The Banks of Persia--The Imperial Bank of Persia--The most
revered foreigner in Persia--Loans--The road concession--The
action of the Stock Exchange injurious to British
interests--Securities--Brains and not capital--Risks of importing
capital--An ideal banking situation--Hoarding--Defective
communication--The key to profitable banking in Persia--How the
exchange is affected--Coins--Free trade--The Russian Bank and Mr.
De Witte--Mr. Grube an able Manager--Healthy competition--Support
of the Russian Government.
The Banks of Persia can be divided into three classes. One, containing the smaller native bankers, who often combine the jeweller's business with that of the money changer; the larger and purely native banking businesses, and then the foreign banks, such as the Imperial Bank of Persia (English Bank), the Banque d'Escompte et de Prêts (Russian Bank) and the Agency of the Banque Internationale de Commerce de Moscow (Banque Poliakoff). There are other foreign firms too, such as Ziegler and Co., Hotz, the Persian Gulf Trading Co., etc., which transact banking to a limited extent besides their usual and principal trading business; but these are not banks proper.
The Imperial Bank of Persia, being a purely British enterprise, is the most interesting to us. Its main offices are in a most impressive building in the principal square of Teheran, and it has branch offices at Tabriz, Isfahan, Meshed, Yezd, Shiraz, in the Teheran Bazaar, at Bushire and Kermanshah. It would be useless to go into the various vicissitudes through which the Bank has passed since it was first started, and the difficulties which it encountered in meeting the unusual ways of doing business of Persians and satisfying the desires of directors and shareholders in simple London town. One thing is, nevertheless, certain, and that is that if the Imperial Bank of Persia maintains the prestige now belonging to it, it owes this to Mr. Rabino, of Egyptian fame, the Manager of the Bank,--without exception the most revered foreigner in Persia.
I will not touch on the sore question of the Persian loans, eventually secured by Russia, but, curiously enough, the capital of the first loan, at least, was in great measure practically transferred from Russia to Persia by the Imperial Bank, which had the greatest stock of money in Teheran; nor shall I go into the successful and unsuccessful ventures of the Bank, such as the Road Concession, and the Mining Corporation. As to the road concession, it is beyond doubt that had the Bank not become alarmed, and had they held on a little longer, the venture might have eventually paid, and paid well. But naturally, in a slow country like Persia, nothing can be a financial success unless it is given time to develop properly.
With regard to its relation with the Banque d'Escompte et de Prêts, the Russian Bank--believed by some to be a dangerous rival--matters may to my mind be seen in two aspects. I believe that the Russian Bank, far from damaging the Imperial Bank, has really been a godsend to it, as it has relieved it by sharing advances to the Government which in time might have proved somewhat of a burden on one establishment. It is a mistake, too, to believe that in a country like Persia there is not room for two large concerns like the two above-mentioned Banks, and that one or the other is bound to go.
The rumoured enormous successes of the Russian Bank and its really fast-increasing prestige are indisputable, but the secret of these things is well known to the local management of the Imperial Bank, which could easily follow suit and quickly surpass the Russians if more official and political support were forthcoming.
The action of the London Stock Exchange in depreciating everything Persian, for the sake of reprisal, is also injurious to the Bank, and more so to the prestige of this country, though we do not seem to see that our attitude has done much more harm to ourselves than to the Persians. It is true that Persia is a maladministered country, that there is corruption, that there is intrigue, and so forth, but is there any other country, may I ask, where to a greater or smaller extent the same accusation could not be made? Nor can we get away from the fact that although Persia has been discredited on the London market it is one of the few countries in which the national debt is extremely small and can easily be met.
The obligations of the Imperial Government and of Muzaffer-ed-din Shah's signature, have never failed to be met, nor has the payment of full interest on mortgages contracted ever been withheld. Delays may have occurred, but everything has come right in the end. Our absurd attitude towards the Persians, when we are at the same time ready to back up enterprises that certainly do not afford one-tenth of the security to be found in Persia, is therefore rather difficult to understand.
There are few countries in which so much can be done with a comparatively small outlay as in Persia. It is not enterprises on a gigantic scale, nor millions of pounds sterling that are needed; moderate sums handled with judgment, knowledge and patient perseverance, would produce unlooked-for results. Large imported sums of capital in hard cash are not wanted and would involve considerable risk. First of all, stands the danger of the depreciation of capital by the fall in silver and the gradual rise in exchange due to the excess of imports over exports. Then comes the narrowness of the Persian markets which renders the return of large sums in cash an extremely long and difficult operation; and last but not least, the serious fact that capital is generally imported at a loss, inasmuch as the intrinsic value of the kran is much below its exchange value.
The ideal situation of an English Bank trading with the East,[2] is when its capital remains in gold, whilst its operations are conducted in silver by means of its deposits. This, because of the instability in the price of silver as compared with that of gold, and the risks which follow upon holding a metal fluctuating in value almost daily. The situation in Persia, partly owing to the constant appreciation of the Persian currency, due to the great dearth of silver produced by hoarding as well as by the export of coin to Central Asia, is quite suitable to the system of banking indicated above.
The difference between the intrinsic and the exchange value of the kran, notwithstanding the constant demand for exchange, is quite worthy of note. Political preoccupation is the principal cause of the hoarding system in Government circles, and in the masses the absence of banking organisations in which the natives have sufficient confidence to deposit their savings. Slowly but surely the Persian is beginning to feel the good effects of depositing his money in a European-managed Bank offering sound guarantees, and it is certain that in time all the money required for trade purposes will be found in Persia itself.
When better communication between the various commercial centres has been established, the distribution of the funds as required, now a matter of great difficulty and risk, will be greatly facilitated. When the despatching of sums from one city to another instead of taking minutes by telegraph or hours by post occupy, under normal circumstances, days, weeks, a month or even more, because the payments are made in solid silver which has to travel by caravan, it is easy to understand how the dangerous system of hoarding comes to be practised with impunity and facility all over Persia.
Of course every precaution is taken to foresee abnormal scarcity of funds, by sending specie to the places threatened, in order to help trade. During the summer months, for instance, most of the floating capital is absorbed in the provinces by the opium crop in the Yezd and Isfahan markets, when the silver krans find their way en masse to the villages, much to the inconvenience of the two cities. In the autumn a similar occurrence hampers trade during the export season of dried fruit and silk from Azerbaijan and Ghilan, the exchange falling very low owing to scarcity of money.
A very important item in the Bank's transactions in Persia is the constant demand for remittances of revenue to Teheran for Government purposes, such as payments for the army, officials, etc., and these remittances amount to very large sums.
The key to profitable banking in Persia is the arbitration of foreign exchanges, which being so intimately connected with internal exchange allows the latter to be worked at a profit, advantage being taken of breaks in the level of prices; but of course, with the introduction of telegraphs and in future of railways, these profits will become more and more difficult to make. In Persia the lack of quick communication still affords a fair chance of good remuneration without speculation for the important services rendered by a bank to trade.
The exchange of Persia upon London is specially affected by two influences. In the north by the value of the ruble, the more important and constant factor, Tabriz, the Persian centre of the Russian exchange, being the nearest approach in Persia to a regular market; and in the south by the rupee exchange, which differs from the ruble in its being dependent upon the price of silver.
In a country like Persia, where the exchange is not always obtainable and money at times is not to be procured, it is easy to conceive the difficulty of a bank. Forecasts of movements, based on general causes, are of little or no value in Persia. To this must be added the difficulties of examining and counting coins--weighing is not practicable owing to the irregularity of each coin--of the transmission of funds to distant places, and the general ignorance except in mercantile circles--of banking methods as we understand them.
The Imperial Bank is established in Persia, not as is believed by some persons to do business for England and English people, but to do business with everybody. "The spirit of free trade alone," said Mr. Rabino to me, "must animate the management of such a bank. Its services must be at the disposal of all; its impartiality to English, Russian, Austrian, Persian, or whatever nationality a customer may belong to, unquestioned. All must have a fair and generous treatment." The interests of the Imperial Bank are firstly those of its shareholders, secondly those of Persia which gives the Bank hospitality.
The Bank has already rendered inestimable services to Persia by diffusing sound business principles, which the Persians seem slowly but gladly to learn and accept. That the future of a bank on such true principles is bound to be crowned with success seems a certainty, but as has often been pointed out, it would be idle to fancy that a couple of years or three will remove the prejudices and peculiar ways of thinking and of transacting business of an Oriental race, whose civilisation is so different from ours, or that the natives will accept our financial system with its exactitude and punctuality, the result of ages of experience, unhesitatingly and immediately.
The Persian requires very careful handling. He is obstinate, and by mere long, tedious, passive resistance will often get the better in a bargain. By the employment of similar methods however, it is not difficult to obtain one's way in the end. A good deal of patience is required and time ad libitum, that is all.
There is no need for a large stock of gold and rubles, but what is mostly wanted is a greater number of men who might be sent all over the country, men with good business heads and a polite manner, and, above all, men well suited to the present requirements of the country.
The Russian, we find,--contrary to our popular ideas, which ever depict him knut in hand,--almost fraternises with the Asiatics, and in any case treats them with due consideration as if they had a right to live, at least in their own country. Hence his undoubted popularity. But we, the quintessence of Christianity and charity towards our neighbours, habitually treat natives with much needless harshness and reserve, which far from impressing the natives with our dignity--as we think--renders us ridiculous in their eyes. A number of younger Englishmen are beginning to be alive to this fact, and instruction on this point should form part of the commercial training of our youths whose lives are to be spent in the East.
The other important bank in Persia upon which great hopes are built, although worked on different lines, is the so-called Russian Bank, the Société de Prêts de Perse, as it was at first called when founded by Poliakoff in 1891. It was an experiment intended to discover exactly what was wanted in the country and what was the best way to attract business. The monopoly of Public Auctions was obtained in conjunction with the Mont-de-Piété--a scheme which did not work very well at first, the natives not being accustomed to sudden innovations. The concern subsequently developed into the Bank Estekrasi (Bank of Loans), or Banque de Prêts de Perse, as it styled itself, but financially it did not pay, and at one moment was expected to liquidate. It is said that it then threatened to amalgamate with the Imperial Bank. Mr. De Witte, of St. Petersburg fame, was consulted in the matter, and took exactly twenty-four hours to make up his mind on what was the best course to pursue. He bought the bank up, the State Bank of St. Petersburg making an advance on the shares. The Minister of Finance has a right to name all the officials in the bank, who, for appearance sake, are not necessarily all of Russian nationality, and the business is transacted on the same lines as at the State Bank of St. Petersburg.
A most efficient man was sent out as manager; Mr. Grube, a gentleman of much tact and most attractive manner, and like Mr. Rabino--a genius in his way at finance; a man with a thorough knowledge of the natives and their ways. In the short time he has been in Teheran the bank has made enormous strides, by mere sound, business capability and manly, straightforward enterprise.
Mr. Grube has, I think, the advantage of the manager of the Imperial Bank in the fact that, when the Russians know they have a good man at the helm, they let him steer his ship without interference. He is given absolute power to do what he thinks right, and is in no way hampered by shareholders at home. This freedom naturally gives him a very notable advantage over the Imperial Bank, which always has to wait for instructions from London.
Mr. Grube, with whom I had a long and most interesting conversation, told me how he spends his days in the bazaar branch of his bank, where he studies the ways and future possibilities of the country and its natives, and the best ways of transacting business compatible with European principles, and in particular carefully analysing the best ways of pushing Russian trade and industries in Persia. In all this he has the absolute confidence and help of his Government, and it is really marvellous how much he has been able to do to further Russian influence in Persia. There is no trickery, no intrigue, no humbug about it; but it is mere frank, open competition in which the stronger nation will come out first.
It was most gratifying to hear in what glowing terms of respect the managers of the two rival banks spoke of each other. They were fighting a financial duel, bravely, fairly, and in a most gentlemanly manner on both sides. There was not the slightest shade of false play on either side, and this I specially mention because of the absurd articles which one often sees in English papers, written by hasty or ill-informed correspondents.
Russia's trade, owing to its convenient geographical position, is bound to beat the English in Northern Persia, but it should be a good lesson to us to see, nevertheless, how the Russian Government comes forward for the protection of the trade of the country, and does everything in its power to further it. Russia will even go so far as to sell rubles at a loss to merchants in order to encourage trade in Persia, no doubt with the certainty in sight that as trade develops the apparent temporary loss will amply be compensated in due time by big profits.
It is, to an Englishman, quite an eye-opener to watch how far the Russians will go for the absolute benefit of their own trade, and this conduct pursued openly and blamelessly can only be admired by any fair-minded person. It is only a pity that we are not yet wide awake enough to do the same.
The Russian Bank has branches in the principal cities of Northern Persia, her business being so far merely confined to the North.
FOOTNOTES:
[2] See Institute of Bankers.