From the ground up: New legislation promises to introduce more Islamic finance options

Islamic finance is set to take root in Morocco after a new banking law is passed by parliament, currently anticipated for spring 2013. The law allows fully fledged Islamic banks, with up to 49% foreign shareholding, and institutes regulations on a number of Islamic finance products. It will also include legislation on securitisation – an amendment that would open the Casablanca Stock Exchange to sharia-compliant bonds, or sukuk, which is expected to raise activity on the bourse.

EXISTING INTEREST: Abderrahim Bouazza, director of banking supervision at Bank Al Maghrib told OBG that the central bank has received several requests for Islamic banking licences from foreign banks. Qatar International Islamic Bank (QIIB) and Faisal Islamic Bank have publicly expressed their interest in moving to Morocco and would be able to operate sharia-compliant banks when the law is passed. This would bolster the country’s ambitions to become a regional centre for financial services, with the Casablanca Finance City.

Currently, Morocco does not allow full Islamic institutions, but in 2010 the government allowed a limited range of sharia-compliant services and products to be offered by conventional banks. There has been mixed reception to those offerings so far. Morocco’s largest bank by assets, Attijariwafa Bank, already has a subsidiary, Dar Assafa, which offers Islamic financial products, along with deposit services.

NEW OPPORTUNITIES: The new piece of legislation fits within a broader trend of countries, whether Muslim majorities or not, turning to Islamic finance as an alternative to traditional banks.

African Banker magazine reported in November 2012 that global Islamic banking assets under management were estimated at just over $1trn and are expected to reach $4trn by 2020.

The new range of financial institutions will help to address the kingdom’s liquidity shortage (see overview), but may affect other indicators, like retail penetration. Ghyzlaine Alami Marrouni, the project head of strategy and development at Attijariwafa Bank, told OBG that surveys indicated it was unlikely bank penetration would increase on the back of the new law. “Studies suggest that some people who already bank in traditional banks may shift progressively to Islamic banks, depending on pricing, and demand for loans may grow with the introduction of sharia-compliant financing.”

ONGOING EFFORTS: It may take some time before Islamic banks are able to garner a sizeable share of assets in the sector compared to their conventional peers. The establishment of sufficient critical mass will be a major factor contributing to the success of Islamic banking. “There needs to be enough of them to form an Islamic interbank market and they could then finance themselves, lower their profit margins and compete in the traditional market,” Belkacem Boutayeb, an expert on Islamic banking, explained to media outlet, Alqarra TV.

The introduction of sharia-compliant debt could have a more immediate impact on the country’s capital markets, however. The Casablanca Stock Exchange has seen modest activity over the last couple of years, but has sought to increase the range of instruments traded, particularly in light of the Casablanca Finance City initiative. Sukuk could bring the stock exchange much-needed activity by attracting new investors.

The sector is eager to embrace the opportunities that the new law will introduce and preparations are underway at Bank Al Maghrib and the Casablanca Stock Exchange. Additionally, to help provide the necessary expertise, the Université Internationale de Rabat recently launched a new Masters of Islamic Finance degree.