With demand for sharia-compliant banking growing, Morocco has become the latest Muslim country to authorise Islamic banks. According to industry experts, these types of financial services could represent as much as 10% of the market. For a long time the country has been reluctant to privilege the development of the Islamic finance segment despite the overall resilience and maturity of the conventional banking system.
RESTRICTIONS: The first attempt to develop Islamic banking came in 2007, but the initiative faced several obstacles. In the past, one of the main impediments to the development of alternative banking in Morocco was non-competitive pricing. Alternative loans were subject to higher interest rates than conventional loans. This discrepancy was due to a higher value-added tax (VAT) on Islamic products – 20% versus 10% on conventional financing. Furthermore, some types of financing such as murabaha (cost-plus financing) were subject to double taxation on registration fees, with this tax being due upon the acquisition of property by the bank and upon the transfer of ownership to the customer.
In addition to an unfavourable regulatory framework, restrictions on marketing sharia-compliant financial products hampered growth. The authorisation to market Islamic banking products was introduced alongside regulations on the advertising terms and conditions. These regulations prohibit all use of religious arguments, including words such as halal, fatwa (religious ruling), Islamic or sharia, and comparisons with conventional banking. In compliance with these conditions, all Islamic products are referred to simply as alternative products in Morocco. Furthermore, Bank Al Maghrib (BAM), the central bank, has the right to review the contents of the advertisements before they are released to the public. Initially, the central bank refused to create or grant accreditation to foreign banks specialised in Islamic finance, leaving local banks to offer such products. The lack of individuals trained in Islamic banking in the country created another obstacle to the flourishing of the industry. Despite the fact that the banking sector is among the best in the region, the kingdom is late in providing training in sharia-compliant finance.
NEW LAW: The regulatory framework was updated in 2015 with Law No. 103-12 authorising independent Islamic institutions called participative banks. A board, known as the Sharia Committee for Participative Finance, was created within the Supreme Council of Islamic Scholars to rule on the conformity of financial products to sharia law. Any Islamic banking transaction is subject to preliminary approval by the board. BAM has allowed five types of transactions, namely murabaha, musharaka (joint venture), ijara (leasing), mudaraba (profit sharing) and al salam (short-term bonds). Under the new law, Islamic banks are now authorised to operate in Morocco as long as they partner with existing banks. The partner bank can hold up to, but not in excess of, 49% of the participative bank’s capital.
The new law provides for the development of a guaranteed deposit fund. This fund is intended to provide liquidity and credibility to Islamic banks, and prevent them from seeking funds from BAM against the interest rate, a practice which is forbidden. Furthermore, under the new law double taxation was removed and VAT brought down to the same level as that covering the conventional banking industry. The new law also introduces the right to issue sukuk (Islamic bonds) for the first time. The law has expanded the scope of assets that can be acquired or securitised by the organisation to tangible, intangible and financial assets.
FIRST OF MANY: The kingdom’s first Islamic bank, Umnia Bank, opened its doors in May 2017. Umnia Bank is a joint venture between Qatar International Islamic Bank and the Moroccan bank CIH Bank. BAM has also granted authorisation to other local banks to create Islamic banking windows, either on their own or with international partners. However, the Moroccan Parliament has yet to approve a bill regulating sharia-compliant insurance to offer a fully fledged Islamic service.
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