The Legal Pathology of Credit Institutions in Iran’s Monetary and Banking System

Credit institutions are one of the most important actors in the money market that have developed their activities in the legal frameworks. However, many unauthorized credit institutions are also involved in depository activities and have expanded significantly in recent years. The main legal reasons for the disorderly state of the credit institutions are the ambiguity in the [Iranian] Central Bank’s authority to monitor credit institutions, challenges in enforcing the 2004 Act on Regulating the Unorganized Monetary Market, and the Acts relating to fifth and sixth Five-Year Development Plans. This situation has resulted in various problems such as deviations from monetary and banking policies of the state, as well as non-compliance with expansionary and/or contractionary monetary policies. In addition, the Central Bank is responsible for the deposit insurance of the credit-institutions clients, therefore these institutions can cause bigger crisis in the long term. This article seeks to examine the legal reasons behind the emergence of unauthorized credit institutions and the resulting challenges of leaving them unregulated. It also aims to provide some solutions to tackle these challenges.