When Parviz Aghili returned to his native Iran to become an entrepreneur, he had to give up the lifestyle of first-class flights and five-star hotels that went with his role as an expatriate executive. He has no regrets. “I have never felt I made a mistake by coming back. I never let any doubts cross my mind,” he says.

A downgraded lifestyle was not the only problem facing the 60-year-old founder of Karafarin, the first private-sector bank to begin operating in Iran since the 1979 revolution. Western countries last year imposed banking sanctions in a bid to clamp down on Iran’s nuclear ambitions and the populist policies of President Mahmoud Ahmadi-Nejad.

Mr Aghili established Karafarin, which means “job creator”, six years ago with $25m in capital. Listed on the country’s stock exchange, it is now capitalised at $125m. The bank’s assets are worth almost $2bn and it employs 1,300 staff in 55 branches across the country.

Dressed casually in a white shirt in his office in affluent northern Tehran, Mr Aghili is part of a small community of entrepreneurs in the country who insist that there are profitable opportunities for those with patience and a good knowledge of the Middle East – unlike those trained mainly in the west, who are apt to panic in the face of political turbulence.

It was a different story in 1980. As a westernised Iranian, Mr Aghili was persona non grata. Iranian revolutionaries distrusted the US-educated “brainwashed” banker with a PhD in finance from the University of Wisconsin. “An official [in 1980] told me the country’s problems would be resolved if graduates of overseas universities were out of the country,” he says, laughing.

With only $3,000 in cash, he left his homeland shortly afterwards and took his family to the safe haven of Dubai. As an experienced banker he was soon hired as chief executive of Wardley Middle East, part of the HSBC Group. After stints with HSBC in Canada he became chief executive of Abcus Merchant Bank in Nigeria in 1991.

Yet he still nurtured dreams of returning home to follow in the footsteps of his father, a co-founder of the Central Bank of Iran in 1960. It was while he was in Nigeria that the first hints surfaced in 1993 that the Islamic regime was recovering from its revolutionary fever and welcoming back non-political expatriates. So Mr Aghili returned to Iran to pursue his plan – despite knowing almost no businesspeople, bankers or officials back home.

He reveals a streak of nationalism when explaining why a “well-off” expatriate like himself would be so quick to return. “I came back [in 1993] for both nationalistic and personal reasons,” he says. “I now envy China or India when I see they have 9 to 11 per cent economic growth rates with limited natural resources, while we have growth of only 4 or 5 per cent.”

During his time abroad, the Soviet Union’s demise and growing international acceptance of market economics gave Mr Aghili encouragement that Iran might follow the same path. He complains that in practice the state-run economy has held Iran back. Oil is “the source of misery” which “covers up mishaps and inefficiencies”. He laments the fact that the private sector’s share in the economy is no more than 20 per cent.

Reactions were initially positive when he returned. An official told him that it would take just two months to obtain a licence to set up a private-sector bank. It was too good to believe. When the official retired, his successor said “revolution meant not having a private sector, including banks”. And it meant Mr Aghili had to wait six years, not two months, to obtain a licence to set up a credit institution.

He did not sit idle. As an experienced manager, he helped save the Industrial Investment Company of Iran from closure and improve performance at the Mahram Food Processing Company. He established BourseIran, a brokerage company, Sakht Ajand, a construction investment company, and Iran Economics, a monthly magazine that he modelled on The Economist. It aimed to “educate officials in the concept of private sector”, he says, “and remind them that the revolution happened 20 to 30 years ago. Now the revolution is happening at this end [in the economy]”.

Meanwhile, Mr Aghili studied Islamic banking “and learnt it better than the officials concerned”. During this period he also met Ahmad-Saeid Ghoddousi, a retired banker who became his right-hand man and is now his deputy at the bank.

After Mohammad Khatami was elected president in 1997 with an agenda for reform, Mr Aghili’s fortunes changed. The Central Bank issued him with a permit to set up a credit institution in 1999, and he found a willing group of investors in the manufacturing companies and consultants he had worked with over the years. Their initial investment was 30bn rials ($3.2m).

Karafarin won its licence to become a fully fledged bank after Mr Khatami’s re-election in 2001. Mr Aghili says he has managed to keep it “100 per cent private-sector” and was never tempted to take government money like the country’s other five private-sector banks, even though it would have helped him expand operations.

Private-sector banks account for only 5 per cent of the banking system, but they are already challenging the 11 under-capitalised state banks. “Private-sector banks are becoming bigger and bigger every year and take away share from the state-owned banks,” Mr Aghili says.

Parsian, the leading private-sector bank, faced government-imposed management change last year, prompting speculation that it was paying the price for becoming bigger than the smallest state-owned bank.

Mr Ahmadi-Nejad is also determined to make the banking sector an instrument of his populist goverment through a “revolution” in banking laws. He has pushed banks to lend money at rates lower than the official inflation rate (16.2 per cent) in order to help poorer families.

But Mr Aghili is confident that there are ways to make a profit in the Iranian banking sector. Karafarin’s pre-tax profit was $56.6m in the year to March 20, up by 51 per cent on the previous year. Profits in the first three months of this year were $13.8m.

As to the future, Mr Aghili has hopes to form a joint partnership with an international bank, but knows the prospects are distant. “It is probably not the right time,” he says.

“I know a few top banks would like to enter this market, but you cannot blame them if they do not. It has become too political.”

Perseverance is key in the face of sanctions and skill shortages