Casablanca, Asharq Al-Awsat—A draft Islamic banking law was presented to Morocco’s government on Thursday, in a bid to widen the Islamic financial products and institutions available in the North African Kingdom.
The draft bill, which if ratified will be added as a chapter to Morocco’s existing banking law, could pave the way for the country to issue its first sovereign Islamic bond.
Morocco had been hoping to issue an Islamic bond in 2013 and to develop an Islamic finance industry after the bill was first put to parliament in April 2012. Those plans were subsequently put on hold due to disputes over other issues in the government that eventually led to a cabinet reshuffle in October.
With the government burdened with liquidity problems and a slow economy, the move aims to attract money from Gulf countries, which along with Malaysia account for the lion’s share of the global 1.4–1.7 trillion US dollar Islamic finance market.
Morocco’s economy has been hit by the effects of the Arab uprisings and adverse weather conditions that have blighted the country’s all-important agriculture sector.
Fully fledged Islamic institutions or products cannot currently operate in Morocco, but it began allowing conventional banks to offer a limited set of Islamic financial services products in 2010.
However, such products have thus far failed to penetrate the domestic market, with a mere one percent of adults in the country using an Islamic financial product according to a Gallup poll. Many customers have complained that these products charge higher fees than their conventional counterparts.
Under the bill, Islamic banks will now be called ‘Participatory Banks,’ an alternative moniker commonly used to designate Islamic banking activity, and which stresses the desire on the part of Shari’a-compliant investors to earn money on their capital—or “participate” in the profits of an institution or company—without earning money on riba, or interest.
Among the banking products that could be offered by these institutions, the bill specifically pointed out profit-sharing, leasing, partnership and speculation. Descriptions of these products to customers will be specified by the central bank governor following consultations with the country’s Credit Institutions Committee and after receiving agreement from the Supreme Council for Islamic Sciences, the highest Islamic authority in the land.
The draft law does not limit Islamic finance activities to Islamic banks. Any credit institution or product, including small loan providers and savings and deposits funds, will be able to practice Islamic finance operations provided they acquire prior permission from the central bank governor.
The new law also includes amendments which will place the decision-making process on the conformity of Islamic banking activities with Islamic Shari’a law in the North African kingdom squarely with the Supreme Council for Islamic Sciences.
That task was previously assigned to a specialized Shari’a body which was overseen jointly but the Supreme Council for Islamic Sciences and the country’s central bank, the Bank Al-Maghreb.
Islamic bonds form an alternative to finance development projects through credit, and represent joint ownership shares in an investment project with rewards linked to the performance, eschewing the need to earn money on interest.