Insufficient Information Summary

The International Monetary Fund (IMF), in its 2005 Article IV Consultation report on Iran mentions that a real time gross settlement (RTGS) system referred to as the Rial interbank market was expected to become operational in 2006-2007. The Central Bank of the Islamic Republic of Iran (CBI) states in its Economic Report & Balance Sheet for 2006/07 that the RTGS system was launched in 2006. It is a large-value transfer payment system developed, adopted and overseen by the CBI. The CBI report also mentions two other payment systems, namely, the Retail Funds Transfer System (SAHAB) and the Interbank Information Transfer Network (SHETAB). The CBI, however, does not identify which of these systems are systemically important in Iran. As the CBI report notes, cash is still the predominant payment instrument, however, there has been an expansion in the use of electronic payment instruments in recent years. The report also noted that the Interbank Clearing House, where various checks are collected and settled, has not been automated yet, and the settlement process might take at least 48 hours. The CBI has stressed the need to standardize the payment and settlement systems in Iran and develop value-added services in line with international best practices. Nevertheless, there is insufficient information publicly available on Iran's compliance with the Committee for Payment and Settlements Systems' Core Principles for Systematically Important Payment Systems.

General Overview

The International Monetary Fund (IMF), in its 2005 Article IV Consultation report on Iran, published in 2006, mentioned that a Rial interbank market, incorporating a Real Time Gross Settlement (RTGS) System, was expected to become operational in 2006-2007. However, no updates are provided in the IMF's 2007 and 2008 Article IV Consultation reports on its development. According to the Central Bank of the Islamic Republic of Iran (CBI) in its Economic Report & Balance Sheet for 2006/07, the RTGS system was launched in 2006. It is a large-value transfer payment system developed, adopted and overseen by the CBI. Apart from this large-value RTGS system, the CBI report also mentions two other payment systems: Retail Funds Transfer System (SAHAB) and Interbank Information Transfer Network (SHETAB). SAHAB, was put in place the same year as the RTGS system and it handles a large volume of payments of relatively small value. SHETAB began operation in 2002 but the full operation of SHETAB is "still in its infancy" (p. 72), states the CBI report.

As Khosravani mentions in his 2008 article "The Modern Integrated Payment System: The Iran Experience to Date," as of April 2008, three phases of implementing RTGS had been completed and its final phase would be completed in the same year. According to Khosravani, the first phase enabled the real time (daily) settling of SHETAB operations; the second phase realized the real time (daily) settling of checks and banking documents among exchange chamber in Tehran and the whole country; the third phase dealt with the bank-to-bank operations specialized for transactions among banks; and the fourth phase concerns customer-to-customer operations. As the overseer of the RTGS system, the CBI has designed mechanisms for liquidity management, and organized courses in technical and executive levels for bank experts and managers in order to facilitate the operation of the system.

As the 2007 CBI report mentions, cash is still the predominant payment instrument in Iran. Other payment instruments include various kinds of checks, particularly traveler's checks. According to the CBI report, the number of cards issued by the banking system in 2006-2007 reached 23.4 million, up by 73.5 percent. The number of ATMs grew by 67.5 percent to 7,468. Further, in 2006-2007, the number of interbank electronic transactions processed in SHETAB through Automated Teller Machines (ATMs) and Points of Sales (POSs) grew respectively by 107.1 and 345 percent to 230,181 and 7,143 thousand. However, although the payment system in Iran is undergoing great developments, financial transactions are mostly channeled through the Interbank Clearing House, where various checks are collected and settled. Since the process has not been automated, the settlement process might take at least 48 hours.

The CBI website provides a brief history of the fledgling payment system in Iran. It notes that in response to the double-digit inflation rate and relative stability in the currency denomination in Iran, payment instruments in Iran have graduated from notes to various kinds of checks, particularly traveler's checks. The origin of modern payment instruments in Iran can be traced to the early 1990s when the commercial bank of Sepah launched its Aber Bank Debit Card and ATM services. Since then, almost all Iranian banks have utilized card payment services focusing on cards with debit function, and ATM branches for cash withdrawal. Iran, according to the CBI, has built a uniform card payment network where all issued cards are accepted in all acquiring terminals.

According to information on the CBI website there is an urgent necessity for reform in the Payment and Settlement Systems in Iran to provide quality service to customers with the optimal use of the latest information and communication technologies. To pursue this objective, the CBI restructured the Interbank Information Exchange Department to form a new organizational unit of the Payment Systems Department. The new unit established a specialized center for regulating the payment system and setting industry-wide standards. The CBI recognizes the weaknesses in the electronic interbank transactions infrastructures in Iran, and therefore designed the National Payment System project. The CBI expects the implementation of this project to reform and standardize payment systems in Iran and develop value-added services in line with international best practices. The reform aims at cost reduction and greater investment opportunities, quality control, industry regulation and supervision, and oversight of central banking functions to minimize and manage risks. As per information on the CBI website, the Payment Systems Department has also established a research body in order to study and apply international best practices in payment systems in collaboration with global banking experts. Despite this information on the CBI website, there is no indication of any substantial activity from reliable sources that Iran is putting in place a payment system structure that comports with the Committee for Payment and Settlements Systems' Core Principles for Systematically Important Payment Systems. This is evident from the dearth of publicly available information on Iran's payment system.

The Principles

III. The system should have a well-founded legal basis under all relevant jurisdictions.

There is insufficient information publicly available as to Iran's compliance with this principle.

IIII. The system's rules and procedures should enable participants to have a clear understanding of the system’s impact on each of the financial risks they incur through participation in it.

There is insufficient information publicly available as to Iran's compliance with this principle.

IIIII. The system should have clearly defined procedures for the management of credit risks and liquidity risks, which specify the respective responsibilities of the system operator and the participants and which provide appropriate incentives to manage and contain those risks.

There is insufficient information publicly available as to Iran's compliance with this principle.

IIIV. The system should provide prompt final settlement on the day of value, preferably during the day and at a minimum at the end of the day. (Systems should seek to exceed the minima included in this Core Principle.)

There is insufficient information publicly available as to Iran's compliance with this principle.

IIV. A system in which multilateral netting takes place should, at a minimum, be capable of ensuring the timely completion of daily settlements in the event of an inability to settle by the participant with the largest single settlement obligation. (Systems should seek to exceed the minima included in this Core Principle.)

There is insufficient information publicly available as to Iran's compliance with this principle.

IIVI. Assets used for settlement should preferably be a claim on the central bank; where other assets are used, they should carry little or no credit risk and little or no liquidity risk.

There is insufficient information publicly available as to Iran's compliance with this principle.

IIVII. The system should ensure a high degree of security and operational reliability and should have contingency arrangements for timely completion of daily processing.

There is insufficient information publicly available as to Iran's compliance with this principle.

IIVIII. The system should provide a means of making payments which is practical for its users and efficient for the economy.

There is insufficient information publicly available as to Iran's compliance with this principle.

IIIX. The system should have objective and publicly disclosed criteria for participation, which permit fair and open access.

There is insufficient information publicly available as to Iran's compliance with this principle.

IIX. The system's governance arrangements should be effective, accountable and transparent.

There is insufficient information publicly available as to Iran's compliance with this principle.

IIA. The central bank should define clearly its payment system objectives and should disclose publicly its role and major policies with respect to systemically important payment systems.

On its website, the CBI recognizes the urgent need to improve the Iranian payment system, in order to provide quality service to customers with the optimal use of the latest information and communication technologies. The CBI develops, adopts and oversees the RTGS system. Nevertheless, there is insufficient information publicly available as to Iran's compliance with this principle.

IIB. The central bank should ensure that the systems it operates comply with the Core Principles.

There is insufficient information publicly available as to Iran's compliance with this principle.

IIC. The central bank should oversee compliance with the Core Principles by systems it does not operate and it should have the ability to carry out this oversight.

There is insufficient information publicly available as to Iran's compliance with this principle.

IID. The central bank, in promoting payment system safety and efficiency through the Core Principles, should cooperate with other central banks and with any other relevant domestic or foreign authorities.

There is insufficient information publicly available as to Iran's compliance with this principle. Per information on the CBI website, its Payment Systems Department has established a research body in order to study and apply international best practices in payment systems in collaboration with global banking experts.