ROLE OF RATE OF RETURN ON LOANS IN THE BANKING SYSTEM OF IRAN
Nezamaddin MAKIYAN (The University of Yazd)
Since 1984 Iranian banks has been operating under Shari'ah principles. The
paper investigates dynamics of loans and the difficulties that this banking
system is facing. During the period of Islamic banking in Iran, banks experienced
a significant increase in the supply of loans. Many factors could affect the
behaviour of lending activities including rate of return, inflation, and government
intervention. In my paper, a regression model is developed to investigate the
behaviour of supply of loans in Iranian banks in terms of the causal relationship
between the main factors, which affect the supply of loans. The results indicate
that government intervention has played a more important role than that of economic
factors.