. By 1979, there were about 200 Garz-ol-Hasaneh funds in Iran, in 1988 there were 3,000, and five years later there were 4,350 registered funds in the country, but a much larger number were operating without registration.⁸

The number of institutions under review increased, partly because after the introduction of an interest-free banking system, many Iranians transferred their savings to garz-ol-Hasaneh funds, which brought their owners gifts in the form of household appliances or payment for pilgrimage to holy sites. Commercial banks quickly adopted a similar market strategy; this led to bonuses and gifts replacing interest on deposits.

The scheme of granting loans in funds is similar to the previous "recommendation" system used in the bazaar for lending, i.e. it is based on the reputation of a person and reviews about him. In some cases, therefore, the client may be personally acquainted with the founder of the fund or its administration.

Currently, the Garz-ol-Hasaneh foundations are independent of the bazaar and mosques and are distributed throughout the country. They are organized and managed by numerous small groups consisting mainly of women. Unlike the period before the revolution, the increase in the number of foundations in the Islamic Republic took place without the participation of mosques, both in the bazaar itself and in city blocks.⁹

The importance of the family institution for Iranian society plays a huge role in their popularity. At the micro level, the foundation often operates within a single family, which may include quite a few members. If a family decides to officially create such a fund, it must draw up a charter, which all participants sign. Then, over a certain period of time, members of such an organization make payments that are accumulated and then used to finance the needs of individual relatives or large purchases. These funds can provide loans free of charge, or for a small percentage, which, in general, complies with the norms of Islamic law.

The most reliable and successful funds began to provide services not only to relatives, but also to the closest friends. In the future, as these institutions became stronger, they began to provide services to various individuals, including entrepreneurs and organizations.

The principle of functioning of such a credit institution is not very different from the principles of operation of the mutual assistance cash register. A group of persons united on any principle makes contributions to the general fund and leaves them for safekeeping to the responsible person or deposits them in a bank account. The largest of these organizations are being transformed, receiving licenses from the Ministry of Internal Affairs to operate, and some are currently being transformed into banks.

EVOLUTION OF MICROCREDIT INSTITUTIONS

It was noted that the first Islamic microfinance institutions were born in the Tehran bazaar to simplify lending to merchants. Instead of wasting time and going to the bank, they could borrow money from a loan shark or take it out of the fund. In this transaction, the main guarantee, unlike banking operations, was the reputation of each individual. A merchant with a bad reputation found it difficult to get a loan due to the higher cost of lending. On the contrary, a person with a good reputation could count on a larger loan amount, smaller payments, and better terms for extending the loan.

After the revolution in Iran, the processes of Islamization of society began. The former secular state and economy became subject to Islamic norms. In 1979, a law on the nationalization of the banking system was passed, as a result of which private banks disappeared in Iran, and all state-owned credit institutions were managed uniformly and did not differ much from each other. The interest-free system actually follows the general canons of banking and lives according to the laws of "expected" rates of return, which, in fact, do not differ

Table 1

Volume of the illegal sector of the Iranian economy (in billions) rials)*

* Exchange rate of the US dollar to the riyal, according to UNCTAD: 1990-394.2, 1995-1725.8, 2000-5731, 2001-6163.4, 2002-6907, 2003-8193.9, 2004 - 8614, 2005-8964, 2006-9170.9, 2007 - 9281.2.

Source: Karimi S. P., Taghi M. G, Jafari AS., Aminkhaki A. An Estimation of Tax Evasion in Iran Journal of Economics and Behavioral Studies. July 2011. Vol. 3,No. 1,p. 11.

from actual payments. (For example, only once during the entire operation of this system did the bank share super-profits with depositors.) During this period, the largest increase in the number of garz-ol-Khasane funds occurs and their orientation to the wider public. This is when they start to provide microfinance services more actively.

By the beginning of the twenty-first century, informal credit institutions and underground moneylenders are flourishing in Iran, as the state is unable to provide access to financial resources for all comers. In this regard, an important measure was taken: the operation of private banks was allowed. Realizing the lack of efficiency in managing banks, the country's leadership is making another significant decision: former state-owned banks have begun to gradually pass into private hands through the placement of shares on the Tehran Stock Exchange. Although the state has retained its share and influence in many banks, serious steps are being taken to liberalize the economy.¹⁰

In addition, in 2004, the law on licensing the activities of cash registers for interest-free lending was published. By this action, the state effectively declared an amnesty to shadow financial institutions and legalized underground institutions, again recognizing its own inefficiency in the field of redistribution of financial resources. However, not everyone decided to step out of the shadows.

To date, according to the Central Bank of Iran, 14 institutions of interest-free lending in Garz-ol-Hasan are registered in the country in various forms. But according to the International Advisory Group to Assist the Poor, as early as March 2008, there were 6,000 cash registers operating in the Islamic Republic.¹¹ That is, we can say that the law did not work, most likely, and to this day the law is not fully implemented, and the parallel financial system continues its activities in Iran without control and accountability to the state.

Thus, we can conclude that the state currently does not provide the necessary conditions for the successful operation of conventional forms of banking. Therefore, an illegal form of banking services is flourishing in Iran, which operates both at the level of standard operations and microfinance ones.

IRAN'S SHADOW ECONOMY

Indirect evidence of the existence of a gray credit system is provided by data on the volume of the shadow economy in the Islamic Republic of Iran. To illustrate, we will use the results of a study conducted by a group of Iranian economists who worked on tax evasion issues in 2011. In their work, they used the tax accounting method and the Tanzi model* to measure the scale of the illegal economy (see Table 1).

The findings of Iranian scientists confirm our assumption that the shadow economy in Iran has been successfully existing and developing rapidly for almost 20 years.

If you believe the table (see table. 1), by the middle of the first decade of the XXI century, almost half of Iran's total official GDP was created in the shadow sector. It can be assumed that the growth of the gray economy is connected with the need to overcome the toughened sanctions regime imposed by some countries against the Islamic Republic since its formation in 1979.

* Vito Tanzi-prominent economist, former President of the Russian Academy of Sciences. Director of the Financial Problems Department of the IMF (1981-2000), Assistant Minister of Economy and Finance of Italy (2001 - 2003). At various times, he held high positions in universities, private, public and international organizations, and is currently retired. He is known for numerous studies of various phenomena in the areas of taxation and the shadow economy. author's note).

Table 2

Credit Unions in Iran

* Note: The data provided cover the period up to 2010, but VOX did not publish any more recent data on Iran.

Source: WOCCU, Statistical reports.

GLOBAL MICROCREDIT TRENDS AND IRAN

If we set the task of comparing the situation with microcredit in the Islamic Republic and in the world, we will face a number of difficulties. To begin with, it should be said that, in general, worldwide information on microcredit is quite limited. Given the fact that even statistics on Iran's official banking system are often difficult to obtain, it is difficult to draw any conclusions about the volume of transactions in informal institutions. However, despite the above, the World Organization for Credit Unions (VOX) provides the following statistics on the activities of micro-credit organizations in the Islamic Republic of Iran (see Table). 2)* and in the world (see Table 3).

As can be seen, the number of credit unions in Iran decreased by 97% between 2007 and 2010. A significant reduction in the number of credit institutions in such a short period of time is unusual.

Taking into account our previous conclusions, it seems that the disappearance from the organization's field of view of more than one and a half thousand credit unions and more than $1 billion. loans do not mean that they do not exist in reality. We can only assume that during the period under review, the "missing" organizations stopped providing information about themselves to VOX. This idea is indirectly confirmed by the fact that for the same period (see Table. 3) in the world, the number of credit unions grew by almost a quarter, and their total loans increased by more than $350 billion. Thus, the situation in Iran, according to the organization, significantly contradicts the global trend, which cannot but raise doubts about the reliability of information on this country.

These statistics cover only institutions that are subject to State supervision in one way or another. In other words, the government or Central Bank is most likely aware of their existence. At the same time, there are credit unions in the country that are not registered anywhere.

The measures taken by the Government significantly limit the capacity of the informal system and undermine its effectiveness. It is assumed that shadow credit institutions will soon become controlled by the Central Bank through a single information system, which, in addition to additional costs, poses a threat to the independence and functioning of such organizations.¹²

THE FUTURE OF MICROCREDIT

Microfinance services are currently very relevant, because, according to the World Bank, up to a third of the world's population is considered poor, and they are the ones who most need such a service. Despite this, the development of microcredit is fraught with significant difficulties and is often impossible without assistance from both the State and international organizations.

Against the background of such difficulties, according to VOX statistics, the number of credit unions that can replace ordinary banks in micro-credit transactions is growing in the world. Although the rate of growth in the number of such institutions is small, its importance for borrowers is enormous, as it gives them the opportunity to improve their financial condition.

The Islamic world has its own model of microcredit, based on the principles of Sharia law. It provides for the division of profits and losses between the lender and the borrower, and also prohibits the collection of usurious interest. Institutions operating under these principles are usually subject to State registration and control. In Iran, however, the latter is not always observed.

Table 3

Credit unions in the world

Source: WOCCU, Statistical reports.

Microcredit in the country is not developed, if we talk about ordinary banks. Borrowers in the Islamic Republic, especially rural residents, tend to apply for small loans at the nearest mutual aid offices. This is largely because borrowing through a bank entails significant costs (compared to the loan amount) in the form of lost time in queues and the need to secure collateral. Costs at the ticket offices are lower, a deposit is not required, and in case of a delay in payment, you can arrange a delay with the administration.

Iran's mutual aid funds have gone through a path of institutional evolution in their half-century history. After the Islamic Revolution of 1979, they partially replaced the underground moneylenders; in the 1990s and 2000s, they began to replace the usual banks where the official system failed. Namely, in the market of micro-credit services, which the informal sector is ready to provide whenever necessary and on better terms than conventional banking institutions.

Today, "gray" institutions are undergoing the stage of legalization. The Central Bank obliges them to register their activities, but this step puts funds in a strict framework, limits their functionality and profitability from transactions. Such a situation in the financial sector, when official secular and traditional institutions begin to co-exist in the same legal plane, largely correlates with the general political situation in the country.

It is not known how stable the political regime in Iran will be, but it is safe to say that credit institutions generated by society and based on the values of this society are much more resistant to external factors, whether it is a political situation or an economic crisis. The example of Iran eloquently proves this idea. After all, such an institution as the Islamic Mutual aid fund was able to survive the revolution and effectively act in the new economic realities, having been formed on secular grounds.

It should also be noted that currently many microfinance institutions in the world are criticized for not complying with the basic principle that was originally laid down in them-the availability of prices and credit conditions. Interest rates are comparable, and sometimes even higher than usurious ones, and non-payment of debts leads to complete impoverishment and enslavement of borrowers.

At the same time, it seems that in Iran, microcredit was and remains an institution that, in accordance with the idea of Muhammad Yunus, helps the poor to raise the standard of living on acceptable terms.

¹ International year of microcredit 2005 -http://www.yearofmicrocredit.org/pages/whyayear/whyayear_learnaboutyear.asp

² History of microcredit / / Website of the investment and financial group "Broker Credit Service" - http://www.bkfinance.ru/kreditfiz/fourkreditfiz494.html

³ Little Big Man / / Rossiyskaya Gazeta - http://rg.ru/2007/07/27/yunus-bankir.html

^{Littlefield E., Richard Rosenberg R.} 4 Mikrofinansy i maloimushchie [Microfinance and the poor]. МВФ, Июнь 2004 http://www.imf.Org/external/pubs/ft/fandd/rus/2004/06/pdf/littlefi.pdf

^{Nimrah К., Tarazi M., Reille X.} 5 Islamic Microfinance: An Emerging Market Niche // Focus Note. Consultative Group to Assist the Poor, Washington D.C., August 2008, No. 49 -http://www.cgap.org/sites/default/files/CGA P-Focus-Note-Islamic-Microfinance-An-Emerging-Market-Niche-Aug-2008.pdf

^{Keshavarzian A.} 6 Bazaar and State in Iran. New York, 2007, p. 111.

⁷ Ibidem.

^{Adelkhah F.} 8 Being modern in Iran. London, 1999, p. 59.

⁹ Ibidem.

^{Mamedova N. M.} 10 Iranskaya ekonomika i globalizatsiya [The Iranian Economy and Globalization].

¹¹ Bankha va moasesat-e etebari-ye mojaz (Licensed banks and credit organizations) / / Website of the Central Bank of Iran - http://cbi.ir/simplelist/1541.aspx

¹² Ettelaat, 22.03.2012.

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