An Analysis of the Legal Nature and Rules Governing Productive Credit Certificates in Light of the Central Bank of the Islamic Republic of Iran's Regulations

Document Type : Research Paper

Author

Assistant Prof., Department of Law, Faculty of Administrative Sciences and Economics, University of Isfahan, Isfahan, Iran

Abstract

Introduction
Productive Credit Certificates (known as "GAM") are among the innovative financial instruments introduced into Iran's banking system by the 2019 resolution of the Money and Credit Council, with the aim of strengthening supply-chain financing and reducing producers' dependence on traditional bank loans. By mobilizing real and enforceable commercial receivables, GAM enable non-inflationary financing for productive enterprises. Despite their economic importance, the legal nature of these certificates and the scope of obligations among the applicant, the obligor, and the financial institution have not been clearly defined. The central question of this study is whether GAM should be construed as a form of guarantee—either assignment or joinder of liability—or as an independent commitment to payment distinct from the primary debt. The study aims to identify the appropriate legal framework consistent with current regulations and accounting principles, and to offer a jurisprudential and legal analysis of the parties' obligations under these certificates.
 
Methods
This research adopts a descriptive–analytical approach based on library and documentary sources. The data set includes the regulations and directives of the Central Bank of the Islamic Republic of Iran and the Securities and Exchange Organization, the standardized agency-and-guarantee contract, and doctrinal and jurisprudential writings concerning guarantee and commitment to payment. The analysis employed a systematic content-analysis method, supplemented by comparative examination of analogous instruments such as domestic letters of credit, bank guarantees, factoring, and debt purchase. In addition, the study investigated accounting aspects—particularly off-balance-sheet recognition and conversion upon default—to reveal the interaction between legal concepts and financial procedures. Finally, the validity of findings was cross-checked through consistency among statutory, jurisprudential, and banking practice sources.
 
Results and Discussion
The study finds that GAM are issued on the basis of an existing, genuine receivable between the obligor and the applicant, and that the financial institution, acting as both agent and guarantor, undertakes to pay the face amount of the certificates at maturity. However, from a legal and accounting perspective, issuance does not immediately create a bank liability, as the certificates remain recorded off-balance sheet until obligor default, becoming a recognized debt only upon payment by the bank. This structure conflicts with the classical concept of guarantee, which typically entails assignment or joinder of liability. Current regulations have thus established a dual framework: the obligor remains primarily responsible to the applicant, while the bank assumes a secondary yet binding obligation to pay the certificate holder without its liability being recorded as an existing debt. This structure aligns more closely with the doctrine of commitment to payment, under which a third party undertakes to discharge another's debt without becoming the principal debtor. Such a characterization is consistent with Imamiyyeh jurisprudence and explains both the independence of the bank's undertaking from the underlying commercial relationship and the preclusion of defenses based on that relationship against a bona fide holder. Comparative analysis further reveals that, despite functional similarities, GAM differ significantly from instruments such as letters of credit, bank   guarantees, factoring, and debt purchase in their legal nature, effects, and issuance procedures. Welfare cards linked to GAM share the same legal foundation, differing only in execution and operational details.

Conclusions
The findings demonstrate that interpreting GAM as a traditional guarantee or a third-party benefit does not capture their distinctive legal features. The commitment-to-payment model provides a more precise and coherent explanation and remains consistent with Article 10 of the Iranian Civil Code. Recognition of this legal framework by legislators and regulatory bodies would enhance transparency, legal certainty, and operational efficiency in supply-chain financing. Revising standard contracts and executive instructions to define the agent's role, clarify recourse mechanisms, and standardize accounting recognition procedures constitutes an essential step toward the sustainable development of the GAM system.

Keywords

Main Subjects

References

 
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Regulations & Directives
Amendment to the Directive on the Admission of GAM Certificates in the Stock Exchange, approved on November 13, 2024. ]in Persian[
Amendment to the Regulations on Control and Management of GAM Certificates, approved on April 7, 2024. ]in Persian[
Bylaw on the Admission of Productive Credit Certificates in Executive Agencies, approved on March 3, 2024. ]in Persian[
Bylaw on the Assignment of Contractual Receivables, approved on October 7, 2020. ]in Persian[
Directive on Bank Guarantees (Rial-Based), approved on October 17, 2017. ]in Persian[
Directive on Domestic Documentary Credits (Rial-Based), approved on April 9, 2024. ]in Persian[
Directive on Productive Credit Certificates (GAM), approved on March 5, 2024. ]in Persian[
Directive on the Admission and Trading of Productive Credit Certificates, approved by the Board of Directors of the Securities and Exchange Organization on October 7, 2024. ]in Persian[
Directive on the Admission of Contractual Receivables, approved on March 10, 2024. ]in Persian[
Executive Bylaw of Article 8 of the Law on Maximum Utilization of the Country’s Production and Service Capacity Concerning the Assignment of Contractual Receivables, approved on October 7, 2020. ]in Persian[
Executive Procedure for Welfare Cards Linked to GAM Certificates, approved on January 24, 2024. ]in Persian[
Executive Procedure on Factoring, approved on July 9, 2024. ]in Persian[
I.C.C. Uniform Rules for Demand Guarantees (URDG 758), 2010 Revision.
Law on Financing of Production and Infrastructure, approved on March 12, 2024. ]in Persian[
Regulations on the Provision of Supply Chain Financing Services by Credit Institutions, approved on September 25, 2024. ]in Persian[
United Nations Convention on Independent Guarantees and Stand-By Letters of Credit, 1996.
Journal of Legal Studies
Volume 18, Issue 3 - Serial Number 58
October 2026
Pages 181-224

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