Launched with great pomp in Morocco in October 2007, Islamic banking and financial products have come to satisfy the increasing demand of some Muslim customers after Bank al-Maghrib, the country’s central bank, permitted the use of ijara and murabaha. Meanwhile, in the business sector musharaka was permitted to finance clients, while not posing a threat to their Islamic believes. The products currently offered in Morocco are similar to those offered as Islamic financial alternatives applied elsewhere in Africa, including Tunisia, Egypt, Senegal, and Sudan.
At the opening of the Moroccan banking system to these new products, Abdellatif Jouahri, governor of Bank Al-Maghrib, noted that “with the Professional Group of Moroccan Banks (GPBM), we have developed a variety of banking products that meet the characteristics and rules of sharia law,” in accordance with Moroccan regulations.
Commenting on this initiative, the Moroccan Association for the Protection and Guidance of the Consumer believes it is beneficial for the future banking climate of the country, “especially since the experience in other countries has been good.” In an interview with Executive, Bouazza Kherrati, the association’s president, explained that “with this partnership between the consumer and the bank, the customer is no longer used as a source of revenue because he participates in the development of society, while banks will not lose money because the system is based on partnership, investment, and profit sharing.”
According to Zoubeir Ben Terdeyet, CEO of the French firm Isla-Invest Consulting, “Morocco is one of the countries most familiar with Islamic products in the continent. Alternative products have been available for a few months already and the country offers great investment opportunities. In addition, Moroccan private banks are quite aggressive and the Casablanca Stock Exchange is very dynamic.”
With the recent buzz, promoting Islamic products in the Moroccan economy is likely to enter a new stage in the coming years. According to Zoubeir, “Islamic finance is one of the most dynamic sectors. Will Morocco’s central bank allow foreign banks to sell such products one day? If the Moroccan market remains closed to foreign banks, there is no concern. Banks will not exert a lot of effort unless they are threatened by a foreign competition, then a lot of things will be done.”
However, it is difficult to analyze the effects of Islamic products on the market since their launch in 2007 has yielded little credit and low demand. The evidence is found in the number of customers who chose these special products. According to a bank in the country, “there are only a dozen, at most. A number of them reported being discouraged by an offer they deem expensive.”
The Professional Association of Financial Companies (APSF) does not think the blur regarding the taxation of these products is likely to evaporate anytime soon. According to the APSF, “the alternative products are simply treated as conventional banking products.”
Khalid Aliou, CEO of Bank CIH, noted the results of the bank’s offerings, saying the low amount of interest in Islamic products is caused by “the stress of higher tax regulations, which make these new products more expensive than those offered by traditional banks.”
Many experts accuse the implementation of value-added taxes (VAT) as largely responsible for this situation. Indeed, in the minds of consumers, there remains a clear inconsistency between these products and those usually offered by banks. In the conventional sense, Islamic products do not produce any interest, only a negotiated profit margin is initially applied. The margin is, however, subject to VAT, making customers weary of these special products. According to a customer, “not only are they not Islamic because they include a profit margin, but they remain more expensive than conventional banking products.”
Moreover, the fiscal administration of sharia financial products treats these new products like any conventional banking service. For example, the Islamic ijara product, “which is the financing of a property on equity based on company credit, is treated by a tax on product leasing (LOA). It is therefore subject to a 20% VAT.”
Murabaha products offer another form of financing which, unlike conventional credit, allows the recipient to enjoy a good purchased by the finance company with a famously low profit. In the traditional model of credit, the finance company lends money to a customer who is himself in charge of acquiring the property.
For taxes, murabaha is considered a credit account and subjected to 10% VAT. Once the property is transferred to the borrower, the VAT dilemma will remain. The company offering murabaha credits will remain subjected to 10% VAT. Having the customer acquire the property will bring the total VAT to 20% and a sale on the basis of a 10% rate, necessitating a reimbursement of the difference. This includes repayment difficulties for VAT acquired through credit products.
In response to complaints through various media outlets over the past two months, Nourredine Bensouda, the Director-General of Taxes, highlighted the newness of these alternative products in Morocco as one explanation for all the discontent they have caused. According to him, “it is therefore the time to put in place appropriate taxation measures, like those of our predecessors in this area.”
Aware of the problems facing these banking products, the governor of Bank al-Maghrib said a study is underway to adjust the tax and standardize the cost of products.
