Since the final vote of Law n° 103-12 related to credit institutions in November 2014, Moroccans were expecting the first Islamic banks to begin their activities in 2015. However, the implementation process took longer than expected.
Review of 2016
The Islamic banking license applicants
In November 2015, all investors wishing to launch fully-fledged Islamic banks submitted their license applications. According to the legal framework, Bank Al-Maghrib, the central bank of Morocco, had to give an answer by the end of March 2016. Instead, the central bank asked conventional banks wishing to launch Islamic windows to submit their license applications before the end of April 2016.
The central bank received 11 license applications as follows:
- Seven applications for fully-fledged Islamic bank status
All the five local conventional banks wishing to launch fully-fledged Islamic banks have foreign partners as follows:
Groupe Banques Populaires’s partner is Guidance Financial Group.
CIH’s partner is Qatar International Islamic Bank.
Crédit Agricole Maroc’s partner is the IDB Group’s Islamic Corporation for the Development of the Private Sector.
- Three applications for Islamic windows
- One application for a specialized Islamic consumer finance company
Renault Maroc submitted a license application for an Islamic consumer finance company through its subsidiary specializing in car financing (RCI Finance).
The Islamic banking licensing process
According to the law, the central bank was supposed to revert to the applicants by the end of March but because of a delay as mentioned previously where the central bank instead asked banks to submit their license applications before the end of April 2016, the general manager and the head of the Banking Supervision Department held a press conference on the 30th June to give an overview of the progress of the implementation process. The main issues addressed are as follows:
- The Shariah governance framework
The Central Shariah Board for Participative Finance (part of the Higher Council of Ulamas) has already been created and its members appointed (nine scholars, a coordinator and three external experts). Moreover, a follow-up committee has also been created for better collaboration between the Central Shariah Board and the central bank.
- The regulatory framework
The central bank has prepared three circulars and submitted them to the Central Shariah Board for approval as follows:
A circular related to Islamic finance products
A circular related to investment accounts, and
A circular related to Islamic windows.
The central bank also prepared two circulars that do not need the approval of the Higher Council of Ulamas as follows:
A circular on the Shariah compliance function in participative banks, and
A circular on license application.
Seven other circulars are currently being drafted relating to prudential rules and accounting.
- The tax framework
The Ministry of Finance in 2016 introduced many amendments related to Islamic financial products to ensure the tax neutrality with conventional banking products. Nevertheless, the central bank declared that many other tax issues need to be addressed.
- The challenges
During the press conference, the central bank also listed a number of challenges and issues that need to be addressed as follows:
The Takaful legal framework needs to be voted on.
The tax framework needs to be completed.
An Islamic interbank market needs to be implemented.
Shariah compliant liquidity management instruments need to be developed.
In October 2016, a request for the assistance of the central bank in drafting the regulatory framework was issued.
According to the central bank, the licenses will be granted before the end of 2016.
The Takaful legal framework
On the 2nd August, the House of Councilors adopted Law n°59-13, modifying and completing Law n° 17-99 relating to the insurance code and introducing, for the first time, provisions concerning Takaful.
The legal framework
The Takaful legal framework in Morocco is part of the insurance code that defines all the requirements for insurance operators. The legal framework introduced several amendments and provisions related to the Takaful sector.
The Takaful sector is under the supervision of the Central Shariah Board for Participative Finance.
The main provisions of the legal framework
The law introduced the following amendments for the Takaful industry:
The Shariah compliance of Takaful operators and operations is under the supervision of the Higher Council of Ulamas which supervises the whole Islamic financial sector in Morocco including banking, Takaful and the capital markets.
In case of a Takaful deficit, the operator has to provide the funds with a free financing in order to cover all the claims.
Preview of 2017
The licenses will be granted to Islamic banks by the end of December 2016. The main challenge that will be facing the industry as a whole is the regulatory framework that needs to be achieved before the final launch of the Islamic banking activity.
For the Takaful sector, the financial authorities will start the preparation of the regulatory framework as well as the licensing process.
The involvement of the financial authorities in the implementation process of Islamic finance in Morocco has given more credibility to the industry. Nevertheless, any delay could disturb the players and the market and negatively affect the whole process.