After the publication of the new banking law in the official bulletin, the implementation process of a participative banking sector in Morocco has started. The main challenges facing this process are the implementation of a central Shariah governance system, the preparation of a suitable regulatory framework and the licensing process.
Review of 2015
The year 2015 was a preparatory year for launching participative banks and involving all the stakeholders in drafting the regulatory framework such as the Higher Council of Ulamas, the Ministry of Finance, etc.
The Shariah governance system
The Royal Decree published on the 9th February 2015 related to the reorganization of the Higher Council of Ulamas created officially a new commission specialized in participative finance. This new commission will play the role of a central Shariah board for the whole participative finance industry and will be in charge the issuance of Fatwas and opinions related to the Shariah compliance of:
- the products offered and the contracts used by participative banks, finance companies and microfinance institutions
- the central bank regulatory framework for participative banks (products offered, investment deposits and operations of the guarantee fund of deposits)
- the Takaful and re-Takaful operations and transactions, and
- the Sukuk issuances.
The new commission is composed of 10 scholars with a deep knowledge of Islamic law appointed by the general secretary of the Higher Council of Ulamas from among the council’s members, at least five permanent members with a proven expertise in participative finance and experts in different fields to help the commission to have a better understanding of different issues.
The members of the participative finance commission were appointed in July 2015.
The regulatory framework
On several occasions, the governor of the central bank (Bank Al Maghrib) reassured the different stakeholders about the willingness of the financial authorities to issue an adequate and a comprehensive regulatory framework for participative banks. However, this would take a bit more time because of the multiplicity of stakeholders that are participating in drafting the circulars and standards for the industry (Higher Council of Ulamas, central bank, Ministry of Finance, etc).
The central bank is willing to anticipate all the industry issues and provide the necessary solutions on the basis of an international benchmarking of best practices to ensure the soundness of the participative banking sector.
Moreover, Bank Al Maghrib plans to launch an Islamic interbank market based on Wakalah agreements to ensure liquidity for participative banks, which is a very important component that will guarantee the performance of the whole Islamic financial sector.
The main circulars to be issued by the financial authorities are:
- Guidelines about participative financial products (including investment accounts)
- Guidelines about participative windows
- Guidelines about capital adequacy ratio and the risk management framework, and
- Guidelines about Shariah governance in participative institutions.
The licensing process
The circular related to the licensing process published on the 23rd July 2015 lists the documents and the different information to be provided by investors willing to apply for a license. Furthermore, the article n°4 lists the necessary documents to be presented by investors willing to launch participative finance activities (for banks, finance companies, microfinance institutions and investment banks):
- A memorandum related to the Shariah governance system to be implemented by the institution to ensure its global compliance to the opinions of the Higher Council of Ulamas.
- A memorandum related to the management system of investment accounts and the relationships with the investment account holders.
This memorandum needs to describe:
- The strategy and policies adopted for the management of investment accounts
- The procedures adopted to protect investment account holders. (The distinction between investment accounts and other resources), and
- The procedures adopted to handle situations of conflict of interests between shareholders and investment account holders.
According to Bank Al Maghrib, the 16th November was the deadline for all investors willing to launch a participative institution to apply for a license. The circular does not address the issues related to Islamic windows and is limited to fully-fledged Islamic financial institutions (banks, finance companies, microfinance institutions and investment banks).
Preview of 2016
In 2016, Bank Al Maghrib will grant licenses to participative financial institutions and the whole regulatory framework governing the industry will be issued. By the end of 2016, the first participative institutions will launch their offerings in the market.
Despite the slowness of the implementation process of participative banks, the Moroccan financial authorities are confident about the potential of the industry and many local and foreign operators are interested in launching participative finance activities.
2016 is expected to be a decisive year for launching participative financial institutions in Morocco.