Morocco’s Central Bank, Bank al-Maghrib (BAM), is joining the growing trend in embracing sharia-compliant finance. For some time, regulators had outlawed banks from offering such products. However, earlier this year, the Central Bank announced that it would be legal for banks to offer a range of “alternative finance” options to their clients from July.
There has been a considerable amount of pressure from the private sector for the Central Bank to allow sharia-compliant, or “Islamic” finance, a fast-growing sector worth $500 billion a year internationally according to Standard & Poor’s. sharia-compliant finance is particularly popular in the Gulf Cooperation Council (GCC) region, the largest investor group in Morocco, but institutions also exist in many non-Muslim countries. More than 270 sharia-compliant finance institutions operate in 80 countries, and Standard & Poor’s estimates that compliant banks have around a 12% market share in Malaysia and 17% in the GCC area.
A recent report by Standard & Poor’s highlighted the growth of sharia-compliant banking, describing “mounting demand” and “buoyant expansion” in the sector. Many of the world’s largest banks are now moving into the market. ABN Amro opened its first sharia-compliant scheme in Pakistan this year, and Citibank has also confirmed that it will start looking into providing sharia-compliant products over the next two years.
‘Alternative’ products
BAM’s governor, Abdelattif Jouahri, has now given the go-ahead to sharia-compliant financing on the proviso that the products are referred to as “alternative” rather than “Islamic.” The 2004 banking law made the offering of “alternative” products legal, but it was not explicitly specified that this could include what are essentially sharia-compliant finance offerings.
The basis of the new products will be the same as those used in other parts of the world: interest, or riba, is forbidden, as are investments in companies involved in alcohol, gambling, armaments and pork.
Three such products have been authorized by the Central Bank and comply with regulations issued by the Bahrain-based Accounting and Auditing Organization for Islamic Financial Institutions: moucharaka, mourabaha and ijara.
Moucharaka operates rather like private equity, with the bank purchasing a stake in an unlisted company with potential, and retains it until an agreed date, or sells off the share bit-by-bit. In moucharaka, the bank takes on a share of the potential losses of the company, as well as potential profits.
Mourabaha involves the bank acquiring an asset and selling it on to a client incrementally for a profit, while ijara entails renting a property to a client, sometimes with the option to buy at the end of the contract.
It is likely that many international banks which already offer Islamic products in other countries will transfer them to Morocco, getting the scheme off to a flying start.
“We see a significant potential demand for these alternative products,” said Rachid Marrakchi, director-general of Banque Marocaine du Commerce et de l’Industrie, a subsidiary of BNP Paribas. “Our colleagues from BNP Paribas in the Gulf already have long experience with this type of product, and we are actively preparing ourselves for its introduction to the Moroccan market.”
The new products still await authorization from the Groupement Professionnel des Banques Marocaines (GPBM) and the Association Professionelle des Sociétés de Financement (APSF), the two banking trade associations.
Financial-service professionals in Morocco hope that the offering of sharia-compliant products will help drive up banking penetration rates, which have stayed at around 24% for several years, to parts of the population to which traditional banking does not appeal. They hope that this will help bring more of the informal economy out of the cold, as well as provide investors from the Gulf with the sharia-compliant products they prefer.
“The introduction of ijara, moucharaka and mourabaha should allow a widening of banking services and contribute to a higher rate of banking in the economy,” the Central Bank said in a statement.
BAM last year signed a memorandum of understanding with its counterpart in Bahrain, which has been a leader in sharia-compliant banking. The compact will allow the Moroccan institution to tap into the expertise of its partners on areas including the Islamic sector.
With an under-banked population of 33.75 million, Morocco offers interesting opportunities for players in the Islamic banking sector.
