NH-2016-q2

COUNTRY FOCUS
NEWHORIZON Shawaal 1437 to Rabi al awwal 1438
Exchange Organisation in Iran
expressed the view that amendments to
the law would be made ‘in a matter of
months’.
A third problem is confidence. For
example, an article in Iran Pulse said,
‘Despite the positive signals SEO
officials have been sending, the private
sector — which is involved in doing
business with multinational investment
entities — complains that foreigners do
not make investments through private
brokerage firms unless they receive a
sovereign guarantee.’
At a more basic level investors are still
concerned about the political situation.
President Trump’s re-imposition
of sanctions on 13 organisations in
February 2017 and the statement that
these are initial steps in a broader review
of US policy on Iran can have done
little to help.
The sukuk market has, however grown,
since sanctions were lifted. Between
mid 2015 and mid 2016 the market
tripled in size to reach $6.95 billion.
This is a long way short of the sums
needed to fund Iranian economic
development, but it is a start.
Takaful in Iran
Iran accounts for around 44% of
takaful premiums worldwide according
to the Dubai Centre of Islamic Banking
and Finance. It is, however, a difficult
market to analyse, because there are
no separate takaful companies, just
insurance companies with takaful
products and no Shari’ah board.
It is compulsory in Iran to have health,
third-party motor and social insurance.
The insurance companies, both life and
non life are obliged to obtain at least
part of their reinsurance from Bimeh
Markazi, Iran’s central insurance body,
which must also approve all insurance
companies.
There are 27 insurance companies
in Iran one, the Iran Insurance
Company is state owned and
dominates the market with a 50%
share, 18 private insurers, seven
free zone insurers and two private
reinsurers. In early 2017 the Iran
Insurance Company was re-organised
into four separate entities – life, non
life, reinsurance and investments.
This follows a statement from the
central insurance body that the
country needs more specialised
insurance companies.
Future Prospects
When international sanctions against
Iran were lifted, there was a great deal
of comment about Iran rejoining the
international business community.
With the passage of time it has
become clear that it is easy to talk the
talk, but it will not be quite so easy to
walk the walk.
For nearly 40 years, even before
sanctions, Iran has been somewhat
isolated. They have developed along
their own unique path, not least in the
area of finance and this could result
in clashes with the predominantly
Sunni-based Islamic finance industry.
(The Iranian approach is based on
Shia jurisprudence, which differs
from the Sunni jurisprudence
that forms the basis of Islamic
banking regulation in many of those
countries where Islamic banking
is systemic.) They have not yet
adopted international standards for
banking and finance, nor have they
adopted any of the Islamic banking
and finance standards promulgated
by AAOIFI and ISRA. It will take
time, if there is the will, to come
into line with either or both sets of
standards. Most critically there seems
to be a lack of transparency, such
that overseas organisations may need
to question financial statements and
ownership structures.
Corruption remains an issue, although
given the 2008 financial crisis and scandals
such as the fixing of the LIBOR (London
Interbank Overnight Rate) rate, the Iranians
could be forgiven for saying that people in
glass houses should not throw stones.
The greatest unknown currently is just what
the new US administration under President
Trump do in relation to sanctions. If
sanctions are re-imposed by the US, even if
other countries do not follow suit, the big
international financial institutions will be
very hesitant, not to say averse, to engaging
with Iran because of the potential
knock –on effect on their US business
interests.
Even without the issues of sanctions and
geopolitical factors in the Middle East, it
will be a long hard road back for the
Iranian finance industry. Its natural ally
should be the Islamic finance industry in the
region and also in the wider Islamic world,
but the rather unique version of Islamic
finance in Iran may make such an alliance
problematic, not to mention the apparent
lack of trust among GCC countries in
relation to Iran’s political intentions in the
region. Ultimately, however, it is in their
interests to try to draw Iran back into the
international fold.
Mosaic, Isfahan Mosque
40 IIBI
www.islamic-banking.com