Moroccan banks focus on microfinance and small businesses to improve financial inclusion

Measured by banking penetration, financial inclusion levels have been rising swiftly in Morocco in recent years. Estimates suggest that at the start of 2017 there were 74 bank accounts in the kingdom for every 100 Moroccans, up from 71 in June 2016, 68 in December 2015 and 50 in 2010.

FINANCIAL INCLUSION: The rapid acceleration in penetration is partly the result of a strategy launched a decade ago by the monetary authorities to boost penetration rates, key elements of which included a ban on banks requiring a minimum initial deposit to open new accounts, as well as a new rule making it compulsory for institutions to provide certain basic banking services for free.

The launch of a national postal bank, Al Barid Bank, in 2009 also opened up access to accounts for Moroccans in remote rural areas where the post office network penetrates, but in which conventional commercial banks rarely have a presence. The launch of Islamic banks in the kingdom (see overview) should further raise the financial inclusion rate, as many religious Moroccans who have avoided the conventional banking system are expected to open accounts at the new Islamic banks.

Mamoun Tahri-Joutei, director of economic intelligence at BMCE Bank of Africa, said that the number of bank accounts per capita is still growing but at a slower pace, as the rate is already high. “Islamic banking could help raise the figure,” he told OBG. He also noted that recent changes to the tax regime encouraging people to move into the formal sector could boost banks’ client bases, and that further reforms could reinforce this dynamic. “The government created a new self-employment status that sees small entrepreneurs pay a 2% tax rate, which has led to people with this status opening bank accounts,” said Tahri-Joutei. “The authorities are trying to find other ways to get people out of the informal sector, which should raise the client base.”

PAYMENT INSTITUTIONS: Nevertheless, with the informal sector likely to remain large and the rate of new bank account openings to consequently slow, the authorities are also looking to other segments to help maintain momentum in developing financial inclusion. Among these moves is the creation, under the 2015 banking law, of a new category of non-bank payment institutions. “A whole fringe of the population does not have access to any kind of financial services, and we think that these payment institutions will find a place among Moroccans without bank accounts,” Asmaa Bennani, director of payment systems and financial inclusion at the kingdom’s central bank, Bank Al Maghrib (BAM), told OBG. Regulations implementing the law were published in March 2017 (see overview).

As a complement to the creation of such institutions, in early 2017 BAM began work on a national mobile payment strategy, which should further boost inclusion, given very high mobile phone penetration rates in Morocco (see Telecoms & IT chapter). In May 2017 Nouaman Al Aissami, assistant to the director of the Department of Treasury and External Finance at the Ministry of Economy and Finance (Ministère de l’Economie et des Finances, MEF), told OBG that a pilot committee was working on the strategy and that the authorities hoped to launch it soon.

NATIONAL STRATEGY: In a move to further boost access, the MEF and BAM are working together to formulate an overarching national financial inclusion strategy. “We realised we need a global framework to cover all of our various financial inclusion initiatives and provide a structured development plan for them,” Al Aissami told OBG, adding that he believed the strategy would be the first of its kind in the MENA region. The strategy was announced as one of the priorities of the country’s new government formed in March 2017, although the authorities had begun working on it before this. In May 2017 the two institutions, which will pilot elements separately under a governance agreement reached between them, held a workshop attended by around 40 stakeholders to define financial inclusion as an early step towards designing the strategy. The strategy is expected to be finalised in 2018.

In a move to further boost understanding of the issue in the kingdom, Morocco is also cooperating with the World Bank on a study of the country as part of the international institution’s Global Financial Inclusion initiative, known as the Global Findex Database, which will involve interviewing 5000 Moroccans on inclusion-related issues; Morocco did not participate in the last round of the initiative in 2014. The results of the 2017 Global Findex are set to be released by the World Bank in spring 2018.

GUARANTEE FUND: Another key pillar of the authorities’ efforts to broaden financial inclusion has been to ensure that small and medium-sized enterprises (SMEs) have access to credit.

The main vehicle for this has been the Central Guarantee Fund (Caisse Centrale de Garantie, CCG), a state-backed institution that provides guarantees for commercial bank loans to smaller firms, as well as partial financing of its own. In 2016 more than 5000 SMEs benefitted from partial financing mechanisms supported by the institution.

The authorities also agreed with the CCG to create a fund for start-ups, which will receive Dh500m (€46.3m) in public funding. The Innov Invest Fund was officially launched in November 2017 and will aim to fund the most promising start-ups, in sectors ranging from financial technology to renewable energy and tourism. Notably, the fund will launch public-private funds managed by private firms.

The CCG is also active in the retail market through a fund called Daman Sakan (“Housing Guarantee”) that provides financing for people with irregular or informal incomes to purchase a home, and which had helped approximately 250,000 households to acquire a residence as of 2016.

Other efforts to boost SME lending include a mechanism launched in 2014 under which BAM provides banks with liquidity using loans to SMEs as collateral – though demand for liquidity has fallen in more recent years – and an SME and very-small enterprise observatory launched in 2016.

MICROFINANCE: Another important element of the efforts to bolster financial inclusion through non-bank institutions is the development of micro-finance. Morocco already has one of the most advanced microcredit segments in the region. Its transformation into a fully fledged microfinance centre has been stymied by a ban on microlenders taking deposits, although in practice some do.

As of June 2016 there were 13 microfinance associations operating in the kingdom; the segment is currently limited to these non-profit institutions. Between them the associations had total assets of Dh7.3bn (€676m), up from Dh6.7bn (€620.4m) in June 2015 – representing a year-on-year rise of 8.2%. The value of outstanding loans in the segment stood at Dh6.4bn (€592.6m), up 9.9% from a year earlier.

The segment’s non-performing loan ratio was 5%, slightly higher than the 3.8% recorded six months earlier and substantially below that of the conventional banking sector as a whole.

For the authorities, microfinance is a major vector of financial inclusion. Efforts are under way to initiate the wide-ranging reforms and defined institutional framework needed to support this transformation, with plans for a new microfinance law currently being piloted by the MEF.

A working group on the topic, including representatives from the MEF, BAM and microfinance institutions, has been established. “The recent surge in microfinance credits further indicates that alternative banking solutions will ultimately drive the sector towards more cash flowing,” Taoufik Rabbaa, managing director of Citibank Maghreb and head of Citigroup’s North Africa treasury and trade solutions, told OBG. “Non-bank payments are set to complement existing services, accompany the country’s ambitions for a higher rate of bankable population and efficiently address money laundering.”

LOOKING AHEAD: In addition to allowing micro-lenders to start taking deposits, other key changes being considered include letting private firms enter the segment without banning associations.

Analysts told OBG that allowing private companies to enter the microfinance segment would boost access to capital, as many private firms do not currently have a capitalistic structure.

The authorities are also looking at the possibility of relaxing the current cap on microfinance loans, which are limited to amounts of Dh50,000 (€4630). “We might, for example, change the focus to the average size of an institution’s credit book, rather than the value of individual loans, though nothing has been decided yet on this,” Al Aissami told OBG.