Iran’s banking sector is dominated by short-term lending practices, limited risk appetite, and regulatory fragmentation, which collectively hinder the financing of strategic development projects. Moreover, international sanctions have restricted Iran’s access to global capital markets, further worsening the investment gap in critical sectors such as renewable energy, transport, digital infrastructure, and SME development. While Iran hosts several quasi-development financing institutions (DFIs)—including the Export Development Bank of Iran, Bank of Industry and Mine, Tose’e Ta’avon Bank, Maskan Bank and Agriculture Bank—these banks operate with limited mandates, fragmented governance structures, and insufficient capitalization. Their focus is narrow lacking the institutional autonomy and strategic alignment required to drive transformative development outcomes. In contrast, global DFIs such as Germany’s KfW, India’s SIDBI, Brazil’s BNDES, and the Islamic Development Bank have demonstrated the capacity to mobilize blended finance, de-risk private investment, and support inclusive development through robust governance, sectoral specialization, and alignment with national priorities.
This paper investigates the feasibility of establishing a full-fledged DFI in Iran institutionally independent, strategically aligned with Iran’s development plans capable of mobilizing both domestic and international capital. The findings suggest that a well-capitalized, independently governed DFI could play a catalytic role in Iran’s economic transformation, provided it is supported by legal reform, international compliance, and phased implementation. This institution could offer long-term project finance, credit guarantees, and technical assistance to priority sectors. The paper concludes with a strategic roadmap for launching the DFI, emphasizing the importance of stakeholder engagement, institutional transparency, and alignment with global development finance standards.