Morocco’s lower house of parliament approves Islamic banking law

Casablanca, Asharq Al-Awsat—Morocco’s lower house of parliament has approved a new banking law, which for the first time contains articles relating to Islamic banks, paving the way for a fledgling Islamic finance industry in the country after years of false starts.

The new law—previously presented to parliament earlier in January this year and in April 2012—now awaits official ratification via a final vote in the North African Kingdom’s upper house of parliament, the House of Councilors, in the next few weeks.

The bill will allow for local and foreign banking institutions to set up Islamic banking branches in Morocco.

Currently only the country’s largest bank, Attijariwafa, which is part-owned by Moroccan King Mohammed VI’s holding company Société Nationale d’Investissement, has an Islamic banking subsidiary in the Kingdom.

But anticipating the new law, two of Morocco’s largest banks, Banque Marocaine du Commerce Extérieur (BMCE) and La Banque Centrale Populaire du Maroc (BCP), told Reuters in March they were already positioning themselves to set up new Islamic banking branches in the Kingdom.

Morocco has for years been attempting to launch an Islamic finance industry in a bid to attract Gulf money to plug its sizable budget deficit. Along with Malaysia, Gulf countries account for the lion’s share of the global Islamic finance industry, estimated to be worth 1.4–1.7 trillion US dollars.

But Islamic finance products, which Morocco only allowed conventional banks to offer in a limited capacity from 2010, never took off in the Kingdom. According to a recent Gallup poll, only around 1 percent of adults in Morocco said they had used such products, with customers complaining of higher fees than those charged by conventional lenders.

However, it is hoped the new bill, which also contains legislation pertaining to the establishment of a Shari’a committee formed in coordination with the country’s central bank, will help build a robust regulatory environment for the sector in the country.

And despite the thus far lukewarm reception to Islamic finance in Morocco, a recent joint study by Thomson Reuters and Islamic finance consultant IFAAS showed a 98-percent demand for Islamic finance products among the Kingdom’s largely untapped market of 30 million Muslim residents. The study estimated Islamic banks could account for 3–5 percent of the total banking market in the Kingdom by 2018, or about 5.2–8.6 billion US dollars, providing a “substantial opportunity for investors and financial institutions.”

Under the new bill, Islamic banks will be called “Participatory Banks,” an alternative moniker commonly used to designate Islamic banking activity, and which stresses the desire on the part of Shari’a-compliant investors to “participate” in the profits of an institution or company, without earning money on riba, or interest.

The new law also paves the way for the launch of Morocco’s first sovereign Islamic bond, or sukuk, originally scheduled for 2013 when the bill was first presented to parliament in 2012.

Like Islamic finance in general, sukuk allow for partial ownership of an underlying asset by an investor, who now “participates” in, or shares the risk involved, in the asset along with other owners.

The new banking law also contains provisions for microfinance, online and mobile banking, and the regulatory environment for the banking industry as a whole in the Kingdom.

(Asharq Al-Awsat / 26 June 2014)

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