Abdelilah Benkirane, Abu Dhabi Islamic Bank, al-Baraka Bank, al-Tijariwafa Bank, Bank al-Maghrib, Dar al-Safa, Islamic banking, Islamic Development Bank, Islamic finance, Kuwait Investment Authority, Morocco, Supreme Council for Islamic Sciences, The Netherlands
Islamic Banking in Morocco – Dr. Moshe Terdiman
Islamic Banking in Morocco
By Moshe Terdiman
RIMA Islamic Financial Papers, Volume 1 (2014), Number 1 (April 2014)
On January 16, 2014, after months of delay, Morocco’s government adopted a draft bill which regulates Islamic banks and allows for sukuk sales. This move is paving the way for a final vote by the Moroccan parliament, which is supposed to take place later this year. In case ratified, the draft bill will be added as a chapter to Morocco’s existing banking law. This will be the last step before the establishment of full-fledged Islamic banks in Morocco.
The draft bill defines Islamic banking, the types of products it can deal with, and the powers given to the governor of Bank al-Maghrib (Bank of Morocco) — Morocco’s central bank — and to the Supreme Council for Islamic Sciences — the highest Islamic authority in the country — in the matter. Under the bill, Islamic banks will from now on be called ‘Participatory Banks’, a phrase which is commonly used to designate Islamic banking activity. Islamic banks can offer, according to this bill, products having to do with profit-sharing, leasing, partnership and speculation. The central bank governor will describe these products to the customers only following consultations with the country’s Credit Institutions Committee and after receiving agreements from the Supreme Council for Islamic Sciences. Moreover, according to the draft bill, not only Islamic banks can practice Islamic financial activities but also any credit institution, small loan providers and savings and deposits funds will be able to do so provided they acquire prior permission from the governor of the central bank. The new bill places the decision-making process on the conformity of Islamic financial activities with the shari’ah in Morocco with the Supreme Council for Islamic Sciences, whereas previously it was placed with a specialized shari’ah body which was overseen jointly by the Supreme Council for Islamic Sciences and Morocco’s central bank.
On January 16, 2014, following the adoption of the draft bill by the Moroccan government, a few governmental ministers explained why the establishment of full-fledged Islamic banks in Morocco is so important. Minister-delegate for the Budget, Driss Azami, said that the creation of a legislative framework governing Islamic banking was “necessary given the belief that participatory financial products and services can make an important contribution to the mobilization of savings and financial inclusion in Morocco”. The Ministry of Finance added that several factors motivated the adoption of the draft bill, including the potential for investment and financing that this activity has in Morocco. It also noted that a range of Islamic financial products and services should be offered not only to Moroccans living in Morocco but also to Moroccans living in host countries that offer participatory finance products. The government spokesman, Mustapha al-Khalfi, said that the government intends to boost national savings substantially by the establishment of Islamic banking.
On January 20, 2014, Said Amaghdir, secretary general of the Moroccan Association of Participative Financiers, an Islamic finance business association, said more about the importance and the potential of the Islamic finance business in Morocco. He said that more than 95 percent of Morocco’s population of 34 million backs the introduction of Islamic banks. He further said that the Moroccan Association of Participative Financiers estimates total investment in shari’ah-compliant products to reach $7 billion by 2018, provided the law comes into effect by the middle of this year. He added that “plans to expand solar and wind energy, tourism and industrial parks will require billions, and the Gulf Cooperation Council will be keener on putting money here when the law is enacted”.
The History of Islamic Banking in Morocco
It must be mentioned in this context that Morocco is not new to Islamic banking, yet this sector has never really taken off. In 2007, Bank al-Maghrib authorized only conventional banks to offer three Islamic financial products: Ijara leasing products, Murabaha contracts to buy and re-sell underlying goods and Musharaka – co-ownership financing structures. The aim of this step was partly to help develop Morocco’s financial industry and partly to lure investment inflows from Gulf Arab states.
Dar al-Safa was the first Islamic financial institution in Morocco. The governor of Bank al-Maghrib approved Dar al-Safa on May 13, 2010 as an Islamic finance company specializing in the marketing of Islamic finance, but only for personal finance. Dar al-Safa is a subsidiary of al-Tijariwafa Bank, which has been one of the biggest banks in North Africa and which has been controlled by the royal family’s investment holding company SNI. The first four Islamic products which were marketed by Dar al-Safa and made available through a network of nine branches were based on Murabaha contracts and include: Safa Immo to finance real estate projects; Safa Auto for vehicle finance; Safa Cons for the purchase of products and services; and Safa Tajhiz to equip one’s home.
Despite the fact that Bank al-Maghrib made it possible for conventional banks to offer Islamic financial products, the Moroccan government imposed higher tax on Islamic financial products than on conventional banking products. Therefore, within the conventional regulatory framework, these products were subject to higher fees and were less competitive. Hence, Islamic financial products met with limited success and failed to elicit good response from the customers as some of the customers complained that these products charge higher fees than their conventional counterparts.
But, the moderate Islamist Justice and Development Party took office after winning the election in late 2011. As from that point in time, Morocco has intensified its Islamic financial drive. Already during the electoral campaign, the Justice and Development Party made Islamic banking one of its key issues, claiming that it would solve the country’s chronic shortage of liquidity, speed up economic growth, boost GDP growth by at least two percentage points, and establish Casablanca — which has maintained a relatively stable financial and investment environment on the background of the Arab Spring — as a regional financial hub known as the Casablanca Finance City with a view to winning business with other countries in North and West Africa. Therefore, for the past two and a half years, the Moroccan Prime Minister, Abdelilah Benkirane, has been seeking to develop the Islamic banking industry, partly as a way to attract Gulf money and partly as a way to fund its huge deficit balance. Morocco’s economy has suffered severely due to the Arab uprisings, the adverse weather conditions that have taken a toll on the agricultural sector and the euro zone debt crisis. Therefore, experts from the banking sector think that Islamic banking will generally bring about foreign direct investment.
Morocco had been hoping to issue an Islamic bond in 2013 and to develop an Islamic banking industry after the bill was first put to parliament in April 2012. Those plans were subsequently put on hold due to the sensitivity of the Moroccan political elite to Islamism and due to disputes over other issues in the government that eventually led to a cabinet reshuffle in October 2013.
Still, in January 2013, the Moroccan parliament approved a legislation to issue sovereign sukuks. This legislation was not part of the Islamic banking draft bill. It was part of a reform of the Morocco’s securitization law, which was enacted in 2002 and amended in 2010 to broaden the range of eligible assets and allow institutions other than banks to use securitization. The Moroccan government submitted to the parliament a new amendment of the securitization law for the introduction of sukuk at the end of 2012 as part of a broader financial reform aimed at developing the role of securitization in funding the economy. The law which allows the Moroccan government and companies to issue sukuk was adopted in January 2013. It was another step towards the establishment of full-fledged Islamic banks in Morocco.
Moreover, in June 2013, Dar al-Safa signed an agreement with the education officer’s foundation and its 350,000 members enabling it to offer the Islamic version of housing loans to the members of the foundation, most of whom are teachers, who comprise 42 percent of state employees, ahead of the approval of the Islamic banking regulating draft bill, which will allow Islamic banks, especially from the Gulf countries, to open full-fledged subsidiaries in Morocco.
Islamic Banks from the Gulf Countries Targeting Morocco
Indeed, the Moroccan Prime Minister, Abdelilah Benkirane, has been conducting meetings with Islamic banks’ leaders, especially from the Gulf countries, in order to attract Gulf money and open Morocco to Islamic banking. Abdelilah Benkirane conducted his first meeting in December 2011, even before he formed his government. This meeting was conducted with Khalid bin Thani bin Abdullah Al Thani, the chairman of Qatar International Islamic Bank and vice-president of its Qatari board. During 2012, Abdelilah Benkirane conducted more meetings with leaders of Islamic banks in the Middle East. As of the end of 2012, more than a dozen applications for new banks have been submitted to the governor of Bank al-Maghrib, Abdellatif Jouhari. Among the applicants were: the Saudi al-Rajhi group, Kuwait Finance House, Dubai Islamic Bank, the Bahraini al-Baraka Bank and the Islamic Bank of Britain.
On the other hand, Islamic banks based in the Gulf countries were interested in entering North Africa in general and Morocco in particular in order to expand their activities to other populous markets. For example, Abu Dhabi Islamic Bank expanded its activities to North Africa since it wishes to access more populous markets. On August 13, 2013, Tirad Mahmoud, the bank’s chief executive officer said that the bank applied for licenses in Algeria and Libya and was considering Tunisia and Morocco.
The Bahraini al-Baraka Bank got the approval of Tunisia’s central bank to transform its offshore business to onshore at the end of 2013. During the next two years, the bank plans to open at least another 15 branches in Tunisia, where it now has only ten. On February 17, 2014, the Chief Executive of al-Baraka Bank, Adnan Ahmed Yousif, said that he was optimistic operations in the potentially lucrative Libyan market, where the bank opened a representative office in 2011, would get going in 2014 while in Morocco new pro-Islamic banking rules could allow it to get a license. He also mentioned that the bank’s fast growing 30-branch Algerian subsidiary had now captured nearly 5 percent of the country’s foreign trade business and plans were under way for further expansion.
On March 7, 2014, two Kuwaiti banks, the Islamic Development Bank and the Kuwait Investment Authority signed an agreement with private enterprises in Morocco to invest jointly in Morocco’s private sector. This agreement aimed at boosting Islamic banking in the country.
With Islamic banking markets growing and developing throughout Africa, Morocco seems to be the next emerging market due to an increase in the demand for project and infrastructure financing, due to the backing of a supportive government as well as due to a majority Muslim population and its relative stability.
As mentioned in Standard & Poor’s Ratings Services’s report, titled “Islamic Finance Could Make Inroads into North Africa”, which was published on February 18, 2014, other factors which make North African countries in general and the Moroccan government in particular look at opportunities offered by Islamic banking include large current account deficits and declining conventional financing sources. Moreover, Islamic banking can be a good fit for infrastructure and project finance, as banks lack long-term funding capability required by these projects. Several projects in renewable energy, transport infrastructure, and communication are ongoing or expected to be launched in the future in North African countries. Using sukuk to finance some of these projects could help diversify investor bases and tap additional pools of resources.
Last but not least, the growing demand among Moroccans in Europe, especially in the Netherlands, for Islamic financial products may also affect the establishment of full-fledged Islamic banking in Morocco as well as its introduction to the Moroccan Diaspora. Thus, in trying to meet the growing demand of Moroccans in the Netherlands for Islamic financial products, two Moroccan banks, Chaabi Bank and the al-Tijariwafa Bank, were planning already in 2011 to expand their activities in the Netherlands significantly and wanted to become involved in Islamic banking.
Yet, Islamic banking may face some difficulties in case the draft bill will be ratified by the Moroccan parliament. First of all, since Islamic financial products are more expensive than conventional banking ones and Moroccans are too sensitive to banking product prices, it will be almost impossible to have Islamic financial products with the same prices as the conventional banking, at least initially. Secondly, banks that are interested in providing Islamic financial services will have to establish audit committees in order to track eventual non-compliance with the opinions of the Supreme Council for Islamic Sciences regarding banks’ operations, products, and activities supplied to the public.
Therefore, the introduction of Islamic banking in Morocco on a large scale will most likely be a gradual process and will require skilled human resources. Its success will depend on the quality of human resources surrounding it and on its ability to offer Islamic financial products at costs competitive with the conventional banking products.
 See on-line at: http://www.bloomberg.com/news/2014-01-21/morocco-weighs-pursuing-1-7-trillion-industry-islamic-finance.html; http://magharebia.com/en_GB/articles/awi/features/2014/01/21/feature-03; http://www.aawsat.net/2014/01/article55327397
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 See on-line at: http://www.stuff.co.nz/business/world/rest-of-world/645995/Morocco-develops-Islamic-financing; http://www.bloomberg.com/news/2014-01-21/morocco-weighs-pursuing-1-7-trillion-industry-islamic-finance.html; http://www.technologybanker.com/breaking-news/morocco-moves-towards-islamic-finance
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 See on-line at: http://www.internationalfinancemagazine.com/article/Moroccos-Islamic-Finance-Law-Awaits-Parliament-Nod.html; http://magharebia.com/en_GB/articles/awi/features/2014/01/21/feature-03; http://english.alarabiya.net/en/business/banking-and-finance/2014/01/16/Moroccan-government-adopts-Islamic-finance-law-seeks-vote-in-parliament.html; http://www.al-monitor.com/pulse/business/2012/10/islamic-banking-to-move-to-morocco.html; http://www.aawsat.net/2014/01/article55327397; http://northafricapost.com/4938-morocco-to-launch-islamic-banks.html; http://www.reuters.com/article/2012/03/26/ozabs-morocco-islamicfinance-idAFJOE82P06W20120326; http://www.frontiermarketnetwork.com/article/1671-morocco-opens-door-to-islamic-finance
 See on-line at: http://english.alarabiya.net/en/business/banking-and-finance/2014/01/16/Moroccan-government-adopts-Islamic-finance-law-seeks-vote-in-parliament.html; http://www.aawsat.net/2014/01/article55327397; http://northafricapost.com/4938-morocco-to-launch-islamic-banks.html; http://www.global-islamic-finance.com/2014/01/moroccan-government-receives-new.html; http://www.reuters.com/article/2012/03/26/ozabs-morocco-islamicfinance-idAFJOE82P06W20120326; http://www.ansamed.info/ansamed/en/news/sections/economics/2012/02/15/visualizza_new.html_98777833.html; http://www.frontiermarketnetwork.com/article/1671-morocco-opens-door-to-islamic-finance
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 See on-line at: http://www.theafricareport.com/North-Africa/moroccos-attijariwafa-bank-looks-to-boost-islamic-finance.html; http://www.african-markets.com/en/stock-markets/bvc/news/586-morocco-attijariwafa-s-islamic-subsidiary-targets-state-employees
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 Standard & Poor’s Ratings Services, part of McGraw Hill Financial, is the world’s leading provider of independent credit risk research and benchmarks. See on-line at: http://www.bi-me.com/main.php?id=64663&t=1