The Iranian economy flourished in the 1940s as major boosting projects were carried out. Post-1979 revolution, Iran made changes in the economic and political infrastructure, nationalized banks, and passed new financial regulations. Amidst this transformation, new financial institutions arose but faltered immediately because of their inability to attract Iranian clients by offering better interest rates than that of regular banks. When Ahmadinejad came to office, they returned to the market along with other illegal financial institutions –violating the regulations of the Central Bank of Iran (CBI). This time, they managed to attract more clients as they offered better interest rates. Though they had been drawing in more clients, they refused to obey the law. Instead of boosting national investments and economic growth, they invested client funds in one sector and purchased real estate quickly, leading to a sharp downturn in other economic sectors. Later, the real estate sector declined sharply. The “illegal” financial institutions resorted to offering high-value loans to high-ranking officials in the regime— without any assurance— to ensure they were politically protected. However, they did not give the clients their assets and profits. With the passage of time, some of these institutions filed for bankruptcy. One month ago, Sharq newspaper published a report lifting the curtain on the corruption of Samen Hojaj Finance and Credit Institution. Mentioning it by its initials rather than by its full name, the report unveiled that important personalities and public figures were involved in the corruption case.
Caspian Credit Institution
The Caspian Credit Institution used to offer the highest interest rate at 25% that attracted many clients. Just like many other financial institutions, Caspian invested its client’s money in real estate. In 2017, it stopped paying profits on deposits. It began to present excuses but they did not convince its clients, who were sick and tired of the never-ending crisis. Caspian was officially declared bankrupt, in May 2018. The clients staged a sit-down protest at the court, but their money never was returned.
Other institutions gradually stopped paying profits to their depositors and declared bankruptcy. Economic analysts claim, “This crisis, which the financial institutions created, was the first spark of the protests that mushroomed across Iran in late 2017.” The International Monetary Fund (IMF) warned the Iranian government about the acute crisis these institutions would generate, pointing to “the urging necessity of restructuring the financial sector.”
As the high dangers mounted and more depositors lost their money, Samen Hojaj stood out as the last savior, offering unprecedented interest rates up to 40%. Following widespread propaganda, many Iranians were persuaded to join Samen Hojaj, which started working despite it not submitting the necessary work permit documents. The CBI exerted all efforts to limit illicit finance in the past two years- it immediately addressed the illegal position of this institution before it went bankrupt—like the rest.
The CBI called on Samen Hojaj to submit a work permit application; documents clarifying in detail its deposits held, and to identify its field of investment. However, Samen Hojaj refused to submit any information regarding its investments or its partners. The CBI sent an investigation team to the institution’s headquarters to collect information about its activities and business-scale, but it was in vain.
CBI’s work permit conditions
Any financial institution in Iran must obtain an authorization letter from the central bank through; officially applying to the CBI; identifying the shareholders capital not the depositors, and confirming the capital is lawfully acquired. When the CBI grants preliminary approval, the institution must obtain an installation permit and work permit from the Money and Credit Council (MCC). The CBI issues the authorization letter which must be approved by its board of directors. In addition, the CBI investigation team visits the institution’s office to see whether it follows the required legislation. Caspian, Samen Hojaj, and other bankrupted institutions were not committed to the regulations laid by the CBI, they offered high-interest rates, and invested in one single sector, consequently; they collapsed. The former Iranian government Spokesman Mohammad Bagher Nobakht said, “[government] officials warned people many times about these institutions, but they still invest their money there.” “We know the enormity of their loss, but they should not wait for the government to compensate them,” he added. Iran’s Supreme Leader Ali Khamenei said that the crisis reached its climax and that those in charge must respond to the people’s complaints, “I make myself responsible for this crisis and everybody must address it.”