An Overview of Islamic Non-Banking Institutions (INBFI) in Iran
The financial system in Iran constitutes two major types of financial institutions: Islamic banks and Islamic non-bank financial intermediaries (INBFIs). Nevertheless, the INBFI in Iran, similar to other Islamic countries, forms a small segment of the Islamic finance industry. The interest-free banking law passed in 1983 applies to the country’s entire financial system, including the non banking sector. This paper studies the emergence and current practices of INBFI in Iran and the challenges faced in realizing these divine objectives. For this purpose, the non-bank Islamic financial intermediaries are broadly divided into three groups. First, Islamic Non-bank monetary financial intermediaries whose services are similar to those provided by banks, including Credit institutions, Savings, and Housing institutions. Second, Islamic social Microfinance Institutions are development and poverty eradication institutions. These institutions, which have grown significantly over time, provide services to disadvantaged and needy people. These include Gardul Hassan (QH), charities, Waqf, and Zakat that provide financial services to the poorest people to transform them from a beggar into an entrepreneur. Third, other financial intermediaries that provide Islamic banking services include Islamic leasing companies and Takaful.
The type of Islamic contract used depends on the type of activity of the financial institution. For example, leasing companies use Lease contracts or hire purchases, while investment institutions use a civil partnership or Vekale. This article focuses on two goals. First, the pathology of individual INBFI in Iran is discussed. Second, given that the Shia legal system in Iran differs in some respects from countries operating under Sunni Sharia, an attempt has been made to point out this difference wherever it exists. This study shows that the efficiency of these institutions is low, and their total capacity is not exploited. Finally, this Article provides policy implications and solutions to increase efficiency and optimal capacity to achieve poverty alleviation and development goals.