Iran plans to raise its stake in the International Islamic Finance Corp (ITFC), becoming its third largest shareholder, as it prepares for a possible easing of sanctions on its foreign trade in exchange for curbing its nuclear programme.
The Jeddah-based ITFC promotes Islamic trade , which follows religious principles such as a ban on payments. With 56 shareholders including about 31 member countries, it extends direct financing and cooperates with other providers to support sharia-compliant trade.
A bigger role in the ITFC could help Iran rebuild its international trading links if the sanctions are eased. This depends on whether negotiations between Tehran and world powers can reach agreement on its disputed nuclear programme. An agreement looks possible as soon as this week, although both sides say major obstacles remain.
The ITFC's annual assembly this month approved an increase of Iran's subscription by 8,500 shares, a resolution by the body said. Its annual report says each share is worth $10,000, implying Iran would pay $85 million to lift its stake.
At the end of 2013, Iran's subscription was just $1.92 million, which made it the 22nd largest shareholder in the ITFC, behind Bangladesh and just ahead of Bahrain, according to the latest data on the body's website.
At present, the Islamic Development Bank is the largest shareholder in the ITFC with a stake worth $266 million; Saudi Arabia holds second spot at $120 million. The ITFC has total paid-up capital of $701.9 million.
The ITFC resolution said Iran would increase its stake via three equal and consecutive installments. The first installment is due in six months time, but Iran could opt to pay any or all of the installments before the due date.
Islamic trade finance still serves only a tiny fraction of global trade, partly because Islamic banks are relatively small and lack the expertise and large international networks of mainstream Western banks.
The ITFC approved transactions worth $5.2 billion in 2014, up from $3.4 billion in 2013, with over three-quarters of the going to finance trade in the sector.
Since its inception in 2008, the ITFC has extended $594 million worth of financing approvals for Iran, all of that before 2012, when the sanctions were tightened and effectively froze Tehran out of the global banking .
(Reuters / 28 June 2015)
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com