Almost all of the pieces are in place for Islamic finance to start offering products in the second half of 2017, adding yet another sector supporting Morocco as an investment destination. With Europe’s economic recovery still sputtering, the kingdom needs more sources to fund its impressive and ambitious economic development, from supporting consumer-focused enterprises to large-scale industrial projects. This is where Islamic finance can provide a novel funding stream.
A recent article in African Business Magazine focused on the current forces in play that will affect the future of Islamic finance in Morocco. The article mentioned that it’s no coincidence that the country is off to a strong start in this sector. According to Simon Auquier, counsel at the French law firm Gide (which has been in Morocco for years), “Morocco was somewhat of a safe haven following the Arab Spring,” he says. “Political and social stability continued while some of our neighbours struggled.” “The introduction of real constitutional reform in Morocco following the Arab Spring did a lot to placate the population,” says Wacef Bentaibi, partner at Gide. “And our relative stability in the region has continued to draw in business and investment into the country.”
Morocco has been quite active in encouraging inflows of investment capital. The government passed preferential tax legislation and other incentives to bring financial services companies to Casablanca Finance City (CFC). Its mission is to promote Morocco’s relatively cheap labor, skilled workers, distribution networks in sub-Saharan Africa, and strong relations throughout the region to attract international companies. CFC, along with Morocco’s location as a natural bridge between Europe and Africa, makes sense to firms interested in the continent.
“When we were looking at setting up shop in Morocco as early as 2006, we saw that there were real efforts made to make the environment friendly for business,” says Adil Hajjoubi, general director at AlShall Morocco, a consulting and investment firm based in Rabat. “We opened up our office in Morocco in 2008, and following the Arab Spring, we saw the government’s commitment to creating a vibrant business environment that works. Legislation in Morocco isn’t applied just for cosmetic reasons but for real reasons.”
A long-time veteran of US business in Morocco, Patrick Dupoux of Boston Consulting Group, has been quite involved in developing the country’s economic strategy as his firm has advised several government agencies dealing with trade, investment, and economic development. He said, “We chose to open up offices in Morocco and South Africa at the same time. We chose Morocco because of its political stability, its mature market and open economy. Since then, the Casablanca Finance City has further improved the ease of doing business in Africa, in particular on the recruiting process of African talents.”
To have the broadest possible options for financing growth, Morocco opened its doors to Islamic finance. While largely unknown in the US, its banking principles are based around the concept of shared risk as the basis for profit rather than making money by charging for the use of money, which we call “interest.” To make clear the distinction, Morocco has categorized Islamic banking as participatory finance, which reflects the Islamic principle that risk must be shared by all parties to the transaction.
Since Morocco already had many products in the market that complied with Islamic financial principles, the new offerings have their own special labeling. According to Ismail Douiri, co-CEO at Attijariwafa Bank based in Casablanca, one of the five banks with approved Islamic banking arms, “The authorities needed to ensure that Islamic finance was not only sharia compliant but was in line with the constitution.” A board was established within Morocco’s Supreme Council of Islamic Scholars to rule on the consistency of financial products in accordance with Islamic law, and to ensure transparency.
Although the bank penetration rate is 65% in Morocco, there is still a large part of the population that does not use conventional banks because of the Islamic prohibition on paying interest without risk-sharing. They “still rely on family loans, hiding money under the mattress and using cash for small and large transactions. Bringing them into the formal banking sector will increase deposits, bank liquidity, could potentially raise taxes and could stimulate further economic growth,” according to Douiri. Nonetheless, he concluded that “The vast majority of the population is banked (already using banks) and didn’t see contradictions between their accounts and religion then, so I’m not sure they will see any now.”
The article concludes: “As Morocco continues to roll out participatory financial products and services slowly and cautiously, the sector will remain a niche. Islamic finance may not be much more than another string to its bow in terms of what the country can offer potential partners.” Whether or not Islamic finance contributes to a growth of 5% or 15% of the banking sector, the range most mentioned by analysts, it is another demonstration of Morocco’s commitment to promoting a broad and vibrant investment and banking sector serving diverse needs.