In other North African countries such as Tunisia, Mauritania and Algeria there is one Bank that has the monopoly of the market, the AY Barks Bank. This, according to DIB, is not allowing product innovation and development. AY Barks Bank is present also in Egypt. IDS table shows also that North African region is far away to be among the top ten countries In terms of Shari’s compliant assets. The African country (Egypt) with the highest percentage of bank assets compliant with Shard’s principles Is number 12 and It has only 49% of total bank assets.
The numbers illustrated above demonstrate that the market size of the industry in his region is quite attractive, especially if we look at the number of population of this area and the percentage of Muslims is above 90% in each country. According to the Islamic Development Bank the reason of Islamic Banking underdevelopment In the area are mainly three: 1) The limited development of retail banking in general; 2) Lack of knowledge about Islamic Banking among potential customers; 3) The absence of support from the political authorities.
As our project work Is focused on the Moroccan case, we will see how the political support played a decisive role In both developing and undeveloped Islamic Banking n the Kingdom. 2. 1 DIB projects in Morocco Despite being a minor contributor to its capital, Morocco is the largest single beneficiary of Islamic Development Bank trade and funding projects among the other That is because funding is based on the accuracy of the proposed project rather than the country contribution to the Bank.
The role played by Morocco in this financing is an indicator of the need of Moroccan actors in having financial facilities conformed to Shari’s law. 2. First attempt in introducing Shari’s compliant products The very first attempt in the conversationalist of Shari’s compliant products and reviver is back to 1985 when former Waveband received the proposal from Moroccan Association for the Studies and Research in Islamic Finance (Assume) to launch Islamic Finance products in Moroccan market. Former President of Bank Waft was very sensitive to the issue and he contributed to its start-up.
Then a project team composed by Moroccan researchers was established. Supervised by Mr.. Keating who had a deep knowledge in Islamic Finance products, the project team had done a full study taking in consideration the local market, the law etc. But the day before the public launch Bank AY Manager suspended the initiative. International Banks have done other attempts, however Moroccan authorities were rejecting them, most probably to protect the already established Moroccan Banking sector. Thus, it was clear that Moroccan authorities were not interested in the introduction of Shari’s compliant products.
We will see how Bank AY Manager were putting efforts in preventing this projects without considering the market trend and the needs of the Moroccan population. 3. Bank AY Manager opens to Shari’s compliant products With a population of 99% Muslims Morocco has no Islamic Banks or Institutions. Morocco is one of the major players in the African economy, with a GAP accounting for $110,354 billion in 2011 with an annual growth between 3. 7% and 4. 9% in the last 4 years. By referring to international criteria the Moroccan Banking system is well developed and regulated.
Moroccan Banks offer a wide range of banking products and services even though they are not very sophisticated. Since 1980 Islamic Financial Institutions from leading countries were approaching Moroccan authorities in order to establish their business in the country without any success. The fist significant step in licensing Islamic financing products is back to 2005 when Bank AY Manager (the Moroccan Central Bank) took this initiative after that religious groups started illegally developing financing and funding channels interest- free conforming to the Shari’s, refusing the legal channels that were completely conventional.
Government initiative aimed to include these groups in order to monitor such activities, to avoid money laundering and funding of criminal activities. Maharajah and Muskrat, the most widely used Islamic Financing products. The Moroccan Central Bank Governor A. Jaguars stated clearly in that occasion that Morocco had no intention to settle up an Islamic Bank “Our position is clear. There will be neither Islamic banks nor non-lactic banks in Morocco. And there won’t be any discrimination among Moroccan”.
And he chose to offer these programs through the existing channels of commercial banks. Governor Jaguars stated also that they have selected financing products only to meet the Moroccan citizens needs, therefore, as the 53% of currency deposits in Moroccan Banks are non-performing deposits, there is no reason to introduce specialized Banks. It is also important to mention that no law reforms had been done at that time to better integrate the Shari’s compliant product into the market. . 2 Constraints to the new products On September 2007 Bank AY Manager issued a Recommendation (No. EARN/G/2007), which contained binding guidelines on the communication strategy to adopt in communicating the new Shari’s compliant products. In this document the Central Bank had prohibited the use of any word in communicating this products, that has a religious connotation, such us “Islamic”, “Shari’s compliant”, “hall”, “religious committee”, fatwa, “fugal” etc.
This decision created the main obstacle to the centralization of the Shari’s compliant product as their Islamic connotation (which could not be communicated in any way) constituted their distinctive competitive advantage. It is important to underline that almost half of the Moroccan population is illiterate and the main language used in the marketing campaigns is generally classical Arabic, which is not fully understandable from this big part of population. Also, a large part of population is not aware that banks products and services in Morocco are not hall.
Therefore the terminology suggested by the monetary authority (such as “alternative” or “participative” products) could not raise any awareness or interest from them. Most likely this choice were done in order to avoid the centralization of the conventional products. Stated that the Shari’s compliant products are “Islamic” or “hall” will lead easily the consumer to understand that the conventional products are “harm”. This awareness will definitely affect Banks profits. Therefore, the new products were not marketed properly and they were designed in a way to not be attractive by the most.
No official advertising campaign was done, hill conventional products has always a large space especially in radio and TV channels. There were also disadvantage in pricing compared to conventional products: for instance, Maharajah was offered for very short periods and with tight repayment Added Tax (VAT) was imposed on these products while the conventional ones were exempt. Also, Banks have calculated a high rate of return to protect themselves because the price was fixed and could not be revised.
Ajar, as it was equivalent to a leasing product, was subject to 20% VAT, Maharajah was considered as a bank loan and was subject to 10% VAT. Bank AY Manager did not focused on the tax and fiscal issues while authorizing these products and he left it to the tax authority, the Direction Gnreal des ImpöTTS which is under the umbrella of the Ministry of Economy and Finance. It is clear that conventional Banks had no interest to promote new products that can kill the existing ones. Also they had no interest in making the new products attractive and competitive.
Therefore, despite the interest of the Islamic Financial Industry in Morocco, at that time Bank AY Manager had no interests in pursuing new Financial Instruments according to Shari’s. Another factor that we should take into account is that the Islamic Banking project most probably is against the interest of the Moroccan banking lobby where the European shareholders are a strong percentage. However this situation changed after the settlement of the Islamic Government in November 2011 that has as one of his programs priorities the establishment of Islamic Financial Institutions in the country.
This time the project was welcomed from Bank al Manager after that he started suffering from lack of liquidity since 2008. 4. 3 Adjuration Bank case: 2007 Despite the difficulties some attempts in selling the new products were done. Adjuration Bank was the first financial institution to offer in 2007 a product Shari’s compliant. The products were firstly addressed to the real estate financing and they were “Mafias AY Cheer” and “Mafias AY Fat”. Few months after this launch, the consumer and auto-financing unit of Adjuration Bank, Waffles, offered “ajar AY Waft”.
The concept of this leasing is the same of AY Sarah Thumb AY Bay financing, the customer has the option to purchase the vehicle at any time and, the exception with the original rule is that he is obliged to purchase the vehicle at the end odd the leasing. The new financing product had great success according to Waffles. Also, this leasing product was 10% lower than the traditional one, this exception is the result of the effort done by Waffles in doing his own interpretation of the rules it launched this product involving 10% of VAT. After Adjuration Bank other banks were cautious in launching “alternative” products.
The Banquet moraine pour lee commerce et laundering (BOMB) launched a mortgage loan called “Ajar WA Stamina” and a Maharajah product for the general consumer and auto financing. The launch was not followed by a marketing campaign and inconsequently the products did not generate any sales. After more than four years of existence the Islamic products did not attracted more than ten Financial Institutions in Morocco, only four of those have proposed these products. It is also important to mention that the Muskrat financing was not proposed by any of these banks.
From one side the communication of the Islamic financing was limited by the constraints imposed by Bank AY Manager, but from the other side Moroccan banks have not dedicate them the Marketing effort they normally dedicate to conventional reduces where they are concentrating their effort so far. Even basic communication tools to customers as well as employee product training were not made. 4. Recent developments The Islamic Development Party (PEG) used the introduction of Islamic finance products and institutions one of the main points of its campaign.
After winning the elections in 2011 they it started immediately to work in this direction opening new prospective for the Moroccan economy. Expert say that this opines could attract up to $5 billion in investments over the next three years, especially petrodollars. On January 2012 the PEG parliamentary proposed a bill to introduce an Islamic banking system including banks, insurances, SKU, investment funds, charity funds, etc. The aim is to have an independent Islamic financial system in parallel with the established conventional one, following the successful example of Malaysia.
However Bank AY Manager idea is to follow a progressive approach. At first stage priority will be given to Islamic banks, after the efforts will be concentrated in completing the financing products (for instance Salaam and Assistant’), then, as a third step, it will be mime to develop SKU and tactful products. Several International Institutions from all over the world are submitting their application forms to Bank AY-Manager and Moroccan Prime Minister Mr.. A. Banker had several meetings with financial groups and investors.
However, following the Central Bank plan, only one institution will be developed in the first months then, depending on its performance, others will be taken in consideration. The spokesman of the Ministry of Finance says that the first Islamic Institution will be starting its activity on October 2013. 5. 4 Assessing the internal demand There is no doubt that Moroccan authorities are pursuing the introduction of Islamic financial products with the aim to follow the trend to be part of an important market, fulfilling its needs to increase the Country liquidity attracting new Investments from the Gulf area.
An independent market study published last year from Islamic Finance Advisory ; Assurance Services (FAST) shows a strong interest (more than 90% of Moroccan) from Moroccan consumers for Islamic Financial products and services. It also emphasizes the unsatisfactory of Moroccan consumers about the raked. Considering that Moroccan banking rate is around 30%, the introduction of an Islamic Financial system will increase the penetration of financial products among the consumers increasing the banking rate of the country. . 5 Banking law regulation The banking bill proposal is expected to be approved on April 2013 contains a chapter dedicated to the expected Islamic financial activities in the country. Once again the text address the Shari’s compliant institutions and products as “participatory’. The bill proposal is crucial for the institutionalizing of the Islamic uncial institutions in Morocco and the entrance of new financial actors in the Moroccan market.
For the purpose of our work we highlight some points of the project: * It is mentioned that conventional financial institution can trade and develop the Shari’s compliant products; * The “Shari’s Committee for Finance” will be established. The Committee secretariat will be appointed by the Central Bank and the Committee recommendations will be binding for all the financial institutions. The bill proposal is now auditing by the High Council of Llama of Morocco. 5. The Shari’s Committee for Finance The banking law project comprehends the creation of Shari’s board composed by financial experts and academics.
The board will be under the direction of the High Council of Llama of Morocco, which is under the umbrella of the Ministry of the Religious Affairs. The role of the committee will be verifying the compliance to the Islamic law of the products and services offered to the public by the Islamic institutions. It will also be playing a consultative role for the new financial institutions and will express its opinion on their communication campaign. Finally the Shari’s board will be playing the same role with the conventional institutions that will be offering these products.
Conclusion Despite the internal efforts to obstruct the development of Islamic Financial Industry in Morocco, important steps were taking. The Moroccan authorities are still reluctant in tacking seriously this project but there are several factors that will lead them to facilitate this new project. First of all, there is a convinced political wiliness to engage in this way, which come from the leading party. Secondly the credit crisis that effected the conventional financial sector demonstrate its fragility at the expenses of the national economies, in particular the weak ones.
