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Iranians Lose Faith in Cheques: More and more cheques bounce as economy struggles


By Reihaneh Mazaheri, Paris (Source: Mianeh)


Iran is falling out of love with the cheque, partly because a vast and rising number bounce every year. Figures from the Central Bank of Iran show that in the year to March 2010 only 47 million cheques were written compared to 63 million in the same period of the previous year and 79 million in 2007-2008.


But the proportion of cheques bouncing has been rising over the same period to about 10.7 per cent - more than one in ten - in the latest year, from 7.7 per cent in the previous year and around five per cent in the years up to 2007.


In the latest year, the dud cheques were worth a staggering 23 billion US dollars, or five per cent of the total value of 463 billion dollars, according to the Iranian Central Bank.


Some economists believe the problem with bad cheques to be the result of the economic stagnation that the country has been struggling with since 2008.


Growth in gross domestic product is estimated by the World Bank to have slid to one per cent in 2009 from 2.5 per cent in 2008 and 7.8 per cent in 2007. A revival to 2.2 per cent in 2010 is forecast.


Mir-Hossein Mousavi, the leader of the opposition known as the Green Movement, said such low growth should only arise when the country is at war.


A former senior associate at Goldman Sachs in New York and the chief executive of Hoda International Financial Engineering, Shahin Shayan Arani, warned in an interview with the economic daily Sarmayeh about the problem more than 18 months ago.


"The majority of firms cannot fulfil their obligations under these circumstances and one of the outcomes of it will be an increase in the number of bounced cheques," he said.


The problem with bad cheques is highlighted by a high level of bad debts in the economy. Official figures say company debts of 40 billion dollars to the Iranian banking system have been declared in default. The government has twice been forced to give one-year extensions to over 9,000 concerns to repay overdue debts to state-owned banks. Other requests for extensions were rejected.


In Mazandaran province alone, it was announced in June 2009 that 2,280 of the total 2,873 active concerns had requested extensions on their overdue debts to banks but the government had agreed only to 56.


The problem with bounced cheques is exacerbated by the way they are used in Iran. Post-dated cheques are common in business transactions and blank but signed cheques are often used as promissory notes or as a form of guarantee in business deals.


When, in 2003, the number of individuals in jail over bounced cheques reached 17,000, the government decided to reduce its prison costs by changing the law to make it a civil matter rather than a criminal one. This enabled many of the jailed offenders to put up collateral or settle with their complainants.


According to Ali Akbar Yasaghi, the former head of the Prisons Organisation, the number of people in prison for bouncing cheques has gone down by 68 per cent. The penalty is now up to a year in prison depending on the value.


"Annually more than one million cases are brought to court because of bounced cheques," said the director general of collecting bills in the judicial system, Javad Tahmasebi. This is one eighth of the total number of all court cases opened last year.


Reza Majidzadeh, a government economist, said, "Amendments to the cheque law, which were intended to reduce the number of incarcerations, caused individuals to take more risks in writing cheques and subsequently caused an increase in the number of bounced cheques and this resulted in loss of acceptability of cheques for firms."


A textile merchant at the Tehran Bazaar said, "The majority of shopkeepers only do business with customers who have cash. Cheques are almost no longer used in transactions."


The high number of bounced cheques and the massive debts run up by firms to the country's banks caused the Majlis Economic Commission to launch a scheme last August allowing certain firms to buy the banks' bad debts at a discount.


One bank, Ghavamin, which is affiliated to the police, buys cheques with a face value of more than 100,000 dollars and uses its legal and executive connections to collect the debt.


In Iran, someone who acts as a debt collector is traditionally known as a "Sharkhar" - which literally means somebody who is looking for trouble.


Sharkhars buy the bounced cheques at a discount of three to ten per cent of the face value and sue the issuer. They traditionally also deploy a range of methods including threatening phone calls and physical threats to collect the money.


Last year, the judiciary presented the government with a new bill to review the cheque laws. This would make it illegal to write a cheque not covered by sufficient funds. Banks would also be responsible for assessing the credit of any customer who requests a chequebook. The fate of the proposal is not known, however.


About the author: Reihaneh Mazaheri is an Iranian economic journalist based in Paris.


This article is an abridged and translated version of the full original text published on the Farsi pages of Mianeh, with editorial adjustments agreed with the writer made to provide clarity for English-language readers.


About Mianeh: Mianeh is a new independent web-based initiative run as a project by the Institute for War & Peace Reporting ( the award-winning non-profit media development organisation that works across the globe to platform local voices and promote international learning and engagement. Mianeh aims to be an open space for ideas, news and debate where writers in Iran can reach out to each other as well as to those outside the country who are interested in learning more about the vibrant and dynamic society that is Iran today.

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