Rabat – While hailing the considerable growth witnessed of late in Morocco’s “nascent” Islamic finance industry, a new report by Fitch Ratings has concluded that the sector’s “growth potential” could face some major challenges in the future.
Islamic mortgages fall under the umbrella term of Islamic finance, a sector that has shown substantial growth in recent years. February 2022 alone marked a 37% year-on-year growth within the bracket of Islamic finance for housing. Islamic mortgages differ from atypical mortgages as they do not bear any financial interest.
Fitch Ratings’ report identified Islamic mortgage growth as a factor that could potentially “accelerate the industry’s trajectory,” noting that the Islamic finance industry was worth $2.7 billion at the end of 2022.
Growth potential in Morocco
With the vast majority of Morocco’s population being Muslim, the room for growth in Islamic finance is substantial. A 2021 report from the US government estimated that there were 36.4 million Muslims residing in Morocco, with under 1% of the population from another religious group.
The same year, the World Bank reported that only 44% of Morocco’s adult population had a bank account. In addition, the World Bank’s research showed that Morocco ranked highest worldwide for participants that cited religious reasons as to why they did not have a bank account. As such, Islamic finance could be an option for Moroccans to be included in a financial ecosystem that agrees with their religious beliefs.
Islamic banks in Morocco hope to reach a 5% market share by 2024. Morocco currently falls below other MENA countries, standing at 2% with Islamic bank market shares. Fitch Ratings’ report attributed this to the fact that the industry has only been operational in Morocco since 2017.
Tunisia is the MENA country with the highest share at 5.1% followed by Egypt and Algeria with 4% and 2.4% respectively, noted the report, citing data from the Islamic Financial Services Board.
Challenges threatening growth
Despite the sector’s considerable growth, there are still unresolved challenges in the industry as there are undeveloped areas in the finance system’s ecosystem and regulations, Fitch Ratings explained.
Other obstacles that could stunt the growth of the industry include limited Islamic product offerings, a small capital base of Islamic banks, and a lack of general awareness or confidence in the industry.
Developing financial architecture
Currently, Morocco’s Islamic finances are processed through “Islamic subsidiaries of conventional banks or Islamic windows,” Fitch ratings detailed.
In 2022, Morocco’s central bank made it a requirement for all Islamic banks to be subjected to an external shariah audit. The types of Islamic bonds known as “sukuk” expanded in the same year, and now six additional types of Islamic bonds exist in Morocco.
Adding to the developing Islamic finance industry in Morocco was the central bank’s 2020 introduction of the Wakala Bil Istithmar, the deposit product that “enables Islamic banks to access liquidity from conventional sources.” Even though this type of deposit product is more expensive, it is known to allow banks to access more liquidity sources.
