Moroccans on borrowing spree, new study finds

2008-04-20

Banks and credit institutions increased loans by double digits over the last year, as low and middle-income Moroccans used easy credit procedures to borrow money for homes, cars and other purchases.

By Imane Belhaj for Magharebia in Casablanca – 20/04/08

[Getty Images] Many Moroccans, particularly those with limited income, have turned to widely-available loans to help make ends meet. For some however, the practice is becoming a habit.

Moroccans with limited income are increasingly relying on personal loans to make purchases or repay existing debt, the Moroccan Ministry of Finance and Economy disclosed in a study released on April 10th.

Moroccans owe 120 billion dirhams to financial institutions and banks. While most of that debt is in the form of home loans, the study showed that personal and renewable bank loans neared 19.6 billion dirhams in 2007, an increase of 11.1% compared to 2006. Loans granted by non-bank credit institutions also surged 14% over the same period, reaching 30.6 billion dirhams.

Most troubling to government officials and economists is the study's conclusion that the borrowing rate is inversely proportionate to income level. In 2006, individuals with income below 4,000 dirhams per month constituted 53% of the total number of borrowers. The study noted that the since the poor need more cash than the rich, they get more loans, thereby perpetuating a cycle of debt and potentially aggravating poverty.

"Some brackets of society are unable to achieve their goals in life. They thus resort to loans, though they know beforehand that they might be unable to pay up at a certain point, leading to future bankruptcy or property seizure," economy professor Al-Hasan Al-Daoudi from Mohammed V University told Magharebia.

Despite the risks, many low or limited-income families find borrowed money to be their only solution. Physical education teacher Ahmed Taher said, "No matter how burdensome loans can get, they still help us make ends meet."

"There is no other option in order to face the increasing needs and demands, especially of children," said civil servant Yazid Melki, adding, "No matter how much loans cut out of monthly salaries, they manage to solve our immediate problems."

N.F., another civil servant, believes that it is impossible to live without resorting to financial institutions and banks: "For instance, to buy a house, a loan is the answer. The same thing can be said about furnishing a house, traveling, or even buying school needs or food supplies for the feast of Ramadan."

"No household nowadays is loan-free," Rashida Jaheed commented to Magharebia. "It is nonsensical to wait for years to save up in order to buy a car, which is actually indispensable in light of the transportation problems," she said.

Low interest rates, fierce competition among financial institutions and rising household consumption rates have contributed to the surge in lending and personal debt. Simplified bank procedures have also helped more people apply for loans. In most cases, bank employee Mohamed Jafaiti explained to Magharebia, banks only request a photocopy of one's ID card and the last two salary statements to decide the size of the loan. Procedures are even easier when the bank or credit institution has an existing contract with the borrower's employer.

"Strangely enough, getting used to loans drives one to apply for a new loan just as one is about to pay off the first. There is no end," said mathematics teacher Najeeb Ferak.

A previous report issued by Bank al-Maghrib noted that 93% of clients who request loans are civil servants.