By the book: Market matures with new sharia-compliant offerings


In the years since Morocco introduced sharia-compliant financial services in early 2017, local players have grown significantly and cultivated a strong market with diversified offerings, including various banking products, Islamic bonds (sukuk) and Islamic insurance (takaful). “Islamic banks, takaful companies, the regulator and other stakeholders are working closely to complete the Islamic financial services ecosystem and strengthen the tools available,” Fouad Harraze, managing director of Al Akhdar Bank, told OBG. “There is now a more defined framework that will facilitate swift maturation and lead to major achievements in the future, especially given the strong demand we have noticed in the retail and small business segments.”

Global Market

According to the Islamic Financial Services Board’s “Islamic Financial Services Industry Stability Report 2019” released in July of that year, total Islamic financial services assets were valued at $2.2trn at the end of the second quarter of 2018, up from $2trn at the end of 2017. The segment’s rate of growth slowed between 2016 and 2017, from 8.5% to 6.9%, with the slowdown largely attributable to local currency depreciations against the US dollar in some countries with active Islamic finance sectors. Islamic banking accounted for 72% of all Islamic finance assets at the end of the second quarter of 2018, down by 4% from 2017, while its growth slowed from 4.3% to 0.9%. Islamic capital markets products increased their share by 4% over the same period, to 27%.


Morocco began offering sharia-compliant products relatively late in the game. Egypt, in comparison, first offered such products in the early 1960s. It was not until 2011 that officials began discussing Islamic banking, better known as participatory banking in Morocco. In 2015 landmark legislation was passed that provided the initial framework for the segment. It also created a board within the Supreme Council of Islamic Scholars to oversee compliance of financial products and services with sharia law. Bank Al Maghrib (BAM), the central bank, approved the first five participatory banks in January 2017. Subsequent legislation was passed in 2018 and 2019 regarding solvency and liquidity, respectively.

Local Offerings

In Morocco five banks opened 44 participative branches when sharia-compliant banking was introduced in early 2017. The number of branches grew nearly three-fold, reaching 124 by the end of July 2019. Most of the largest banks participated from the outset, including Attijariwafa Bank, Groupe Banque Centrale Populaire, BMCE Bank of Africa, CIH Bank and Crédit Agricole du Maroc. Subsidiaries of the main French banks with operations in Morocco – including Société Générale, BNP Paribas and Credit Agricole’s Islamic Development Bank – were also approved to offer Islamic financial services.

By the end of July 2019 there were 73,528 participatory bank accounts valued at Dh2bn ($208.4m), up from 56,918 at the end of 2018. The most popular borrowing instrument – accounting for approximately 85% of all participatory bank loans – was mourabaha, or a contract in which the bank sells an asset such as a house or a vehicle to a client in return for a commission. However, sharia-compliant loans accounted for less than 1% of total lending at the end of 2018. Of the Dh7.2bn ($750.1m) in participative lending that had been issued by the end of July 2019, Dh6.6bn ($687.6m) consisted of mortgages and Dh568m ($59.2m) of auto loans. The authorities are working with banks to develop the range of sharia-compliant products on offer, including mourabaha for credit cards and investment deposits, as well as refinancing instruments known as wakala bil istithmar.

Assets at the five participatory banks and three windows increased nearly three-fold in 2018, from Dh2.6bn ($270.9m) in 2017 to Dh7.3bn ($760.5m), while lending rose from Dh182m ($19m) to Dh4.5bn ($468.8m) over the same period. Deposits grew from Dh671m ($69.9m) in 2017 to Dh1.7bn ($177.1m) in 2018, and aggregate losses increased from Dh175m ($18.2m) in 2017 to Dh377m ($35.1m).


The Islamic financial sector received a boost in July 2019, with the passage of legislation authorising takaful and allowing insurance companies to launch dedicated subsidiaries. It is expected that up to six takaful providers offering life and general coverage will enter the market in 2020. One key difference between takaful and participatory banking is that insurers – whether a traditional insurer, a bank or another financial institution – are required to establish separate subsidiaries, while conventional banks are permitted to open an Islamic window. Nonetheless, the introduction of takaful is an important step towards a diverse, competitive and comprehensive Islamic finance ecosystem (see Insurance chapter).


Islamic financial institutions need a steady supply of sharia-compliant investment products to manage liquidity and asset portfolios in a manner consistent with the Muslim faith. To ensure the success of a nascent Islamic financial sector, it is important that the authorities take a comprehensive approach, creating a market that includes capital markets products and services. With this in mind, the government launched its first sharia-compliant sovereign bond in October 2018. The Dh1bn ($104.2m) instrument was well received by the market, being 3.6 times oversubscribed. The ijara (leasing) offered a five-year maturity period and 2.66% annual yield. Under the terms of the offering, the government will transfer real estate assets whose annual rents would go to bondholders over the five years. Local institutional investors were among the most active buyers when the instrument was placed on the over-the-counter market.

While there was not a definitive timeline for future corporate or public sector sukuk issues as of late 2019, local demand for such products is expected to grow as more people get involved with the takaful and participative banking segments. For sukuk to reach its full potential in the local market, however, the authorities will need to create a regulatory framework that will allow banks and insurance companies to offer sukuk on the local capital markets.


While Islamic finance has seen steady growth since 2017, it has been hampered by several challenges including a lack of capital and liquidity, according to a July 2019 report from Fitch Ratings. Participatory banks must often rely on their parent institutions for deposits. Even so, it has significant potential. “[Islamic finance] supports the city of Casablanca’s ambition to become a leading financial hub in Africa,” Bashar Al Natoor, global head of Islamic finance at Fitch Ratings, told international media in July 2019. It could also unlock investment from Islamic investors based in the Gulf Cooperation Council and further financial inclusion, Al Natoor explained. “Although the Moroccan banking sector has one of the highest levels of penetration in Africa, Islamic finance could help to build on this growth.”

The ratings agency also noted that it would take time for the public to fully appreciate the benefits of Islamic finance. “An awareness campaign across the country would help showcase the different Islamic products available, as well as help achieve the objectives of the National Financial Inclusion Strategy to boost penetration rates,” Mohamed Maarouf, managing director of BTI Bank, told OBG.


The authorities aim for a 5% market share for participative banking by 2024, eight years after such services first became available in Morocco. Attracting smaller firms, which traditionally have difficulty securing financing, to Islamic finance will be necessary to reach this goal. “Small and medium-sized enterprise financing has been identified as a key enabler of the Islamic segment’s growth in the long term in order to respond to the needs of the economy,” Mouna Lebnioury, managing director of Bank Al Yousr, told OBG. “Islamic banking can act as a viable financing solution for all target audiences, including individuals, professionals and companies.”

Participatory banking is also seen as a way to reach under- and unbanked populations. “A hurdle was overcome and all financial operators are now witnessing the true potential of the integration of Islamic banking and the role it can play in increasing financial inclusion. It has already enabled a wider range of people to have access to finance,” Adnane El Gueddari, director-general of Umnia Bank, told OBG.

However, for the segment to expand further, investment must be made in rural banking and administrative barriers to opening an account must be addressed. The authorities and financial institutions will also need to reach out to local populations to raise awareness of Islamic products and show how they differ from their conventional counterparts. After takaful operations begin in 2020, the three main elements of an Islamic finance ecosystem will be in place. Additional sukuk offerings will bring momentum, and with strong projected growth, participatory banking is expected to be an important driver of financial inclusion efforts.