Banking Automation in Iran, Its Social and Banking Effects

By Najafbagy, Reza | Journal of Performance Management, January 1, 2010 | Go to article overview

Banking Automation in Iran, Its Social and Banking Effects


Najafbagy, Reza, Journal of Performance Management


Abstract

In 1991, the project of banking automation was launched by Central Bank of Iran, and lasted about six years covering only the National Bank of Iran (NBI). Five years later a study was undertaken to observe the banking and social effects of automation in NBI and the results showed that since then, no serious attempt has been made to improve banking and electronic services in the country, particularly at the state-owned banks. Therefore, banking automation has had meager effects on the quality of public social life in Iran. In addition, the cash flow and application of bank checks followed their old and previous trend and still people refer to bank branches to cash their checks as before.

The aim of this paper is to illustrate the status of banking automation, its social and organizational consequences in Iran, and providing appropriate recommendations.

Keywords: Bank automation, ATM and Internet banking, structural changes, customer attitudes and satisfaction

INTROCUTION TO BANKING SYSTEM IN IRAN

Change in quality of banking and customers' services and their satisfaction in a competitive environment have led banks to apply information technology (IT). In this case, we have observed that many developing countries have tried to improve their banking systems and used IT as well. But the effects of this change should be based on a strategic planning and worth to study their social and banking effects, in this case, we have presented the case of Iran. Modern tools of electronic payments in Iran returns to the year 1991 and initiation of the services of Bank Sepah and Bank Melli Iran (National Bank of Iran), when the first samples of ATMs' cards were introduced primarily for cash withdrawing.

Today, the success of banks to a large extent depends on full computerized systems. Such an attempt not only provides quick and satisfactory services to banks' customers, but bank managers can have online access to bank transactions information. Clearly, without computerized systems, bank managers can not have on the spot information on bank's transactions. Banking operations had been carried out in Iran by temples and princes before the advent of Achaemenid dynasty. In that period, trade boomed in the country, thus giving a boost to banking. Before a bank in its present form was established in the country, banking operations had been carried out in traditional forms in the form of money changing. But money changing began to decline with the establishment of New East Bank in Iran, an originally British owned bank in the country in 1850.

Bank Sepah was the first bank to be established with Iranian capitals in 1925 under the name of Bank Palliavi Qoshun, in order to handle the financial affairs of the military personnel and set up their retirement fund. The primary capital of the bank was 388,395 tomans.

In the spring of 1979, all Iranian banks were nationalized and banking laws changed with the approval of the new interest free Islamic banking regulations. At present, there are ten state-owned banks, of which five are commercial and the other five are specialized banks. In addition, there are seven private banks as well. All banks in Iran must follow the banking principles and practices described in the Islamic Banking Law of Iran passed in 1983 by the parliament. According to this law, banks can only engage in interest-free Islamic transactions. These are commercial transactions that involve exchange of goods and services in return for a share of the assumed "profit". All such transactions are performed through Islamic contracts, such as Mozarebe, and Mosharecate MadanL With regard to the position of state owned banks and private banks (which are more aggressive compared to state owned banks) and with the phenomenal increase in the country's population and the increase demand for banking services; speed, service quality and customer satisfaction are going to be key differentiators for each bank's future success. …

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