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1973“1978,™™ International Journal of Middle East Studies 21 (1989), 359“79. All
information in this section is based on this article.
31
I thank an anonymous reviewer for bringing this point to my attention.
32
Salehi-Isfahani™s estimates of the proportion of the total credit that was a grant were as
high as 0.46 in 1975“6 and 0.66 in 1977“1978. Salehi-Isfahani, ˜˜The Political
Economy of the Credit Subsidy,™™ 367.
86 Bazaar and State in Iran

and governments.33 This capital largely bypassed the vast majority of
medium-sized and smaller (typically labor-intensive) manufacturers, who
instead either tended to receive these assets once they were recycled
through the ¬nancial system or turned to their own retained earnings.34
Those who had nationalist or religious credentials, as most bazaaris did,
were unable to compete for these highly subsidized loans.
In the shadow of this state-owned ¬nancial system and because of its
biases, the Tehran Bazaar™s internal credit system became an important
source of funds for all those who were unable to access the of¬cial
banking system.35 The nonof¬cial system was the primary means to
¬nance commercial activities, real estate investments, and the private
consumption of bazaaris, as well as new immigrants to the city and
many ordinary Iranians. The individual loans dispensed in the Bazaar
were modest in comparison with the developmental loans distributed by
the state, yet the total sum was signi¬cant. In 1963, the bazaars in Iran
were estimated to loan as much as all the commercial banks put toge-
ther.36 In 1975, the Bazaar was estimate to control 20 percent of the
of¬cial market volume, or $3 billion in foreign exchange and $2.1 billion
in loans outstanding.37 Since the Tehran Bazaar was the hub for Iran˜s
import“export trade and had access to huge sums of credit, its dis-
tribution network and credit line extended well beyond the Bazaar and
Tehran to cover all corners of Iran. It is in this sense that ˜˜the Tehran
Bazaar is the mother of provincial bazaars.™™38
The credit system in the Tehran Bazaar worked on two levels: ¬rst
goods were purchased on credit, and second moneylenders extended
credit. In the ¬rst instance, bazaaris bought from those higher in the
value chain by paying for a portion of the goods and receiving the
remainder on credit. Future transactions between partners involved
purchases on credit and repayment of part of the balance. Occasionally,
short-term arrangements were established when credit was repaid as

33
Consistent with the modernist development ideology, during the 1970s industrial loans
were increasingly distributed by the specialized development banks. See Maryam
Ghadessi, ˜˜An Integrative Approach to Finance in Developing Countries: Case of
Iran,™™ unpublished Ph.D. dissertation, University of Utah (1996).
34
Vaghe¬, Entrepreneurs of Iran, pp. 106“7. For a more comprehensive and complex
picture see Massoud Karshensas, Oil, State, and Industrialization in Iran (Cambridge:
Cambridge University Press, 1990), chapters 4, 5, and 7.
35
Ghadessi, ˜˜An Integrative Approach to Finance in Developing Countries.™™
36
Richard Elliot Benedick, Industrial Finance in Iran: A Study of Financial Practice in an
Underdeveloped Economy (Boston: Division of Research, Graduate School of Business
Administration, Harvard University, 1964), p. 52.
37
¨
Alan D. Urbach and Jurgen Pumpluen, ˜˜Currency Trading in the Bazaar: Iran™s
Amazing Parallel Market,™™ Euromoney (June 1978), 116.
38
˜Atiqpur, Naqsh-e Bazar, p. 62.
Bazaar transformations 87

soon as goods were sold. More commonly, however, transactions were
initiated with the expectation that these credit relationships would be
long term and buyer and seller would be involved in repeated transac-
tions wherein credit and debts would be balanced out over time. Thus,
interconnected and complex accounting ledgers could be carried over
years and even across generations.
The second form of lending involved moneylenders (sarraf) who
provided credit directly to bazaaris. These moneylenders often did not
have a ¬xed abode and their lending was not monitored by state insti-
tutions. However, the moneylenders had savings accounts in the banks
and used their deposits to gain access to short-term credit that they
would loan in the Bazaar at a mark-up.39 Moneylenders also had access
to savings that bazaaris and households sought, to lend at higher returns
than the commercial banking system. While there were many full-time
moneylenders in the Bazaar area (including the area between Tupkha-
neh and Ferdawsi squares), merchants and other members of the
community who had disposable income would also supplement their
commercial activities by distributing credit.
When these transactions were between long-term partners, involved
regular exchanges (between wholesalers and grocers), or were for small
amounts, they lacked any written documents or government-sanctioned
instruments; hence the principle of placing one™s honor (mustache) as
collateral. At most the lender would make a note in his ledger and seek
repayment at an unspeci¬ed later date or repayment was accounted for
in future exchanges.40 The transactions were conducted informally and
based on referrals. In 1978, two European bankers described the
lending process as follows: ˜˜[I]n touring the bazaar one may hear
fragments of a conversation in the corner of a carpet traders™ [sic] shop:
˜Twenty eight percent! Fifty million rial!™ “ a handshake and another
loan is concluded.™™41 The informality in transactions has an ef¬ciency
gain in that it allows parties to engage in unspeci¬ed agreements where
not all contingencies are spelled out in advance.
If transactions involved large, long-term, or long-distance exchanges
or were between actors who did not know each other, bazaaris resorted
to either unsecured promissory notes (safteh) or postdated checks. A

39
While bank rates were around 12 percent the Bazaar rate ranged between 20 and 30
percent. H. Bahrambeygui, Tehran: An Urban Analysis (Tehran: Sahab Books Institute,
1977), p. 100.
40
At the time the ledgers did not even include names, but simply referred to ˜˜the
customer that I do not know their name.™™ See Asnaf, no. 88 (Shahrivar 1379 [August“
September 2000]), p. 10.
41
Urbach and Pumpluen, ˜˜Currency Trading in the Bazaar,™™ 115.
88 Bazaar and State in Iran

safteh is an unsecured agreement of payment based upon a form that
could be purchased from commercial banks for a nominal duty. Each
note was good for a maximum amount; therefore, for large purchases
several notes were used. The parties agreed on a discount rate and
payment date(s) for the safteh, which was signed by the borrower.
Customarily, repayment was scheduled for three months, but could be
extended after renegotiation. In case of nonpayment, the promissory
note could be redeemed from the issuing bank or used to initiate a legal
action to have the goods returned. Personal checks, however, gradually
entered the Bazaar during the 1960s. In this case, the purchaser wrote
the check for the agreed amount and date. Since a sliding scale was
used, the buyer and seller would bargain in terms of both price and the
due date. (Agreements could also be made where the full amount was
paid in installments via a series of postdated checks.) Upon the date,
either the debtor would deliver cash or the check-holder could go to the
issuing bank branch to cash the check. If a check was written for an
amount that could not be redeemed, the person writing the check could
be immediately jailed upon complaint by the check-holder.
While credit was typically advanced down the hierarchy (from weal-
thier merchants to middlemen and shopkeepers), it was not unheard of
for retailers to loan wholesalers and brokers small sums of credit. At
times loans were dispersed horizontally across sectors and distribution
chains. The longevity and interconnected credit are viewed as a marker
of close relations in the Bazaar; when a bazaari wants to convey his close
relation to a colleague, he says that their ˜˜accounts are mixed™™ (hesabha-
mun qatieh).
The credit system was based on the socioeconomic networks in a
number of ways. First, the gathering of information on who had dis-
posable cash and who needed credit involved access to the Bazaar™s
gossip mill, which extended across the marketplace. ˜˜Information and
its quick dissemination are the essence of a money lender™s security,™™
commented two observers who spent time in Iran in the 1970s. ˜˜Word
spreads so quickly that a merchant turned down independently by two
lenders is confronted by a third with this knowledge within the hour.™™42
Once potential credit partners were identi¬ed, the interest rate charged
was highly sensitive to network factors too. The discount rate was loosely
based on market forces (the in¬‚ation rate, interest rates charged by banks,
and supply and demand for credit) and the reputation of the credit seeker,
with the latter force having more weight. Like any credit system, the
Bazaar system followed the principle that the more ˜˜credit-worthy™™ the

42
Ibid.
Bazaar transformations 89

borrower, the lower the rate, the better the terms of the loan, and the
more ¬‚exible the dealings. What made the Bazaar system different from a
modern banking system was that credit-worthiness was de¬ned more by a
person™s reputation than by their ¬xed assets (e.g. real estate, inventories,
or machinery). Credit was extended based on the past interactions
between the creditor and borrower. If the applicant had shown that they
were trustworthy, they would be entitled to lower interest rates and/or
more ¬‚exible payment schedules. When credit histories and reputations
were less promising, the discounted rate would increase. Rates ¬‚uctuated
during the 1960s and 1970s, but in the worst-case scenarios, rates could
easily reach 40 percent per month.
Moneylenders who were unfamiliar with a loan applicant turned to
their mutual acquaintances and brokers for a credit history. Less
dependable or newer borrowers were obliged to get additional
cosignatories as collateral. The better known and more respected the
signatories were in the Bazaar, the better the terms of the agreement. If a
member of the Bazaar became known for writing bad checks or not
paying his debts in a timely manner, he and his signature would be
sanctioned by creditors charging higher discount rates on their saftehs or
checks, shorter terms of repayment, higher prices for goods, and/or a
requirment to pay in cash. ˜˜Not only prices but men™s reputations are
set, reset, and continually adjusted in the bazaar as information ¬‚ows
through networks of reliable friends.™™43 In the Bazaar™s money market, a
borrower places his good name by placing his signature as collateral.
The reputation of a bazaari was critical to his ability to gain access to
capital and merchandise; simultaneously, the sound appraisal of risk was
essential for the ¬nancial survival of creditors. A bazaari explained, ˜˜If
bazaaris are able, they won™t pay back debts. They keep good accounts
so as to continue their trade.™™44 Thus, the safteh system™s net of cross-
cutting guarantees was a critical cooperative mechanism to help spread
risk, expand commercial relationships and capital, and also build one™s
standing in the community.
Enforcing credit agreements also involved access to the bazaaris™ net-
works. Whereas defaulting on debts and bankruptcies were not unheard
of, the key point is that cooperative hierarchies prior to the Revolution
were strong and prevalent enough to address these cases and solve
disputes without resorting to third parties such as state institutions,
which would have been slower and more costly than communal-based

43
Roy Mottahadeh, The Mantle of the Prophet: Religion and Politics in Iran (New York:
Pantheon Books, 1985), p. 35.
44
Jabbari, Hamisheh Bazar, p. 143.
90 Bazaar and State in Iran

arbitration. If the safteh was not paid by the signatory or any of his
cosignatories, the holder of the promissory note could legally take action
by initiating a claim in court. But, not unlike modern commercial deal-
ings, the norm was that these disputes were handled within the Bazaar via
informal arbitration.45 If the creditor, debtor, and cosignatory themselves
were unable to arrive at an agreement, the dispute was taken to a notable
in the Bazaar (rish-se¬d or ostokhundar). These informally appointed guild
elders gained this stature in the community because they were deemed
experienced, trustworthy, and knowledgeable about both past and pre-
sent market conditions, and usually had a working knowledge of religious
customs, although not necessarily knowledge of religious laws or jur-
isprudence.46 Active brokers often played this role because they enjoyed
working relationships with many layers of the Bazaar and had molded
virtuous reputations. Disputes and renegotiation of agreements were
settled through the general practices of the community and in casual get-
togethers, instead of via strict rules and in an of¬cial manner; a bazaari
expression is that they ˜˜solved their disputes at the opium brazier.™™
According to a carpet exporter who had a long-standing role as an arbi-
trator, he followed a general principle of selecting a path that was both
practical (˜amali) and would result in an outcome that both would
recognize as just (˜adelaneh). The economic climate, the histories of the
parties, and the total debts outstanding were all taken into consideration.
Settlements included distributing inventories among creditors on a con-
signment basis, payment extensions, or intermediaries and family con-
tacts accepting part of the debt burden. Again the Bazaar network offered
ways to solve disputes by spreading out responsibilities across different
groups, extending time frames for debt repayment, and involving third
parties in adjudication and compensation. The arbitrator accepted that
this was not always easy, but he claimed that in ˜˜in ninety-nine percent of
cases, everyone was content and would not have to resort to the court
system.™™ The capacity to minimize disputes and deal with them when
they arose helped strengthen the Bazaar™s networks over time by pre-
senting opportunities to collaborate and solve problems.
Thus, prior to the Revolution, the Bazaar was shut out of patronage
channels of the state and forced to turn to the ˜˜market™™ for credit. This
suggests a different logic than the one underlying Geertz™s account of
the Bazaar credit system. Geertz argues that the traders in Indonesian

45
Stewart Macaulay, ˜˜Non-Contractual Relations in Business: A Preliminary Study,™™
American Sociological Review 28 (February 1963), 55“67.
46
Rotblat notes that by the 1960s most bazaaris did not receive seminary education, did
not know Arabic, and were not aware of the Islamic rules governing commercial
activity. Rotblat, ˜˜Stability and Change in an Iranian Provincial Bazaar,™™ p. 180.
Bazaar transformations 91

bazaars ˜˜often prefer expensive private credit to cheap government
credit™™ as a functional response in order to ˜˜stabilize more or less
persisting commercial relationships.™™47 Geertz™s argument, besides
being overly consequentialist, also makes the faulty assumption that
members of small businesses in developing economies have equal access
to credit. Even though credit within the Bazaar was available, in inter-
views with older bazaaris the lack of access to state institutions and
resources was often cited as one of their main grievances toward the
Pahlavi regime. Credit-worthiness in the of¬cial ¬nancial system was
tied to political credentials, while in the Bazaar ¬nancial system it was
tied to one™s reputation in the Bazaar™s social order.

Crosscutting and multiplex social relationships
As the discussion of the credit system illustrates, economic exchange in
the Bazaar presupposed social mechanisms that identi¬ed exchange
partners, monitored behavior, and sanctioned malfeasance. The social
spheres within the Bazaar and a whole series of social networks helped
underwrite many economic transactions by evaluating reputation,
ensuring future interactions, creating opportunities to work together,
developing horizontal ties, and expanding interactions to include

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