History of Banking in Iran
From: "Tejarat" (Trade), The Internal Publication of Bank of Tejarat
Before a bank in its present form was established in Iran, banking operations had been carried out in traditional form, or in other words in the form of money changing. Simultaneous with promotion of trade and business in the country, more people chose money changing as their occupation. Exchanges of coins and hard currencies were also common in Iran.
Before the advent of the Achaemenid Dynasty, banking operations had been carried out by temples and princes and seldom had ordinary people been engaged in this occupation.
During the Achaemenid era, trade boomed and subsequently banking operation expanded to an extent that Iranians managed to learn the banking method from the people of Babylon.
Following a boost in trade and use of bank notes and coins in trade during the Parthian and Sassanian eras, exchange of coins and hard currencies began in the country.
Some people also managed to specialize in determining the purity of coins. Bank notes and gold coins were first used in the country following the conquest of Lidi by Achaemenid king Darius The Great in 516 B.C. At that time, a gold coin called Derick was minted as the Iranian currency.
During the Parthian and Sassanids eras, both Iranian and foreign coins were used in trade in the country. However, with the advent of Islam in Iran, money changing and use of bank notes and coins in trade faced stagnation because the new religion forbade interest in dealing.
In the course of Mongol rule over Iran, a bank note which was an imitation of Chinese bank notes was put in circulation. The bank notes, called Chav bore the picture and name of Keikhatu. On one side of the bank notes there was the following sentence: "Anybody who does not accept this bank note, will be punished along with his wife and children." The face value of the bank notes ranged from half to 10 dirhams. Besides Chav, other bank notes were used for a certain period of time in other Iranian cities and then got out of circulation. These bank notes were called `Shahr-Rava' which meant something that was in use in cities.
Before the printing of first bank notes by the Bank Shahanshahi (Imperial Bank), a kind of credit card called Bijak had been issued by money dealers. It was in fact a receipt of a sum of money taken by money dealers from the owners of Bijak. The credence of the Bijak depended on the creditability of the money dealer who had issued it.
As mentioned before, money changing got out of fashion with the advent of Islam under which usury is strictly forbidden. At that time, only a few persons with weak religious faith continued their occupation as money dealers. It was the same persons who promoted usury even during the post-Islamic era. They offered various excuses to justify their unlawful act.
With a boost in trade during the rule of Safavid Dynasty, particularly during the reign of Shah Abbas the Great, money changing brisked again and wealthy money dealers started their international activities by opening accounts in foreign banks. Major centers for money changing at that time were Tabriz, Mashhad, Isfahan, Shiraz and Boushehr.
Money changing continued until the establishment of New East Bank in 1850. With the establishment of the bank, money changing actually came to a standstill. The New East Bank was in fact the first banking institute in its present form established in Iran. It laid the foundation of banking operations in the country. It was a British bank whose headquarters was in London. The bank was established by the British without receiving any concession from the Iranian government.
The bank opened its branches in the cities of Tabriz, Rasht, Mashhad, Esfahan, Shiraz and Boushehr. Of course, at that time, foreigners were free to engage in economic and trade activities in the country without any limitations. For the first time, the New East Bank allowed individuals to open accounts, deposit their money with the bank and draw checks. It was at this time that people began to draw checks in their dealings.
In order to compete with money dealers, the bank paid interest on the fixed deposits and current accounts of its clients. The head office of the bank in Tehran issued five `qeran' bank notes in the form of drafts. These drafts were used by people in their everyday's dealings and could be changed into silver coins when offered at the bank. According to a concession granted by the Iranian government to Baron Julius De Reuter in 1885, Bank Shahanshahi (Imperial Bank) was established. This bank purchased the properties and assets of the New East Bank, thus putting an end to the baking operations of the former.
The activities of Bank Shahanshahi ranged from trade transactions, printing bank notes, and serving as the treasurer of the Iranian government at home and abroad in return for piecework wage.
In return for receiving this concession, Reuter obliged to pay six percent of the annual net income of the bank, providing that the sum should not be less than 4,000 pounds, and 16 percent of incomes from other concessions to the Iranian government.
The legal center of the bank was in London and it was subject to the British laws but its activities were centered in Tehran.
In 1894, the right of printing bank notes was purchased from Bank Shahanshahi for a sum of 200,000 pounds and ceded to the Bank Melli of Iran.
Bank Shahanshahi continued its activities until 1948 when its name was changed into Bank of Britain in Iran and Middle East. The activities of the bank continued until 1952.
In 1856, a Russian national by the name of Jacquet Polyakov, received a concession from the then government of Iran for establishment of Bank Esteqrazi for 75 year. Besides, banking and mortgage operations, the bank had an exclusive right of public auction. In 1898 the Tzarist government of Russia bought all shares of the bank for its political ends. Under a contract signed with Iran, the bank was transferred to the Iranian government in 1920. The bank continued its activities under the name of Bank Iran until 1933 when it was incorporated into the Bank Keshavarzi (Agriculture Bank).
Bank Sepah was the first bank to be established with Iranian capitals in 1925 under the name of Bank Pahlavi Qoshun, in order to handle the financial affairs of the military personnel and set up their retirement fund. The capital of the bank was 388,395 tomans (3.88 million rials).
With Bank Sepah opening its branches in major Iranian cities, the bank began carrying financial operations such as opening of current accounts and transfer of money across the country. The Iran-Russia Bank was formed by the government of the former Soviet Union in 1926 with an aim of facilitating trade exchanges between the two countries.
The headquarters of the bank was in Tehran with some branches being inaugurated in northern parts of the country. The bank dealt with financial affairs of institutes affiliated to the government of the former Soviet Union and trade exchanges between the two countries. The activities of this bank, which were subjected to Iranian banking regulations, continued until 1979. In that year, this bank along with 27 other state-owned or private banks were nationalized under a decision approved by the Revolutionary Council of the Islamic Republic of Iran.
The proposal to establish a national Iranian bank was first offered by a big money dealer to Qajar king Naser-o-Din Shah before the Constitutional Revolution. But the Qajar king did not pay much attention to the proposal. However, with the establishment of constitutional rule in the country, the idea of setting up a national Iranian bank in order to reduce political and economic influence of foreigners gained strength and at last in December 1906 the establishment of the bank was announced and its articles of association compiled.
In April 1927, the Iranian Parliament gave final approval to the law allowing the establishment of Bank Melli of Iran. But, due to problems arising from preparing a 150 million rial capital needed by the bank, the Cabinet ministers and the parliament's financial commission approved the articles of association of the bank in the spring of 1928. The bank was established with a primary capital of 20 million rials, 40 percent of which was provided by the government. The bank was formally inaugurated in September 1928.
The Central Bank of Iran was established in 1928, tasked with trade activities and other operations (acting as the treasurer of the government, printing bank notes, enforcing monetary and financial policies and so on). The duties of the CBI included making transactions on behalf of the government, controlling trade banks, determining supply of money, foreign exchange protective measures (determining the value of hard currencies against rial) and so on.
In June 1979, Iranian banks were nationalized and banking regulations changed with the approval of the Islamic banking law (interest free), and the role of banks in accelerating trade deals, rendering services to clients, collecting deposits, offering credits to applicants on the basis of the CBI's policies and so on was strengthened.