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The Law for Usury (Interest) Free Banking
Chapter I.
Objectives and Duties of The Banking System in The Islamic Republic of Iran
Article 1
The Objectives of Banking System:(1)
The establishment of a monetary and credit system based on rightness and
Justice ( as delineated by Islamic jurisprudence ) for the purpose of regulating
the sound circulation of money and credit to enhance the health and growth
of the country's economy .
(2) Availing itself of monetary and credit mechanisms, to engage
in activities conducive to the attainment of the economic goals, policies
and plans of the Government of the Islamic Republic .
(3) Creation of necessary facilities for the extension of cooperation
and Gharz-al-hasanch among the general public through the attraction and
absorption of surplus funds, reserves, savings and deposits, and the mobilization
thereof in provision of conditions and opportunities for gainful employment
and investments, as stipulated in Clauses (2) and (9), Article (43) of
the Constitution.
(4) Maintenance of the currency value and equilibrium in the
balance of payments and facilitating the commercial exchanges.
(5) Facilitating payments and receipts, exchanges, transactions
and other services to be performed by the banks, as determined by the Law
.
Article 2
Duties of the Banking System:
(1) Issuance of notes and coins as legal tender, in conformity
with the Law and regulations.
(2) Regulating, controlling and guidance of the circulation
of money and credit, in accordance with Law and regulations.
(3) Performance of all banking operations in foreign exchange
and local currency, and undertaking or guaranteeing the foreign payments
of the Government, according to the Law and regulations .
(4) Supervision of transactions in gold and foreign exchange
and the inflow or outflow of Iranian currency and foreign exchange, and
the formulation of regulations governing thereof, in accordance with the
Law.
(5) Performance of operations relating to valuable papers and
documents according to the Law and regulations.
(6) Carrying out the monetary and credit policies , in accordance
with the Law and regulations.
(7) Banking operations related to those parts of the approved
economic plans which are to be conducted through the monetary and credit
system.
(8) Opening of various Gharz-al-hasaneh (current and savings)
accounts and accepting term investment deposits and issuance of relevant
certificates, as required by the Law and regulations.
(9) Granting of loans and credits free of interest charges in
accordance with the Law and regulations.
(10) Granting of loans and credits and provision of other banking
services to the legally-established cooperatives, for the realization of
the provisions of Clause(2), Article (43) of the Constitution.
(11) Conducting transactions in gold and silver and holding
and management of foreign exchange and gold reserves, with due observance
of the relevant Law and regulations .
(12) Holding the Rial balances of international monetary and
financial institutions or similar organizations and/or their affiliates,
according to the law and regulations.
(13) Entering into payments arrangements in order to effect
monetary, trade and transit agreements concluded between the Government
and other countries in accordance with the Law and regulations.
(14) Accepting and holding in trust of gold, silver, valuables
securities and official documents for or legal persons and leasing of safe-deposit
boxes,
(15) Issuance, confirmation and acceptance of Rial or foreign
exchange guarantees for customers.
(16) Performance of the services of attorney or guardian, in
accordance with the Law and regulations.
Chapter II.
Mobilization of Monetary Resources
Article 3
Banks are authorized to accept deposits under each of the following
titles :
(A) Gharz-al-hasaneh Deposits :
1- Current
2- Saving
(B) Term Investment Deposits,
Note : Term investment deposits
, for the utilization of which the bank enjoys power of attorney, shall
be used in joint venture, Mozarebeh, hire-purchase, installment transaction,
Mozara-ah, Mosaqat, direct investment, forward dealings and joaalah transactions.
Article 4
Banks are obliged to repay the principals of gharz-al-hasaneh ( saving
and current ) deposits and may undertake and /or insure the principals
of the term investment deposits.
Article 5
Based on signed agreement , proceeds derived from activities stipulated
in Note of Article (3) of this Law shall, in proportion to the term and
the amounts of investment deposits and the banks resources as a proportion
to the aggregate resources used in such activities, be apportioned.
Article 6
In order to attract and mobilize deposits , the banks may, through promotional
methods, give following rewards to the depositors :
(A) Non-fixed bonuses in cash or in kind to gharz-al -hasaneh
deposits.
(B) Exempting the depositors from, or granting discounts thereto,
in payment of commissions and/or fees.
(C) According priority to depositors in the use of banking facilities
as specified in Chapter III.
Chapter III.
Banking facilities.
Article 7
In order to bring about the necessary conditions for the expansion
of the activities of various productive, commercial and services sectors, the banks may , on the basis of partnership
, provide a portion of the capital and/or resources required by these sectors.
Article 8
The banks may directly invest in productive and development projects
of activities, Plans for such investments should be included in the State
Annual Budget Bill to be approved by Majlis Shoaraye Eslami and evaluation
of the project should be indicative of no loss. Note : The banks are by
no means entitled to invest in the production of luxury and non-essential
consumer goods.
Article 10
For the purpose of providing facilities necessary for the expansion
of housing activities, the banks may in coordination with the Ministry
of Housing and Town Planing, construct low-priced residential units for
sale on installment or hire-purchase. Note : The banks are authorized to
acquire land for the construction of low-priced residential units subject
of Article (10), provided that they duly observe the Law Governing Lands
Within City Limits
Article 11
In order to create conditions necessary for the expansion of activities
in industry, mining, agriculture and services, the banks are empowered,
upon the request of the customer and his undertaking for the purchase,
consumption and/or direct use of goods or commodity thus requested, to
purchase movable property, and to sell them to the customer, on secured
basis, and on installment.
Article 12
In order to create the necessary facilities for the expansion of services,
agriculture, industrial and mining activities, banks may purchase movable
and immovable properties, at the request of the client and his undertaking
to hire-purchase the same for his own use, and place them at the disposal
of the client in accordance with hire-purchase arrangements.
Article 13
In order to create the conditions required for the provision of working
capital needed by the productive units, the banks may engage in any of
the following operations:
(A) Upon the request of the productive units and their undertaking
for the purchase and utilization of the raw materials and the spare parts
thus requested, to purchase raw materials and spare parts needed by productive
units and to resell them to the said units on credit
(B) Upon the request of the productive units , to purchase,
on a forward basis, the easy-to-sell products of the said units.
Article 14
For the realization of the aims contained in Clauses (2) and (9) of
Article (43) of the Constitution, the banks are obliged to earmark a portion
of their resources, as gharz-al-hasaneh, to the applicants. The procedures
for enforcement of this Article shall be drawn up by the Central Bank and
approved by the Council of Ministers.
Article 15
All agreements concluded in pursuance of Article (9), (11), (12), (13),
and (14) of the present Law, shall, under the contract to be signed between
the parties concerned, be considered binding documents and shall be subject
to the Rules governing Legal Documents.
Article 16
In order to provide the necessary conditions for the expansion of productive,
commercial and services, banks may engage in Joaalah.
Article 17
The banks may assign on Mozara-ah Mosaqat agricultural lands and/or
orchards which are at their disposal or in their possession.
Chapter IV.
Bank Markazi jomhouri Islami Iran (BMJII) and Monetary
Policy.
Article 18
Bank Markazi Iran which shall be called Bank Markazi Jomhouri Islami
Iran shall with respect to the state-owned corporations the shares of which
are not fully owned by the Government, conduct only those operations sanctioned
by this law.
Article 19
Policy for credit and short-term (one year) facilities shall be adopted
upon recommendation by the General Assembly and approval by the Council
of Ministers, and policy for credit and five-year and long-term facilities
shall be incorporated in bills for five-year and long-term development
plans and submitted to The Islamic Consultative Assembly for ratification
.
Article 20
For the proper functioning of the monetary and credit system, BMJII,
under Rules to be approved by the Council of Ministers, is empowered on
the strength of Article 19, to intervene in, and supervise, the monetary
and banking activities through the following instruments :
(A) Fixing a minimum and/or maximum ratio of profit for banks
in their joint venture and Mozarebeh activities these ratios may vary for
different fields of activity.
(B) Designation of various fields for investment and partnership
within the framework of the approved economic policies, and the fixing
of a minimum Prospective rate of profit for the various investment and
partnership projects; the minimum prospective rate of profit may vary with
respect to different branches of activity .
(C) Fixing a minimum and maximum margin of profit, as a proportion
to the cost price of the goods transacted, for banks in installment and
hire-purchase transactions.
(D) Determination of types and the minimum and maximum amounts
of commissions for banking services (provided that they do not exceed the
expense of service rendered) and the fees charged for putting to use the
deposits received by the banks.
(E) Determination of the types, amounts, minimum and maximum
bonuses subject of Article (6) and the establishment of guidelines for
advertisement by banks in the cases referred to .
(F) Determination of the minimum and maximum ratio in joint
venture, Mozarebeh, investment, hire-purchase, installment transactions,
buying or selling on credit, forward deals, Mozara-ah Mosaqat, Joaalah
and Gharz-al-hasaneh for banks or any thereof with respect to various fields
of activity; also fixing the maximum facility that can be granted to each
customer.
Chapter
V. Miscellanea
Article 21
In its dealings with other banks, BMJII is not authorized to engage
in banking operations which involve usury; nor are the banks among themselves.
Article 22
Upon authorization by BMJII , banks may engage in authorized banking
operations with state-owned institutions, government - affiliated organization
and public corporations.
Article 23
The funds received as commissions and fees shall constitute the banks
income and cannot be divided among the depositors.
Article 24
Exemption from commercial tax and/or tax exemptions granted by law to
factories and productive enterprises shall also apply to banks when replacing
them in matters of imports or ownership .
Article 25
The units in which the banks have made investments and/or hold a share
shall be governed by the Commercial Code, unless they are subject to another
law.
Article 26
Consequent to the ratification of this Act, contravening laws and regulations
shall be null and void and all the powers and duties stipulated in the
Monetary and Banking Law and the Bill for the Administration of the banks
and the amendments there to, but under the present Law have been delegated
to other authorized entities, shall be divested from the previous authorities
.
Article 27
With the recommendations by the Bank Markazi Jomhouri Islami Iran, the
Ministry of Economic Affairs and Finance shall draw up the By-Law under
this Law and put it into effect following its approval by the Council of
Ministers. The drafting and approval of the By-Law shall not exceed a four-month
period . This Law, containing twenty-seven Articles and four Notes, was
ratified by Majlis Shoaraye Eslami ( The Islamic Consultative Assembly
) in its session held on Tuesday , Eight sharvar 1362 and approved by the
Council of Protectors on 10/6/1362.
Speaker: Akbar Hashemi
Majlis Shoaraye Eslami
This is an unofficial translation of the original Farsi text which,
in case of any dispute, shall be controlling.
Glossary
1-Gharz-al-hasaneh Loan:
An interest-free loan extended by a bank to a real or legal person
for a definite period of time .
2- Joaalah :
The undertaking by one party ( the jael, Bank or employer ) to pay
a specified money (the joal) to another party in return for rendering a
specified service in accordance with the terms of the contract. The party
rendering the service shall be called "Amel" ( the Agent or Contractor).
3- Mosaqat :
A contract between the owner of an orchard or garden with another party
( the Amel or Agent ) for the purpose of gathering the harvest of the orchard
or garden and dividing it, in a specified ratio, between the two parties
. The harvest can be fruit, leaves, flowers, etc. of the plants in the
orchard or garden .
4- Mozaraah:
A contract where the bank (the Mozare) turns over a specified plot
of land for a specified period of time to another party ( the Amel or Agent
) for the purpose of farming the land and dividing the harvest between
the two parties at a specified ratio.
5- Mozarebeh :
A contract wherein the bank undertakes to provide the cash capital
and other party ( the Amel or Avent ) undertakes to use the capital for
commercial purposes and divide the profit at a specified ratio between
the two parties at the end of the term of the contract.