TEHRAN- Financing in Iran has been traditionally the responsibility of the banking system.Iran’s economy has always been bank-oriented over the past decades, and the banking system has been the destination for businesses to finance.
In fact, the view of enterprises and production units to receive financial resources, working capital facilities and any financial support has been toward the banks.
This has caused the resources of banks in general and in all periods to be insufficient to be allocated to the production and industry sectors of the country and often the distribution of facilities is not fair.
Usually, some sectors receive more facilities than other sectors, and the way banks look at lending to some projects compared to the proposed projects in some sectors that receive less attention is a constant challenge in receiving bank facilities.
Banks’ resources are generally short-term, and on the other hand, companies and industries need long-term resources to finance their investment projects; and this difference in the maturity of the required resources reduces the lending power of the banking network and puts pressure on the banks’ resources.
It is while benefitting from the capacities of capital market is the best solution to tackle this limitation.
Capital market, as a long-term resource market, can take on the role of long-term financing of enterprises if the right policy is made.
Financing through the issuance of securities is the outstanding mechanism of the capital market in this due.
The issuance of securities in the capital market has the following advantages compared to the lending methods in the banking network:
– Issuance of securities in high amount in the capital market is possible, while in the banking facilities, firms generally face limitations in the financing ceiling.
– In terms of time, securities issued in the capital market are generally long-term and four to five years, and in fact allow companies to access long-term financial resources to implement development plans and provide liquidity, but in the major banking network facilities are in the form of short-term contracts and usually less than 18 months.
– The original resources will be completely at the disposal of the enterprise until the maturity date (four or five years) and during this period the enterprise will only repay the periodic interest once every three months, but in terms of bank facilities, the principal and interest of the facility are repaid during the installments that the applicant repays.
– The amount of issued securities is provided to the firm all at once and in a short period of time, while in the banking network, facilities are usually paid in proportion to the progress of the activity and in several stages.
– The amount will be paid in full, and part of the resources will not be frozen under the heading of deposit or resource blocking.
– The issuance of securities in the capital market increases the credit and branding of the firm.
– At present, it is possible to issue securities without a guarantor for reputable listed companies in accordance with the credit rating and annual profit, which we do not see in the banking network.
It is fortunate that in recent years, by creating a suitable infrastructure in the capital market, the significant presence of people in this market, and providing the possibility of accumulation of micro-capital has provided a historic opportunity to finance enterprises and the country’s production sector through this market.
It can be expected that in the near future and in the coming years, the over 90-percent pivotal role of banks in financing will be reduced and a significant part of financing will move to the capital market. This will be a significant opportunity and a huge capacity for the country to be able to provide a new wing to finance the production and industries.
Certainly, increasing financing through the capital market and strengthening this important market of the country can, in addition to balancing the role of banks in financing the production sector, activate new capacities in this sector.
And the good news is that Securities and Exchange Organization (SEO) is taking serious steps in terms of laying the ground for elevating the capital market’s role in financing.
In a ceremony held on late June on signing a memorandum of understanding between SEO and Industry, Mining and Trade Ministry on financing the production activities through the people’s micro capitals, the SEO Head Mohammad-Ali Dehqan Dehnavi referred to the main role of the SEO in financing various production sectors in the country, and said: “SEO always seeks to create an environment in which the resources and liquidity in the country go to production.”
And given that stabilizing and strengthening capital market is one of the top economic priorities of the current government, if this is achieved and the government effectively supports the capital market, we can expect that in the not-too-distant future, in addition to more people tending to participate in the capital market, the role of this important market in financing will become more key and decisive.
Although some measures are necessary to expand the financing of enterprises through the capital market.
Increasing the financial literacy of business owners, facilitating the issuance of securities, amending the trade law to facilitate the process of registration, establishment, conversion and changes of joint stock companies with the least possible time and cost, creating tax incentives for companies that are accepted in the capital market, and reducing the costs related to market acceptance are among the most important of these measures.
Original News : https://www.tehrantimes.com/news/465884/Capital-market-boom-a-golden-opportunity-to-finance-enterprises