Gide Loyrette Nouel, Casablanca, May 2007
Moroccan banking regulations do not allow Moroccan banks to market Islamic finance products. The governor of the Moroccan Central Bank has refused seven requests filed by Islamic banks to establish in the Kingdom of Morocco. However, he recently announced that a recommendation should be adopted that enables marketing of alternative finance products. The idea is that there would not be Islamic or non-Islamic banks in Morocco but rather banks authorized to market all kinds of products, some being shariah-compliant and others not.
The governor has issued a draft recommendation, which will only become final after consultation of the Moroccan Banks Professional Group (Groupement Professionnel des Banques Marocaines) and a favourable opinion issued by the Committee for Credit Institutions (Comité des Etablissements de Crédit).
The recommendation should enable credit institutions to market three alternative finance products: ijara, moucharaka and mourabaha. This is viewed as a big step for the Moroccan banking sector and raises high expectations from professionals and the public.
These new products will enable Moroccan credit institutions to meet the expectations of Moroccan citizens who wish to abide by the principles of shariah (that is, Islamic law) under which riba (interest or usury) is prohibited and which imposes that one may only be entitled to profit if one takes a share of any potential loss.
Marketing such products will also contribute to reduce unofficial shariah-compliant financing transactions, as it will be possible to enter into these transactions within the official banking system.
Ijara is defined as a contract under which a credit institution leases a movable or a real estate asset (except for intangible assets) to its customer. The agreement may either be a simple lease (ijara tachghilia) or commit the lessee to purchase the asset after an agreed time (ijara wa iqtina). This product could be considered a debt product.
The owner of the relevant asset (the credit institution) bears the risk attached to ownership.
In addition to rent, the customer must pay maintenance costs to the credit institution. These costs paid to the credit institution differ from interest as they correspond to costs related to the asset and borne by the credit institution, whereas interest is consideration paid for use of borrowed funds.
Mourabaha is defined as a contract under which a credit institution acquires a movable or a real estate asset, upon the customer’s request, with a view to selling the asset to the customer for a price equal to the sum of the acquisition cost and an agreed profit margin. Payment is made in one or several instalments over no more than 48 months.
The profit margin is considered the profit made over the acquisition cost. It differs from interest as it relates to the asset, whereas interest relates solely to the cost of borrowing.
Moucharaka is defined as a contract under which a credit institution takes an interest in the share capital of a company to make profit.
Both parties contribute to the losses (up to their contribution) and to profits under an agreed allocation.
There may be two forms of moucharaka:
- Moucharaka tabita, under which the credit institution and its customer remain shareholders in the target company until the agreement between them expires;
- Moucharaka moutanakissa, under which the credit institution progressively withdraws from the share capital of the target company.
Moroccan banks are preparing themselves to avail of these interesting new possibilities. The names of these products are, for now, only indicative and each bank will adopt its own product names, which may not contain any religious content or indication.
These alternative finance products will also be of interest to the ever-growing number of investors from the Gulf region. The alternative finance products to be marketed in Morocco will be instrumented under standard agreements prepared on the basis of the rules set out by the Accounting and Auditing Organization for Islamic Financial Institutions based in Bahrain, which is in charge of setting standards for finance products that comply with shariah rules.
Hicham Naciri and Julien David