Identifier
Created
Classification
Origin
09RPODUBAI409
2009-10-05 12:56:00
CONFIDENTIAL
Iran RPO Dubai
Cable title:
IRAN: IRGC ACQUIRES BANK LICENSES
how-toVZCZCXRO1762 PP RUEHBC RUEHDE RUEHKUK RUEHTRO DE RUEHDIR #0409/01 2781256 ZNY CCCCC ZZH P 051256Z OCT 09 FM RPO DUBAI TO RUEHC/SECSTATE WASHDC PRIORITY 0554 INFO RUEHAD/AMEMBASSY ABU DHABI PRIORITY 0432 RUEAIIA/CIA WASHDC RUEATRS/DEPT OF TREASURY WASHINGTON DC RUEIDN/DNI WASHINGTON DC RUCNIRA/IRAN COLLECTIVE RHEHAAA/NSC WASHINGTON DC RUEKJCS/SECDEF WASHINGTON DC RHMFISS/USCENTCOM TELECOM CENTER MACDILL AFB FL RUEHDIR/RPO DUBAI 0555
C O N F I D E N T I A L SECTION 01 OF 02 RPO DUBAI 000409
SIPDIS
DEPT PLS PASS TO DEPT OF TREAS BRIAN GRANT, JASON WEISS
E.O. 12958: DECL: 10/5/2019
TAGS: ECON IR PGOV PREL
SUBJECT: IRAN: IRGC ACQUIRES BANK LICENSES
REF: RPO DUBAI 394
DUBAI 00000409 001.2 OF 002
CLASSIFIED BY: Alan Eyre, Director, Iran Regional Presence
Office, DoS.
REASON: 1.4 (b),(d)
C O N F I D E N T I A L SECTION 01 OF 02 RPO DUBAI 000409
SIPDIS
DEPT PLS PASS TO DEPT OF TREAS BRIAN GRANT, JASON WEISS
E.O. 12958: DECL: 10/5/2019
TAGS: ECON IR PGOV PREL
SUBJECT: IRAN: IRGC ACQUIRES BANK LICENSES
REF: RPO DUBAI 394
DUBAI 00000409 001.2 OF 002
CLASSIFIED BY: Alan Eyre, Director, Iran Regional Presence
Office, DoS.
REASON: 1.4 (b),(d)
1. (C) SUMMARY: The Central Bank of Iran (CBI) recently approved
bank licenses (one preliminarily) for two financial institutions
affiliated with the Islamic Revolutionary Guard Cors (IRGC),
Ansar Finance and Credit Institute (AFCI) and Mehr Finance and
Credit Institute (MFCI). The licenses allow the two to formally
offer retail and investment banking facilities throughout Iran.
Though the CBI has authorized both licenses under the rubric of
privatization, the licenses mark the entry of IRGC as a new
parastatal player in Iran's banking sector. With national
branch, ATM, and point-of-sale infrastructure already in place
as well as strong capital backing, these new banks are poised to
grow their portfolios rapidly. As a result, the IRGC will be
able to fortify its advantage in raising capital for affiliated
businesses, extend its influence into non-IRGC sectors of the
economy through investment banking, and perhaps increase access
to funds transfer facilities. END SUMMARY.
2. (SBU) In an August 24 2009 meeting, the CBI's Money and
Credit Council authorized a license for AFCI (and two other
institutions) to formally begin banking operations. The
approvals increase the number of 'private' banks in Iran from
six to nine. Additionally, the CBI governor Mahmoud Bahmani
announced that the Central Bank was reviewing an additional 40
applications, preliminarily approving one for MFCI. As of
January 2009, 'private' banks account for 18.7 percent of total
banking sector assets (USD 438 billion),having only passed the
10 percent mark in November 2006.
FROM HUMBLE BEGINNINGS
3. (C) After the Islamic Revolution, Ansar Loan Union Fund
(Sanduq-e Qarz ol-Hasaneh Ansar') and Basij Loan Union Fund
('Sanduq-e Qarz ol-Hasaneh Basjian') were established as two
non-banking financial institutions with the mandate to provide
interest-free loans ('qarz ol-hasaneh') to those IRGC and Basij
members who fought in the Iran-Iraq War and their families.
(NOTE: Qarz ol-hasaneh, a type of transaction that forbids a
financial institution to charge interest under Islamic law
became the de facto means of taking deposits and issuing loans
when the banking system was nationalized after the Islamic
Revolution. END NOTE). These two funds operated under this
limited charter for twenty years.
NOT YOUR FATHER'S CREDIT UNION
4. (C) In October 2006, in Ahmadinejad's first term, the CBI
licensed the two IRGC affiliated Loan Union Funds (LUFs) to
operate as Finance and Credit Institutes (FCIs). Though the new
approval gave the institutions the authority to operate more
like retail banks, under CBI regulations their offerings were
still limited. Both FCIs expanded aggressively though and
sometimes outside of their authority. As one Dubai-based
political analyst who highlighted the noticeable support to
these particular FCIs said, "Under Khatami, it was policy to
keep the IRGC and bonyads (parastatal foundations with a
strong, presence in Iran's economy) out of oil and banking.
Under Ahmadinejad, there was a decision to grant them licenses
and push them forward." Today, these FCIs are quite large:
ANSAR FINANCE AND CREDIT INSTIUTE (AFCI) has about 5,000
employees staffing 600 branches with 300 ATMs throughout the
country. It claims to have more than 5.5 million registered
accounts with with 65 percent of that dedicated to qarz
ol-hasaneh offerings (loans and fixed deposits).
MEHR FINANCE AND CREDIT INSTITUTE (MFCI) changed its name from
'Basijian' to 'Mehr' when the CBI authorized it to become an
FCI, though its affiliation the Basij para-military
DUBAI 00000409 002.2 OF 002
organization, under the command of the IRGC, remains in place.
The organization currently claims to have 700 branches and 215
ATMs.
5. (C) In the last three years, Ansar and Mehr grew rapidly,
acting as pseudo-banks, involved both in retail and investment
banking. (NOTE: Both have accumulated large amounts of capital
though there are conflicting accounts of the absolute total
assets of each bank. According to CBI regulation, a bank
license requires an institution to have at least USD 2 billion
in capital. END NOTE). Most of that revenue was accumulated
through investment banking and fixed deposit transactions.
According to press reports, public records indicate that MFCI
purchased stock in the following Tehran Stock Exchange-traded
companies: Telecommunications Company of Iran (TCI) (reftel),
Mobarakeh Steel, Iran Tractor Manufacturing Company, Iran Marine
Industrial Company ('Sadra'),Technostar Engineering, Iran
Aluminum Company ('IRALCO'),and Jaber Ebne Haygen
Pharmaceuticals. Additionally, as reported reftel, Mehr
Investment Company, one of the two consortiums that bid on the
recent TCI tender, included MFCI as a partner.
IRGC: THE GRIP THAT KEEPS ON GRIPPING
6. (C) In addition to being able to now offer the full range of
retail bank services (including checking and savings),bank
licensing may also provide AFCI and MFCI a new channel to access
state funds. During Ahmadinejad's tenure, under political
pressure from the administration the CBI has provided loans to
state banks for further distribution to the population under the
guise of small business lending programs. Most of these loans
have gone bad, and as a result the total debt of Iran's 11 state
banks to the CBI is in excess of USD 32 billion. As licensed
banks, AFCI and MFCI will also qualify for similar CBI credit
allowing them to grow assets and further capitalize their retail
and investment banking operations, ultimately extending their
reach in various economic sectors.
7. (C) COMMENT: While AFCI and MFCI started operating some
banking facilities in the absence of a license, this new formal
endorsement by the Central Bank means that the IRGC will have
the ability to broaden and deepen its economic presence. It can
use the banks to obtain partial ownership in large, publicly
traded businesses through its investments as well as take stakes
in small to medium enterprises through retail banking. As a
result, the IRGC will be able to fortify its advantage in
raising capital for affiliated businesses, extend its influence
into non-IRGC sectors of the economy through investment banking,
and perhaps increase access to funds transfer facilities. END
COMMENT.
EYREA
SIPDIS
DEPT PLS PASS TO DEPT OF TREAS BRIAN GRANT, JASON WEISS
E.O. 12958: DECL: 10/5/2019
TAGS: ECON IR PGOV PREL
SUBJECT: IRAN: IRGC ACQUIRES BANK LICENSES
REF: RPO DUBAI 394
DUBAI 00000409 001.2 OF 002
CLASSIFIED BY: Alan Eyre, Director, Iran Regional Presence
Office, DoS.
REASON: 1.4 (b),(d)
1. (C) SUMMARY: The Central Bank of Iran (CBI) recently approved
bank licenses (one preliminarily) for two financial institutions
affiliated with the Islamic Revolutionary Guard Cors (IRGC),
Ansar Finance and Credit Institute (AFCI) and Mehr Finance and
Credit Institute (MFCI). The licenses allow the two to formally
offer retail and investment banking facilities throughout Iran.
Though the CBI has authorized both licenses under the rubric of
privatization, the licenses mark the entry of IRGC as a new
parastatal player in Iran's banking sector. With national
branch, ATM, and point-of-sale infrastructure already in place
as well as strong capital backing, these new banks are poised to
grow their portfolios rapidly. As a result, the IRGC will be
able to fortify its advantage in raising capital for affiliated
businesses, extend its influence into non-IRGC sectors of the
economy through investment banking, and perhaps increase access
to funds transfer facilities. END SUMMARY.
2. (SBU) In an August 24 2009 meeting, the CBI's Money and
Credit Council authorized a license for AFCI (and two other
institutions) to formally begin banking operations. The
approvals increase the number of 'private' banks in Iran from
six to nine. Additionally, the CBI governor Mahmoud Bahmani
announced that the Central Bank was reviewing an additional 40
applications, preliminarily approving one for MFCI. As of
January 2009, 'private' banks account for 18.7 percent of total
banking sector assets (USD 438 billion),having only passed the
10 percent mark in November 2006.
FROM HUMBLE BEGINNINGS
3. (C) After the Islamic Revolution, Ansar Loan Union Fund
(Sanduq-e Qarz ol-Hasaneh Ansar') and Basij Loan Union Fund
('Sanduq-e Qarz ol-Hasaneh Basjian') were established as two
non-banking financial institutions with the mandate to provide
interest-free loans ('qarz ol-hasaneh') to those IRGC and Basij
members who fought in the Iran-Iraq War and their families.
(NOTE: Qarz ol-hasaneh, a type of transaction that forbids a
financial institution to charge interest under Islamic law
became the de facto means of taking deposits and issuing loans
when the banking system was nationalized after the Islamic
Revolution. END NOTE). These two funds operated under this
limited charter for twenty years.
NOT YOUR FATHER'S CREDIT UNION
4. (C) In October 2006, in Ahmadinejad's first term, the CBI
licensed the two IRGC affiliated Loan Union Funds (LUFs) to
operate as Finance and Credit Institutes (FCIs). Though the new
approval gave the institutions the authority to operate more
like retail banks, under CBI regulations their offerings were
still limited. Both FCIs expanded aggressively though and
sometimes outside of their authority. As one Dubai-based
political analyst who highlighted the noticeable support to
these particular FCIs said, "Under Khatami, it was policy to
keep the IRGC and bonyads (parastatal foundations with a
strong, presence in Iran's economy) out of oil and banking.
Under Ahmadinejad, there was a decision to grant them licenses
and push them forward." Today, these FCIs are quite large:
ANSAR FINANCE AND CREDIT INSTIUTE (AFCI) has about 5,000
employees staffing 600 branches with 300 ATMs throughout the
country. It claims to have more than 5.5 million registered
accounts with with 65 percent of that dedicated to qarz
ol-hasaneh offerings (loans and fixed deposits).
MEHR FINANCE AND CREDIT INSTITUTE (MFCI) changed its name from
'Basijian' to 'Mehr' when the CBI authorized it to become an
FCI, though its affiliation the Basij para-military
DUBAI 00000409 002.2 OF 002
organization, under the command of the IRGC, remains in place.
The organization currently claims to have 700 branches and 215
ATMs.
5. (C) In the last three years, Ansar and Mehr grew rapidly,
acting as pseudo-banks, involved both in retail and investment
banking. (NOTE: Both have accumulated large amounts of capital
though there are conflicting accounts of the absolute total
assets of each bank. According to CBI regulation, a bank
license requires an institution to have at least USD 2 billion
in capital. END NOTE). Most of that revenue was accumulated
through investment banking and fixed deposit transactions.
According to press reports, public records indicate that MFCI
purchased stock in the following Tehran Stock Exchange-traded
companies: Telecommunications Company of Iran (TCI) (reftel),
Mobarakeh Steel, Iran Tractor Manufacturing Company, Iran Marine
Industrial Company ('Sadra'),Technostar Engineering, Iran
Aluminum Company ('IRALCO'),and Jaber Ebne Haygen
Pharmaceuticals. Additionally, as reported reftel, Mehr
Investment Company, one of the two consortiums that bid on the
recent TCI tender, included MFCI as a partner.
IRGC: THE GRIP THAT KEEPS ON GRIPPING
6. (C) In addition to being able to now offer the full range of
retail bank services (including checking and savings),bank
licensing may also provide AFCI and MFCI a new channel to access
state funds. During Ahmadinejad's tenure, under political
pressure from the administration the CBI has provided loans to
state banks for further distribution to the population under the
guise of small business lending programs. Most of these loans
have gone bad, and as a result the total debt of Iran's 11 state
banks to the CBI is in excess of USD 32 billion. As licensed
banks, AFCI and MFCI will also qualify for similar CBI credit
allowing them to grow assets and further capitalize their retail
and investment banking operations, ultimately extending their
reach in various economic sectors.
7. (C) COMMENT: While AFCI and MFCI started operating some
banking facilities in the absence of a license, this new formal
endorsement by the Central Bank means that the IRGC will have
the ability to broaden and deepen its economic presence. It can
use the banks to obtain partial ownership in large, publicly
traded businesses through its investments as well as take stakes
in small to medium enterprises through retail banking. As a
result, the IRGC will be able to fortify its advantage in
raising capital for affiliated businesses, extend its influence
into non-IRGC sectors of the economy through investment banking,
and perhaps increase access to funds transfer facilities. END
COMMENT.
EYREA