Iran’s manufacturing sector is increasingly constrained not by demand or capacity, but by a deepening financing bottleneck that has turned production into a daily struggle for survival rather than growth.
A combination of runaway inflation, international sanctions and tight domestic banking policies has reshaped the country’s financial ecosystem, pushing firms away from long-term investment and toward short-term tactics merely to secure working capital.
In recent years, access to affordable finance has sharply deteriorated. Disconnection from the global banking system and unresolved FATF challenges have effectively eliminated trade finance tools such as letters of credit and international supplier credit.
As a result, producers are forced to block rial liquidity for several months just to secure foreign exchange for imports. This has raised financing costs, lengthened cash cycles and weakened competitiveness, especially compared with regional rivals that still benefit from trade finance.
Domestically, banks face their own constraints. High inflation has reduced the attractiveness of bank deposits, shrinking the resource base of lenders. At the same time, Central Bank restrictions and contractionary policies have limited banks’ ability to extend cash loans.
The system has gradually shifted from cash-based lending to commitment-based and supply-chain instruments such as promissory notes and “GAM” papers. For industries long accustomed to cheap and straightforward bank credit, this transition has been abrupt and disruptive, occurring without sufficient infrastructure or financial literacy.
According to Farshid Shekarkhodaei, head of the Investment and Financing Commission of Iran Chamber of Commerce, the distinction between investment and financing has blurred.
Financing today is largely confined to short-term working capital, while development-oriented loans with five- to ten-year maturities are virtually unavailable. Foreign currency loans from the National Development Fund, priced at 10–12%, are often impractical once exchange rate risks are factored in. Rial-based financing, meanwhile, carries annual costs of around 40%, levels that are unsustainable for most businesses in the short run.
Hasan Forouzan-Fard, the commission’s vice chairman, notes that over 40% of industrial firms are operating below nominal capacity, as reflected in PMI data.
Need for New Tools
Banking finance, once the backbone for small and medium-sized enterprises, no longer meets even routine operational needs. With limited access to capital markets and weak readiness to use tools such as bonds or venture capital, firms face rising production costs, shrinking margins and an increased risk of losses.
Experts emphasize that sanctions and domestic constraints have jointly eroded financing options. Traditional international channels have vanished, while internal currency controls and quota systems force producers to hold cash for months while awaiting allocation. This has effectively transferred liquidity risk from the state to firms, further tightening financial conditions.
Analysts argue that the era of easy bank loans is over. With cash scarce and foreign capital largely inaccessible, Iranian industries must adapt by abandoning old habits and embracing newer financing tools in money and capital markets. Though difficult, this shift toward credit-based and market-oriented instruments may be the only path left to keep production alive under persistent financial stress.
