Bank Markazi (central bank) has issued a formal invitation to foreign banks and financial institutions to operate in the country's free trade zones. The invitation, made on 11 September, opens the way for the first such foreign involvement since 1979.

Markazi director of banking affairs Bahram Zarrin-Qalam said administrative regulations have been approved less than a year after passage of the relevant legislation by the majlis. Iran wants a financial system which is dynamic and can compete against Dubai, he said.

'We need a banking system in our free trade zones which can operate without any restrictions and provide efficient services, ' he said.

The 1999 bill allows foreign banks and insurance companies to have a 100 per cent stake in a free zone company. Establishment of a bank will require an initial capital of $10 million, while the capital required for a non-banking credit institution is $5 million.

Foreign firms must submit a business plan to the local administration in Kish, Qeshm or Chahbahar, and leave at least half of the required amount of collateral with Markazi. The central bank will review the permits after running background checks, Zarrin-Qalam said.

Offshore financial institutions are required to do business only in hard currency. But they will be exempt from most banking regulations, including limits on interest rates. Cash can be freely transferred in and out of free zones, but not into the mainland.