Payments and Iran – Everything you need to know

We have some very useful information for companies who want to work with Iran in concept, but are uncertain about the practical aspects of getting their business done.

Bearing this in mind, Mohsen Mohammad, Senior Advisor, Bank Melli Iran – Hamburg will be presenting some useful tips on how to get Payments in and out of Iran – Practical ways to conduct import and export

This session will cover:

  • Creative ways of making payments
  • Working on a long-term solution
  • Role of the Central Banks?

Further, leveraging our experience working in Iran (2nd Iran Banking Forum; Iran Business Symposium; 5th Iran Oil and Gas Summit), here is a quick FAQ covering all you need to know:

 

1. What is the central bank doing to help stimulate the economy?

“The central bank, over the last two years, has been using both the money aggregate and exchange rates as two anchors to stabilize the economy. I think the central bank has made excessive use of these tools so far. So in the future, the central bank needs to change its policy and focus more on stimulating the economy through some expansionary monetary policy.

Right now, the country is struggling with credit crunch problem. The central bank is aware of this and it has already started some initiatives to help companies and households to have access to credit, but it has not been enough to make tangible changes in the economy. When it comes to the exchange rate, we have different policies and different regimes. The de-facto policy, which Iran is following right now, is a nominal constant exchange rate mainly targeting price stabilisation. With this low exchange rate, the low volatility of exchange rate does not imply low risk as in fact the pressure from inflation differentials escalating and at some point a single event may trigger a big rise in the exchange rate. I think both these policies are going to change in the future.

Finally, the central bank from the beginning of this government announced its intention to go for exchange rate unification. So far it hasn’t been able to do that because of the sanctions and the problem that banking system has in building corresponding relationships with the foreign banks and free access to foreign currencies. In the future, I think as soon as the central bank can do it, it will definitely go for exchange rate unification and that would help to stimulate the economy because it reduces the cost of investment for foreign investors.”

Mehrdad Sepahvand, Economic Advisor, Central Bank of the Islamic Republic of Iran (Speaker at Iran International Banking Forum 2016).

 

2. Where do you see most demand coming from in terms of industry in relation to trade with Iran?

“What you see most are systems, machinery production lines – Iran has a long line of legacy equipment which frankly needs updating. This means that we are seeing a lot of family businesses in Iran that are often looking to Europe for these upgrades.

For example, the owners of Arj Company – a famous Iranian home appliances manufacturer – sought investment from European firms after it was forced to close down last year. Over the last two or three decades, Iran has seen several family-owned manufacturing businesses go bust, so there is a real appetite to revive them using foreign expertise and equipment.”

Kees Lakerveld, International Payments Specialist, 2FX Treasury (Speaker at the 2nd Iran Banking Forum 2017)

 

3. International Transactions – Who, what, where, when, how?

“I think there’s a lot of misunderstanding and uncertainty as to why banks are hesitant. I regularly see in the press that banks are “too afraid” to try and cooperate with Iran. But, if you go into the details, it’s a balancing act for them as they are trying to meet with compliance standards, solid underlying business interest (in terms of business models), and also the Iranian side. Right now the compliance standards are not sufficient to re-connect.

With the penalties that have been paid in recent years with sanctioned countries – for example BNP Paribas being fined almost $9Billion – a lot of banks are not able to pro-actively meet compliance standards without putting themselves at considerable risk.

Therefore, the key point here for me is most definitely compliance – how is an investor going to give a bank the level of comfort that they need? Having said this, there’s an unfair picture painted of banks as being risk averse, and while that is the case to some extent, the reality of it is a lot more complex.”

Kees Lakerveld, International Payments Specialist, 2FX Treasury (Speaker at the 2nd Iran Banking Forum 2017)