In this hard times of lowered oil revenues and urgent requirements for economic rehabilitation, what matters as an imperative step is financing diversification. No matter what industry we want to invest in or the time span, old methods of financial convenience are of little use in today’s highly integrated financial and economic environment. Traditionally, Iranian banks are the main source of every kind of financing for every entity including households, SMEs, and corporations. It’s obvious that our banks are not as powerful as they used to be previously, and they will be of much less power in future, suggesting that dependence on the money market for financing the economy is nothing but impossible.
The other path of financing is the capital market which has not been as effective as it supposed to be, despite its long history dated back to pre-revolution era. The capital market of Iran had been typically a trading hall for equity shares with little to no availability of contemporary financial tools, before it started to assimilate a few modern instruments modified for application in the country’s economic culture from less than a decade ago. However, the current state of Iranian capital markets are still mostly affected by equity shares, with little effectiveness of modern instruments. This low spirit of modern financial tools is neither representative of their uselessness nor the inability of the capital market culture to grasp them, but a direct result of their emerging state.
This issue, along with the weakening state of the banking system, implies a potential of development in those capital market fronts that are less cared yet and are both essential and convenient for the prosperous future we crave. Currently, we have variations of fixed income issues, mutual and exchange traded funds, equity and retail funds, and etc. It is predictable that in coming years, we see a great amount of advancement in designing and implanting modern financial tools, predictably more internationally standardized ones. For instance, current Sokuk notes are being traded on very limited yield span, normally as of commercial banks deposit rates, not so attractive for investors.
Nonetheless, in near future, as interest rates go down the hill, fixed income issues with higher yields are practicable and encouraging. It may also be a very charming opportunity for international investors who plan to expand their portfolios in an emerging market. This is also true about various funds, providing a unique opportunity both for domestic players to open new fronts and for international investors to be the first comers.