The Islamic Consultative Assembly prohibits the collection of compound interest from borrowers, but the Money and Credit Council authorizes it under the guise of deferment guidelines!
It seems that compound and crippling interest on loans cannot be easily eliminated from the banking system.
On the first day of Farvardin 1394 (March 20, 2015), the Supreme Leader stated: “Some banks across the country have shut down and destroyed some economic enterprises using certain methods.” It appears that one of these methods is the collection of compound interest from borrowers, which occurs during the deferment and extension of loans.
The Islamic Consultative Assembly intervened twice to try to eliminate compound interest from the country’s banking system. The first attempt was the approval of clause (V) of Note 16 in the 2018 budget law, which failed immediately. However, in the following year, they enacted the Law on Facilitating the Settlement of Debts of Bank Debtors, which successfully eliminated compound interest and managed to save a limited number of struggling producers. Just as these producers began to find some relief, the Money and Credit Council approved the “Executive Instructions on How to Defer Claims of Credit Institutions” in September 2020. While this directive ostensibly dealt with the deferment and extension of loans, its actual effect was the creation and collection of compound interest.
Click here to download the “Executive Instructions on How to Defer Claims of Credit Institutions” in Persian with the latest amendments.
