Islamic banking products spark interest in Morocco

21/10/2007

Morocco has introduced several Islamic banking products to provide alternatives to Muslims wary of traditional banking services. Although many Moroccans welcome the alternative products, banks plan to keep them expensive to reduce competition with their traditional financial products.

By Sarah Touahri for Magharebia in Rabat – 21/10/07

[Sarah Touahri] Morocco's central bank expects the alternative products to be a success

The launch of alternative banking products designed to be halal within Islam has sparked interest in Morocco. Many of Morocco's Muslims who refuse to use standard banking products have welcomed their arrival on the market, although no publicity campaign has been launched and details of the products have yet to be announced.

In response to high demand from the public, Morocco's central bank followed in the footsteps of Islamic banks around the world on October 1st, with its approval of Islamic products which offer a way around interest-bearing loans and other financial products forbidden in Islam. These so called "alternative products" include Ijarah, Musharakah and Murabahah.

Ijarah is a halal type of leasing contract between a lending institution and a customer. It can take the form of a simple lease agreement or be accompanied by a contract for the lessee to acquire the asset at the end of a fixed period.

Musharakah is a contract that enables lending institutions to help businesses finance themselves through the sale of stakes in a future or existing company. Both parties are liable for the value of their investment and each gains or loses a previously-agreed share of the profits or loses.

Murabahah enables people to acquire assets without taking out an interest-bearing loan. The bank purchases the asset and then resells it to the customer in instalments at an openly stated price, factoring in administrative costs and profit.

The new products have aroused little excitement in banks, who view them as competition to their traditional counterparts. "It's to be expected that the cost of alternative loans will be higher than that of ordinary ones," Economist Mohamed Berdai told Magharebia. "The banking lobby wants to be sure these products will not be competitive so that customers do not abandon ordinary loans. One of the ways this has been achieved is by setting short payment terms which put them beyond the reach of a lot of people."

Many Moroccans, however, are eager to learn more about the new products. Those who used to balk at the idea of taking out a bank loan for religious reasons regard the new products as a good solution. "I still don't really know much about the products that will be on offer, but at least they’re halal and will mean I can finally buy a home," said potential customer Abderrafia Tamachi.

Teacher Rabiaa Maliki is equally pleased. "My husband always refused to get a loan to buy a house. We can’t wait for the new schemes to come out."

Pointing to other Muslim countries, where Islamic banking products have garnered a large market share, the central bank predicts the new "alternative products" will be highly successful. Bank experts expect the true level of demand will emerge towards the end of the year.