Morocco last month inched closer towards the creation of a fully-fledged Islamic finance system after lawmakers approved a bill enabling the set-up of shariah-compliant banks. While the new legislation still requires final rubber stamping, Islamic finance in Morocco could help tackle two acute economic challenges: attracting more foreign investment and creating employment.
"Africa offers significant opportunities to the global Islamic finance industry. This law is one more important step for Islamic finance as new markets are opening up which are needed to deploy capital from other regions such as the Gulf," said Afaq Khan, chief executive of Saadiq, the Islamic finance arm of Standard Chartered.
Morocco's Islamic banking plans come at a time when the kingdom is implementing a series of economic reforms after turmoil from the Arab Spring turmoil swept through the Middle East and North Africa. In order to jumpstart its frail economy, the government has cut subsidies, is reforming the country's pension system and is trying to spur competitiveness.
Aside from attracting more money from the Gulf where investors are keen on having more shariah-compliant investment opportunities, the introduction of Islamic banking may also increase access to finance for smaller businesses in Morocco.
"People in countries like Morocco realize that the era of the government taking care of all their problems is over so they're looking for other means to fund their projects and Islamic finance being asset-based is a good tool for that," said Jean AbiNader, executive director at the Washington D.C.-based Moroccan American Trade & Investment Center.
The Islamic finance sector is traditionally dominated by markets in South Asia, especially Malaysia, and the Persian Gulf. Outside those regions, a few countries have shown interest in capturing some of the shariah-compliant business opportunities. That is hardly a surprise with some of the estimates circulating such as E&Y's recent prediction that global Islamic commercial banking assets would hit the $3.4 trillion mark by 2018. The U.K. last month became the first western country to issue a sovereign sukuk and in North Africa, Tunisia and Egypt have been working on legislation related to Islamic bonds.
"Egypt, Tunisia, Kenya, Morocco, countries in Eastern Africa are all looking at different stages of implementing new Islamic banking regulation. Issuing sukuk is always a very good idea to create recognition and to create a positive dynamic," Mr. Khan said.
Despite the optimism on what Islamic finance could achieve for Morocco, its development still needs time and it's not certain whether the country eventually will become an Islamic banking center.
"In terms of volumes it will remain peripheral for now but it is complementing the existing robust banking system. The question is whether Morocco will succeed in becoming the Islamic banking center for Francophone Africa. Morocco feels it has a strong role to play there," said Mr. AbiNader.