Iranians switch to informal savings funds
Financial Times
12-Mar-2010 (one comment)

Ordinary Iranians are expanding an informal network of savings funds because the established banks are struggling under the impact of international sanctions and bad loans totalling $45bn (€33bn, £30bn).

There is no estimate of how many of these funds exist, but the anecdotal evidence suggests their number is growing and middle-class people are becoming involved in this parallel financial system.

Obtaining loans from banks is becoming more difficult, forcing people to make their own arrangements.

About 30 drivers in a taxi agency in Tehran have shares in sandogh , or fund, number three. Each share costs $2 per day; every month four members of the fund receive loans of $600 each. All member are guaranteed one loan per share during the 10 months the fund is supposed to last.

"It is a savings fund and doesn't have the uncertainty of the banking system, which might or might not give you a loan," says Ahmad, one of the drivers who has four shares and hence can receive four loans. "My mother is also saving money in a fund of housewives among our female relatives."

The head of the taxi agency, along with a driver who is a retired teacher, are jointly trusted to run the fund.

Another driver said the fund helped "us buy the things we cannot afford under normal conditions, like a washing machine, for instance, for which we have zero chance to get bank loans".

The government denies that the formal banking system routinely refuses t... >>>

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Nothing new and has nothing to do with the sanctions...

by seamorgh on

Such funds have existed for hundreds of years both in Iran and elsewhere. In Iran, they call it Gharzol Hasanah Fund (sandogheh gharzol hasaneh) and almost all mosques and organized societies have such funds. In financial literatures, they call them Rotating/Accumulating Savings and Credit Associations (ROSCAs/ASCAs). They are set up easily and its only enforcement mechanism is trust and shame. Individuals contribute to a fund and fund gives loans to contributing members who would request a loan. Usually the loan is just given through a raffle. The problem with them though is that they have a tendency to go bankrupt. All it takes is for one of the parties not to be able to pay back the loan. And when these funds go bankrupt, the friendship and trust among the members also go down the tube.