Lendtech Activist: In the past two to three years, the share of Lendtech facilities compared to the total micro-financing within the banking network has been a mere one-tenth of a percent. It is perplexing that such a small percentage is subject to regulation
In light of the Iran Digital Economy annotation, the Central Bank’s instructions to banks regarding Lendtech activities have led to the suspension of loan payments in some companies, causing challenges for other Lendtechs as well. Many payers have seen their income drop to zero due to the circular’s influence.
Industry activists await the outcome of today’s meeting with central bank officials to determine their responsibilities in repaying micro-loans. The question remains: should the instructions be adapted to the industry’s reality, or should Lendtechs conform to the requirements?
Mehdi Fatemian, the head of the Fintech Association, shared details of the association’s meeting with industry activists and the Central Bank. He stated, “The Fintech Association will strive to resolve disputes regarding the directive before the new year begins. The central bank needs to settle and implement necessary reforms.”
The Central Bank introduced cooperation requirements for banks with payment companies on December 15. This sparked protests from Lendtech industry activists, prompting the Fintech Association to demand amendments. They perceived the central bank’s instructions as a threat to their operations and a halt to services.
From the Lendtech activist perspective, the central bank’s circular fails to recognize facilities, neglects to determine the source of income and fees, and prohibits depositing facility installments into Lendtech accounts. These are perceived as major flaws that require correction.
Reasons for Opposition to the Circular:
According to the Central Bank’s circular, banks are prohibited from depositing granted facility amounts into auxiliary facility accounts; instead, it must go directly to the goods and services supplier’s account. Lendtechs argue that without income from facility payments, sustaining their operations becomes challenging.
Ghesta’s CEO suggests that Lendtechs should address the central bank’s liquidity concerns through self-regulation. Proposed is a mechanism where the designated account for facility payment is with Lendtech, but the balance cannot be withdrawn, allowing banks to monitor the process. This is crucial for Lendtechs to ensure customers receive genuine products.
Despite Lendtech activists demanding fees for auxiliary facilities, the Central Bank instructs banks to cease cooperation with those facilities charging fees. The collection of fees by Lendtechs is explicitly prohibited.
In response to protests, the Tehran Chamber’s Innovation Commission called for the suspension of the directive, emphasizing the negative impact on neobanks. Abank’s representative highlighted that the circular hampers neo-banks’ creativity and growth, making them dependent on operating banks. Finding a solution is crucial to navigate this challenging situation.
Disruption and Restriction of Lendtech Facility Payments
Mohammad Reza Ashtiani, CEO of Ghesta, contends that lendtechs were not afforded the opportunity to comply with the Central Bank’s circular upon its publication. He informed reporters, stating, “Future Bank has declared a suspension of facility payments until compliance with the guidelines.”
According to Ashtiani, Lendtech companies now find themselves in two situations following the Central Bank’s instructions: either a complete halt to facility payments in some lendtechs or a limitation of service provision in others. He emphasized, “For lendtechs where facility payments have ceased, despite ongoing costs, they are left without any income.”
Ashtiani disclosed that promises were made to amend the circular: “We are currently revising the facility payment model at Ghesta to expedite the reactivation of services. To avoid further setbacks, we must alter the payment model. While the model change won’t adversely affect us, waiting for regulatory amendments may be impractical.”
He added that the registration of installment orders for facility receipt would soon be activated. Ashtiani highlighted ongoing efforts to amend the circular, stating, “If the Central Bank modifies its instructions in line with the requests of Lendtech industry activists, we can seamlessly revert to the previous model without any issues.”
Ghesta’s CEO outlined the societal benefits of lendtechs compared to installment sellers, emphasizing transparency in credit payment processes, decentralized banking resources, and increased loan penetration rates in underserved areas. He cited studies indicating Lendtechs’ loan penetration rates are 50% and 100% higher than traditional banks in deprived and underserved areas, respectively.
Highlighting the impact of lendtechs on social justice and financial inclusion, Ashtiani noted, “Additionally, 70% of Ghesta customers without a credit rating obtained facilities that they couldn’t secure from the banking system under these conditions. Therefore, the decline of this industry is detrimental to the people.”
Mehdi Fatemian, head of the Fintech Association, shared insights into the association’s meeting with industry activists and the Central Bank. He mentioned that various institutions, including the Digital Economy Committee of the Majlis and the Ministry of Economy, proposed amendments to the circular. However, as of now, no amendments have been implemented or new documents prepared.
Fatemian expressed the association’s commitment to resolving disputes related to the central bank’s circular before the new year, applying necessary reforms. He emphasized efforts to remove follow-ups from the central bank’s supervision deputy and entrust the bank’s new technologies deputy with the responsibility.
Despite some banks ceasing resources to certain facilities, Fatemian expressed hope that reforms would be implemented. He stated, “Our interaction with the Central Bank shows their agreement with reforms, but considering their delay in lifting restrictions, the timing of reforms is crucial for us and the industry. Reforms need to happen swiftly.”
Simultaneous Development and Rail Laying
Lendtechs, being a relatively nascent industry in Iran, face challenges with the Central Bank’s circular hindering their growth. Activists argue that Lendtechs contribute to economic justice and national inclusiveness.
While Lendtechs face criticism for charging higher fees compared to banks, proponents stress the importance of strengthening Lendtech activities for financial literacy and digital economy development. They urge regulators to facilitate growth, remove obstacles, determine income sources for Lendtechs, and establish appropriate loan fees within the framework of partner facilities, aligning with industry activists’ consensus.
Mohammad Sadegh Azadani, head of the LendTech Commission of the Nasr Organization of Tehran, relayed that the commission has proposed solutions to the Central Bank to address regulatory concerns and prevent business losses. He emphasized the need to establish a specific framework for assistant fees.
Azadani clarified the primary current issue for Lendtechs lies in implementing reforms, determining facilitators’ activity tasks, and addressing concerns surrounding circulars. Contrary to claims of Lendtech closures, he indicated that meetings with the Central Bank clarified the intention to keep Lendtech businesses operational. However, he noted the regulator should have consulted industry activists and considered their concerns before issuing the circular.
Fatemian, the head of the Fintech Association, positively assessed meetings with the regulator, indicating a positive approach toward requests. The outcome of the meeting between Lendtechs and Central Bank officials would determine whether a consensus had been reached. The fate of the circular and its impact on Lendtechs remains uncertain, pending the result of today’s meeting.
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