Economic Analysis of Transactions of Unauthorized Financial Institutions

One of the most important factors in attaining economic growth and prosperity in all countries is the proper functioning of sovereign and financial institutions in accordance with the policies and regulations set forth, including the allocation of credit facilities to the manufacturing sector by banks and financial institutions, thus enabling the economic players to access adequate financial resources quickly and efficiently and obviate their financial resource requirements, most importantly leading to economic growth and consequently increased employment. On the other hand, however, if financial institutions are not supervised by sovereign institutions, in some cases, due to a conflict of their own financial interests with said policies, they may refuse to abide by these legal requirements, including interest rates paid to depositors, type of contracts for awarding facilities to applicants and the interest rates thereof, and may, on occasion, drive most of their resources to nonproductive, or even disruptive, economic sectors in pursuit of greater interests. Furthermore, poor management makes said institutions incapable of even reimbursing depositors, bringing about disasters in the financial system, the likes of which can be observed in today’s Iran. Bank contracts, first and foremost, follow general rules of contract law and have further legal conditions and principles of their own, and even legislators have allowed them certain privileges. Considering the lack of a legal authorization due to nonobservance of genuine transaction conditions, one can safely assume that these institutions lack the required qualification and competence for entering into bank contracts, however, as viewed by economic law, the need for creating a competitive market, and the detrimental impacts of nullifying such contracts, facility contracts must be judged as genuine, nonetheless.