Morocco develops new framework for sharia-compliant finance

Of all the measures included in the new banking law – which came into force in February 2015 and is designed to enhance sector stability (see overview) – those that have received the most attention have to do with developing the kingdom’s Islamic banking segment. Since 2007, Moroccan banks and insurers have been allowed to offer three Islamic products: ijara (a form of lease contract), musharaka (a profit-sharing partnership) and murabaha (a type of cost-plus financing). Yet these all remained subject to conventional banking laws, and the segment failed to get off the ground, hampered by a variety of problems, such as double taxation of sharia-compliant products.

Full Fledge

The new law permits the creation of fully sharia-compliant institutions. Also in February, a royal decree was issued establishing a sharia board of religious scholars to ensure that products issued by the Islamic finance sector comply with religious stipulations. The board is to be staffed by 10 such scholars, appointed by the president of the High Islamic Scholars Council (of which the board will be a branch), as well as at least five finance specialists. The chairman of the Moroccan Association of Participative Financiers, Said Amaghdir, told media in March 2015 that the first Islamic bank would likely be up and running by the next September or October.

Local Interest

The rules issued in 2007 had a limited impact; with the February law, interest in the segment has soared, with more than 15 institutions (local and foreign) expressing interest as of February 2015, according to Hiba Zahoui, deputy director of the banking supervision directorate at Morocco’s central bank, Bank Al Maghrib (BAM). A Thomson Reuters report estimated that the share of local banking assets that are Islamic could reach 3-5% by 2018. Attijarawafa Bank’s CEO, Mohamed El Kettani, said this could reach as high as 10% by 2025. This compares to 28%, 44.6% and 49% in Bahrain, Kuwait and Saudi Arabia – the key Gulf Islamic finance markets – according to EY’s “World Islamic Banking Competitiveness Report 2014-15”.

Some Moroccan banks are expected to partner with sharia-compliant institutions from abroad to launch new Islamic subsidiaries. These include BMCE, which in October 2014 told Reuters it was preparing to launch an Islamic unit in partnership with a major Middle Eastern Islamic bank; and BCP, which has discussed similar plans in the local press and has said it intends to open 60 large branches within four to five years, focusing initially on the retail market.

Other institutions plan to build up their portfolio of sharia-compliant offerings independently. Attijarawafa Bank, which launched an Islamic unit called Dar Assafa in 2007, has said it intends to go it alone in converting the unit into a fully-fledged Islamic bank.

Major sharia-compliant institutions abroad are also positioning themselves to enter. For example, Emirates Islamic Bank, a subsidiary of UAE-based Emirates NBD Banking Group, intends to make an investment in the kingdom either in 2015 or in 2016, said its CEO, Jameel Saeed Ghalaita, in April 2015. He added, however, that the company had yet to decide whether to open a new bank or seek to acquire a majority stake in an existing Moroccan institution.

Knowledge Game

The regulator is also looking to expand the local sector’s skillsets. Local bankers in the segment will, for example, gain expertise through a training programme established in late 2014 by BAM in conjunction with the Islamic Development Bank. As part of this, BAM is sending industry figures to established Islamic banking markets such as Malaysia and Bahrain in order to observe best practices.

Early indicators suggest a large appetite for sharia-compliant institutions among potential customers. For example, 87% of respondents to a recent survey by the Islamic Finance Advisory and Assurance Services, a UK-based consultancy, said that they would transfer their banking activity to Islamic institutions within two years. The Thomson Reuters report, however, also noted that Moroccan customers’ understanding of the sharia-compliant segment was poor.