Karafarin was the first private bank to start operations in Iran since 1979. It started operations in 1999 as a private non-banking credit institution (NBCI). In December 2001, it increased its capital to the mandatory level of $25 million in order to obtain a full-service banking license. Over the last five years, Karafarin has developed a reputation as a flexible, customer-oriented and innovative institution. It currently offers a wide range of banking products and services, including deposits, loans, guarantees, bonds, letters of credit, international transfers, discounting and foreign exchange. A diverse group of Iranian businessmen (with interests in mining, construction, transportation, office equipment, ceramics and consumer durables) own around 55% of Karafarin’s capital. The remainder is held by over 5,000 individual and corporate investors. Karafarin is listed on the Tehran Stock Exchange and has 310 employees. Saman also began its activities in 1999 as an NBCI. It became a full-service private bank in August 2002. Similar to Karafarin, Saman offers a broad range of banking services. It places a special emphasis on relationship banking, with dedicated account and sales managers for select clients. Saman has invested heavily in the establishment of EFT-POS and ATM networks, with more than 100 terminals already in place and plans to install another 2,000 nationwide. It was the first Iranian bank to offer online banking services and provide support infrastructure for e-commerce. Some 20% of Saman’s capital is owned by the bank’s chairman Mr. Mohammad Zarrabieh, members of his family and their associated companies. Approximately another 20% is held by two pension funds. The balance is dispersed among over 800 corporate and individual investors, with stakes of less than 5% each. Saman has 270 employees.

The total project cost is estimated at $20 million. The proposed IFC investment is in the form of two loans, of up to $10 million each.

20.0 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	20.0
Equity

* These investment figures are indicative

Both banks are headquartered in Tehran. Karafarin operates 14 branches, 9 of which in Tehran. Saman’s network includes 20 branches, eight of which in Tehran. Both banks have plans to expand rapidly their distribution systems, subject to the relevant prudential regulations of the Central Bank of Iran.

The project is expected to have a significant developmental impact by contributing to economic development in Iran in four ways: - Extension of Finance to Previously Underserved Groups: Financing in general and especially term lending to the Iranian private sector is scarce. This constrains the ability of the private sector to grow, modernize and improve productivity. While of moderate size, the Facilities will be a significant source of medium-term financing for private enterprises, encouraging investment, growth and – critically – job creation. - Improved Credit Allocation: The project will promote the continued application of efficient, market-based credit allocation in the economy. This contrasts with the directed lending operations of the state banks which dominate the industry today. - Provision of New Products & Services: The Facilities will serve to increase tangibly the degree of private sector participation in the financial services sector. By supporting these two professional and innovative banks, IFC will aid the introduction of new banking products in Iran. - Complement to the Government’s Industry Reform Efforts: By strengthening two pioneer private banks, the Facilities will help promote increased competition in Iranian banking. This will in turn aid the government’s efforts to reform the sector by increasing the dynamism of the state banks. IFC has a clear role to play in this project: - Demonstration Effect: By extending this $20 million financing package to Saman and Karafarin, IFC will signal its strong support for Iran’s nascent private banking sector. IFC’s involvement is expected to act as catalyst, encouraging other international financial institutions to invest in private Iranian companies. It would ideally also help the Banks to increase their domestic deposit base. - Improved Capital Structure and Resources: While Iran’s two recent sovereign bond issues have been oversubscribed, there is currently limited appetite for Iranian corporate risk in the international capital markets. Given its development mandate and recognising its local knowledge acquired from the due diligence on KLC, at this stage IFC is especially well-positioned to help the Banks diversify their funding sources and improve their term-lending capabilities. - Environmental Management: IFC will increase the Banks’ awareness of social / environmental issues and promote the introduction and implementation of an environmental management system.

Based on currently available information, this is a Financial Intermediary type 1 project. Each of the Banks will be required to develop and implement an environmental management system to ensure that relevant operations (e.g. corporate lending) comply with Iranian and IFC environmental and social requirements, as applicable.
Location of environmental documents in locally affected community