Morocco is the 11th largest Muslim country in the world with an estimated population around 33 million Muslims as of 2014. Yet the Islamic finance industry has been slow to develop, with a number of factors holding back its progress. RIHAB GRASSA explores what new opportunities for the sector could lie on the horizon.
Morocco is the 13th largest Muslim economy, with GDP of over US$104.8 billion and a growth rate of 5.1% (2014). In 2014, The World Economic Forum Competiveness report ranked Morocco as the 77th most competitive country in the world (out of 139) and the 2nd most competitive country in Africa.
However, its Islamic financial market is very new. Although there were several efforts during the 1990s to initiate Islamic finance in the country, they were unsuccessful for various reasons.
Since 2006 the Moroccan government and its financial regulators have started to support the development of an Islamic financial industry. With a view to developing Islamic finance in the country, the Central Bank of Morocco, Bank Al-Maghrib, became a member of The Islamic Financial Services Board (IFSB) in 2006. In 2007, the Bank of Maghreb issued a directive for three Islamic products (RN 33/G/2007): Ijarah, Murabahah and Musharakah. As has been the case in other countries, the central bank preferred to reduce the emotional attachment of Arabic terminology for Islamic finance and preferred to call these ‘alternative’ products instead of Islamic products and only conventional banks were permitted to offer these alternative products since the establishment of an Islamic bank was not allowed in the country (only allowed in 2010).
In 2009, Islamic funding (credit) represented less than 1% of total funding provided by the banking system in Morocco. This can be explained by the fact that alternative products (Islamic) are more expensive than conventional products due to the negative impact of higher and/or double tax payments. In effect, Ijarah has been subject to imposition of 20% value added tax (VAT) and Murabahah has been subjected to 10% VAT. Whereas commercial banks are exempt from VAT. This is mainly due in part to the authorities’ argument that Murabahah involves a purchase and sale. Ijarah also involves a buy and subsequent rent payments.
During 2009 and 2010 the government made some significant regulatory changes in the tax structure to facilitate the entrance of Islamic financial institutions. “La loi de finance de 2009” removed the double imposition of registration fee. The new tax rates indicate that Shariah-approved alternative banking products will be charged the same taxes as conventional banking products and loans. And as of January 2010, the VAT on alternative banking products for Murabahah and Ijarah will be 10%, as opposed to the 20% that was previously charged.
May 2010 saw the establishment of the first Islamic bank in Morocco when Dar Assafaa was launched with a total capital of MAD50 million (US$5.7 million). Dar Assafaa is a subsidiary of Attijariwafa Bank. Attijariwafa — a conventional bank — is the largest bank in Morocco established after a merger between Banque Commerciale du Maroc and Wafabank. Dar Assafaa market a range of Shariah compliant financing products, referred to as ‘alternative products’. The first four products, available through a network of nine branches, are based on Murabahah contracts and include: finance for real estate projects, vehicle finance, the purchase of products and services and equipment for the home.
Recently the central bank announced plans to expand the range of alternative products and to permit other Islamic products like Salam, Istisnah, and Takaful. Indeed on the 25th of June 2014, the Moroccan Parliament has adopted the Law No 103.12 which allows the introduction and the development of Islamic finance and participatory banking in Morocco.
The introduction of the new law encouraged many local and international bank and Islamic finance institutions to open branches and to establish new subsidiaries in the country. Indeed, the People’s Bank of Morocco plans to open 60 branches offering Islamic finance products. As well as this, the Moroccan Foreign Trade Bank is poised to sign a strategic partnership with an operator in the GCC.