| RABAT, April 7
RABAT, April 7 Morocco is set to give Islamic
finance a second try, counting on closer regulation and a
clearer legislative framework to resolve problems which plagued
its first attempt.
Banks in the country began introducing a range of Islamic
finance products in 2007, calling them "alternative finance",
but they drew little response from the majority Muslim
Both consumers and the banks themselves were unfamiliar with
the products, while the lack of a detailed legal framework for
Islamic finance also kept uncertainty and costs high.
This time, the environment is different. Morocco's
parliament is considering a detailed bill that would regulate
Islamic banks and issues of sukuk (Islamic bonds), and its
passage - which could occur this year - is expected to prompt
some Moroccan banks to establish dedicated sharia-compliant
Meanwhile, Morocco's central bank plans to set up a central
sharia board to oversee the sector. Sources aware of the plan
told Reuters that seven scholars and financial experts had
started training to become members of the board.
The political momentum behind Islamic finance has increased
since a moderate Islamist-led government took power through
elections in late 2011, and as the government struggles with a
large budget deficit; sukuk issues could attract money from
wealthy Islamic funds in the Gulf.
Said Amaghdir, chairman of the Moroccan Association for
Participative Finance Professionals, an Islamic finance business
association, said the tax treatment of sharia-compliant products
would be crucial for the industry's development.
"We are fighting to get fair taxation for the participative
products - that's how their prices would be closer to
conventional ones," he said. "It is a matter of political will."
In its current form, the proposed legislation appears to
address the tax issue well. It provides for the use of special
purpose vehicles (SPVs), while transfers of real estate between
sukuk originators and SPVs would not face double taxation, said
Houda Chafil, managing director at Maghreb Securitization, a
This is expected to favour the use of ijara sukuk based on
sale and lease-back arrangements.
As several countries in the Middle East, including Oman and
Libya, open up to Islamic finance, Morocco appears to be one of
those with the most long-term potential; almost half of the
population of about 33 million is believed to be outside the
formal banking system.
A Thomson Reuters study of Morocco, released this month,
estimated Islamic banks could account for between 3 and 5
percent of its total banking assets by 2018, or about $5.2-8.6
billion - still far below the proportion of roughly a quarter
seen in the developed markets of the Gulf.
Moroccan banks have expressed cautious interest in the
opportunities. AttijariWafa, Morocco's largest bank and
the first to establish an Islamic unit, has said it will expand
the unit after the bill passes.
Local lenders BCP, BMCE and BMCI
, a subsidiary of BNP Paribas, may launch
Islamic units of their own once the legislation is in place.
BCP, Morocco's second largest bank, aims to open an Islamic
subsidiary alongside a partner with Islamic banking expertise,
said Laidi El Wardi, BCP's general director for retail banking.
"First we want the new bank to create its own network, even
though it will not be very large. I believe in the next four to
five years, we will have at least 60 branches. For the second
phase we will start using the conventional bank networks."
BMCE Bank, Morocco's third largest, is eyeing opportunities
in sharia-compliant investment banking, takaful (Islamic
insurance) and sukuk, said Mohamed Maarouf, director of
participatory development finance at BMCE.
Foreign banks look likely to play an important role in
developing the market; Moroccan authorities may guide them
towards partnering local banks rather than establishing fully
owned Islamic subsidiaries, bankers believe.
Gulf banks from Kuwait, Bahrain and the United Arab Emirates
have expressed interest in entering the market when the bill
comes into force, said Lhassane Benhalima, the central bank's
deputy head of banking supervision.
"We remain open-minded in our vision, and joint ventures
between local banks and foreign investors are encouraged."
One banking industry source, speaking on condition of
anonymity because of the sensitivity of the issue, said he
expected the Moroccan central bank to approve the creation of
only four to six Islamic banks, to avoid crowding in the sector.
"Most of the Moroccan banks interested in Islamic finance
have already started talks with foreigners to make up joint
ventures," the source said.
The ventures will face considerable obstacles, however, in
particular a lack of consumer awareness of Islamic financial
concepts, seen in consumer surveys conducted by BMCE.
"I think that it is natural to say that they want Islamic
products, but nobody knows what Islamic finance is: they think
that Islamic finance is qard hasan (benevolent interest-free
loans)," Maarouf said.
Moroccan officials are also looking to develop Islamic
finance in areas outside banking. The Casablanca Stock Exchange
is preparing to roll out a sharia-compliant index with around 35
companies, and will seek to list sukuk, said Karim Hajji,
general director and chief executive of the exchange.
In the takaful sector, insurance companies are expected not
to be allowed to open Islamic windows and instead will have to
set up separate units, a move which could help differentiate the
firms in an insurance market that is currently dominated by the
largest four firms, the Thomson Reuters study said.
There is also a push to make the management of awqaf
(Islamic endowments) more efficient, a process started in 2012
by the Ministry of Endowments and Islamic Affairs.
The country's awqaf own about 80,000 pieces of real estate
across the country, but these tend to command low rental prices
rather than competitive market rates, said Mohammed AlKawrari,
awqaf president at the ministry.
"Moroccan awqaf are old awqaf; we have endowments that are
twelve and a half centuries old. We have inherited the old awqaf
in the historically rich old cities, such as Fez and Marrakesh,"
The ministry is studying the operations of real estate
investment funds and the possibility of engaging private
companies to help in the management of some of the properties.
However, AlKawrari conceded that the ministry faced a
challenge: modernising awqaf and maximising their returns while
avoiding a hike in rental prices, which could hurt low-income
families occupying the properties.
(Editing by Andrew Torchia)