Since its formal launch, the Moroccan Islamic banks have gone into business without insurance to cover their clients and their financing against risks, in particular in the event of death. The customers of Islamic banks had signed up to obligations to conclude Takaful insurance contracts as soon as this came into force. The Moroccan Islamic banks ran into some difficulties after their customers had died in the absence of insurance, causing the bank to deal with the beneficiaries to the point of canceling the profits and paying only the value of the property capital.
Review of 2022
After spending approximately nine months amending the Moroccan Insurance Code to comply with the requirements and objectives of Shariah law, the Second Chamber of the Parliament approved a draft legislation amending the insurance law.
The products of Islamic finance in Morocco, including Takaful insurance, are supervised by the Shariah committee on participatory financing of the Higher Scientific Council, Bank Al-Maghrib and the Moroccan Capital Market Authority and the Authority for the Control of Insurance and Social Reserves.
As a qualitative addition, Takaful insurance is seen as a further step in the process of achieving a participatory funding system in Morocco.
Furthermore, after many adaptations, Takaful insurance will contribute to allow Morocco to match the pace of the Islamic financial system by covering the risks. Indeed, the licensed products provide coverage for both default and death risks.
In addition, the Takaful insurance will be able — although delayed — to address the problem of risks to the benefit of the clients and the banks, and it will enable the growth of participatory banks.
Also, the funding of the participatory banks, which currently is approximately MAD6.5 billion (US$605.04 million), needs to be covered.
As well as death and disability cover, Family Takaful insurance products provide education, Hajj and pension insurance products, whereas general insurance products cover business risks.
Takaful insurance is seen as one of the most important social protection schemes in the Islamic economy, mainly because of its contribution to achieve a kind of fairness between the segments of society, in particular the most vulnerable ones who are unable, within their capacities, to deal with all potential risks.
The emergence of Islamic finance in Morocco was done under difficult conditions, and the chapters are still continuing. The stakeholders of this financing were awaiting the completion of the regulatory path toward insurance in order to be able to minimize risks and to work within an organized circle.
The completion of the Islamic finance system entails the addition of the remaining financial and other investment products that are in accordance with Shariah law, such as securities investment funds and Takaful investment funds.
In addition to these problems, there are significant pressures which lead to the breakdown of the system. There is resistance from a so-called ‘lobby’ that advocates its stance, and “some conventional banks have gotten greedy … and indeed there is some competition to Islamic finance”.
Takaful insurance is expected to contribute to the recovery of Islamic finance, and to motivate people to really embrace the services of participatory banks, as observers see that participation is still low compared to the expectations which accompanied the commitment to this type of financing in Morocco.
While some observers attribute the lower participation rate to the new nature of the project, some believe that take-up of participatory banking remained low.
The insurance services in Morocco cover about 3.5%, compared with 14% in a country like South Africa, and this represents promising opportunities to increase the level of financial inclusion in Morocco, and offers a lot of scope for the development of Takaful insurance.
Preview of 2023
In a series of ministerial decrees published last summer in the official bulletin, the Ministry of Finance specified the technical procedures for issuing and operating several types of Sukuk products, other than Sukuk ljarah, the only type of Sukuk admitted until now.
A real revolution went unnoticed this summer. It is about widening the scope of the possible in terms of issuing Sukuk with now the possibility of issuing Sukuk Murabahah, Sukuk Salam, Sukuk Istisnah or even Sukuk Mudarabah, Sukuk Wakalah and Sukuk Musharakah by market operators.
For each of these new categories, the legislator provides specific conditions of issue and negotiation published in the official bulletin.
Previously, only Sukuk ljarah, for which an inauguration took place in 2018, were possible in Morocco. Sukuk certificates are of paramount importance for the development of participatory finance in Morocco. They will allow the various players in crowdfunding to manage their liquidity and optimize the management of their resources. These certificates serve as a reference for financial players in general and crowdfunding players in particular.
For the Kingdom, this instrument makes it possible to diversify its sources of financing and broaden its base of investors. It is also at the moment the one and only issuer in this market with the placement in October 2018 of MAD1 billion (US$93.08 million)-worth of Sukuk ljarah.
Conclusion
Despite all these problems, the launch of Islamic finance in Morocco remains important and successful and requires a greater investment effort for banks, especially in the aspect of communication and awareness to reduce the dissemination of misleading data that makes an important segment of citizens reluctant to deal with this experience.
Douhaoui Mohamed Amine is the deputy director at Al Akhdar Bank. He can be contacted at [email protected].