According to the Shahr-e-Bourse, Hamed Fallah Joshaghani, CEO of Kimia Capital Investment Company, explained the challenges and presented solutions to improve the financing process in the panel “How to Secure Successful Financing with Minimum Cost from the Capital Market,” and emphasized the need to raise awareness among economic actors.

At the beginning of his speech, he considered the interest rate “the most important rate in any economy” and stated: In advanced economies, governments determine the interest rate framework, but ultimately it is the market that determines the real rate. Unfortunately, in Iran, the 23% interest rate is announced as a mandate, without a clear logic for determining it. This leads to an incorrect comparison of financing from the capital market and the banking network.

Joshaghani added: While the official bank interest rate is announced as 27%, in practice this rate reaches about 34 to 35%. Such a difference causes economic actors to be confused in their decision-making.

Emphasizing the need to increase awareness among manufacturers and industrial decision-makers, he noted: The difference between financing through the capital market and banks must be clearly explained. Financial knowledge in Iran is still nascent, and it is necessary to provide specialized consultations and broader awareness in this area.

The CEO of Kimia Capital continued by pointing to eight main challenges in financing from the capital market, saying: The identified challenges include the guarantor element, the impact of the life of the bonds on the cost of financing, the lack of early redemption authority, the multiplicity of elements in the issuance, the structure of the nominal interest rate, the lack of comprehensive guidelines for the issuance amount, the limitation of financing instruments, and the lengthy review and licensing process.

Referring to the first challenge, namely the high costs of the guarantor element, he explained: A guarantee rate of more than 20 percent and a blocking of more than 200 percent of resources increase the effective financing rate by 46 to 58 percent. This puts a lot of pressure on financing applicants.

Joshaghani considered the second challenge to be “the lack of risk separation and assessment by banks” and stated: “Banks treat all companies the same and do not differentiate between good and risky companies. Developing a credit rating system can largely solve this problem and create greater transparency in the financing process.”
He added: “Establishing a credit assessment system in banks, blocking according to the level of risk, and applying incentive rates for resources can strengthen the financial health of companies. Also, banks will be able to solve some of the liquidity problems of companies by providing short-term facilities at preferential rates. In addition, establishing a guarantee fund can also be of great help to financial institutions and financing applicants.”

The CEO of Kimia Capital continued by referring to the effect of bond maturity on the cost of financing, saying: “In inflationary conditions, increasing the duration of bonds increases the risk of interest rate changes for the issuer, and investors demand higher rates. Reducing bond maturity can benefit both investors and issuers, and make the comparison of financing from banks and the market more realistic.”

Regarding the challenge of the lack of early redemption option for debt securities, he explained: “During periods of rising interest rates, it is essential for the issuer to have the right to redeem (Call Option) so that it can control its costs and manage liquidity.”

Joshaghani also pointed out the challenge of the nominal interest rate structure of bonds, saying: “Although the nominal rate is set at 23 percent, the real financing rate reaches about 34 percent when the costs of various components are taken into account. Reducing tax costs for securing capital and issuers of bonds can increase the incentive to issue.

He concluded by noting: “The lack of comprehensive guidelines for the amount of bond issuance, the multiplicity of elements in the issuance process, the limitation of financing tools, and the length of reviews are other serious challenges in this area. Removing these obstacles can pave the way for cheaper and more efficient financing.”