Contrasting visions: The broader impact of sharia-compliant banking is being debated by domestic actors

Following the publication of new banking legislation in the Journal Officiel in March 2015, Morocco is close to launching a fully-fledged Islamic banking segment (known locally as participative banking).

Setting The Standard

Since the passage of the law, Moroccan monetary authorities have been working to put in place the applicatory framework for the new segment. A royal decree issued in early 2015 created a board of 10 religious scholars to validate the sharia-compliant nature of products issued by Islamic banks, and the central bank’s Credit Establishments Committee approved several regulatory circulars covering the segment in June 2016. While three of these still need to be approved by the kingdom’s High Council of Islamic Scholars – which is also responsible for appointing scholars to the aforementioned sharia board – the segment should be up and running soon, and the central bank announced in June 2016 that it planned to start issuing licences before the end of 2016 so that banks can launch operations in 2017.

The law allows for conventional banks to create dedicated windows for sharia-compliant products, as well as for the establishment of fully-fledged participative institutions. At the time of writing the central bank had received seven applications to launch full Islamic banks, while three domestic banks – namely Société Génerale Maroc, Crédit du Maroc and Banque Marocaine pour le Commerce et l’Industrie (BMCI) – have applied to sell Islamic products under the new legislation.

In the former category, Attijariwafa Bank has applied to establish its own Islamic banking subsidiary. The lender already operates an Islamic unit named Dar Assafa, which it established in 2007 after regulatory changes allowed banks and insurance firms to market a limited selection of Islamic products such as profit-sharing loans. The other six applications for full Islamic banking licences all involve foreign banks, mostly from Gulf states. These include two – Emirates National Bank of Dubai and Masraf Al Rayan of Qatar – that intend to open fully owned subsidiaries, and four others planning to launch joint ventures with Moroccan institutions. Among the four, Qatar International Islamic Bank is to set up a sharia-compliant institution with Morocco’s Crédit Immobilier et Hotelier Bank; Bahrain’s Al Baraka Banking Group will partner with Banque Marocaine du Commerce Extérieure (BMCE); and the US-based Guidance Financial Group plans to set up a joint venture with Banque Centrale Populaire.

Dividing Opinion 

While the changes will bring a number of major new players into the segment, opinions on the wider impact of the launch of participative banking in the kingdom are mixed. “My personal view is that Islamic banking will not have an enormous impact on the sector,” Mehdi Chakir, financial analyst at the CFG Bank’s investment arm, told OBG. “There is a market of customers who reject conventional banking, but it is small compared to that which exists in Gulf countries.”

In contrast, Mohamed Tahri, deputy director-general at Société Générale Maroc, believes the market has strong potential. “Around half of respondents to a survey we conducted said they would open Islamic accounts if they were available,” Tahri told OBG, saying that the sector could account for 10% of banking assets within 10 to 15 years of its launch.

Mamoun Tahri-Joutei, director of economic intelligence at BMCE Bank, suggested a figure of up to 5% in the coming years, which he said would be obtained in part thanks to Islamic institutions’ ability to offer new options to investors. “Part of the reason for the creation of Islamic banking is to bring new products to the market in order to better attract the small and medium-sized enterprises and corporate investors who are looking beyond conventional financial system,” Tahri-Joutei told OBG.