Among the main legal reform projects for the upcoming year is the insertion by the legislator of new legal provisions applicable to the banking industry. A draft law has been established and should be enacted soon.
The Justice and Development Party elected in 2011 has decided to reshape Law 34-03, notably by bringing Islamic finance into the banking market. However, the underlying spirit of banking reform initiated by the new government is not limited to enabling Islamic financial products to enter the marketplace, but rather to enhance banking regulation by the authorities.
Banking reform is being undertaken via the creation of new provisions into Law 34-03. These are laid out in the draft law dated July 24, 2012 (the Draft Law) that should be enacted by the government in 2013.
The Draft Law will create new type of banks that are specialised in offering Islamic finance products. These new banks, called participative banks (banques participatives), will be supervised by the Sharia Financial Committee whose role will be to ensure that all the financial products offered to the public are sharia compliant. Sharia law can be referred to as the compilation of moral and religious rules defined by religious scriptures, scholars in Islamic law and religious leaders.
In the banking sector, the main rule stemming from sharia law is the prohibition for lenders to charge interest rates to the borrower. In light of this and other sharia law principles, the Islamic financial market developed a range of sharia-compliant products.
As for Morocco, the four following products will be introduced into the local system by the Draft Law: mourabaha, ijara; moucharaka and moudaraba.
Mourabaha is defined in the Draft Law as a contract entered into by a participative bank by which it purchases any asset in order to resell it to its client for an amount corresponding to the purchase price plus a profit agreed in advance. Whereas, ijara is a contract by which a participative bank rents to its client any asset that is owned by the bank. Moucharaka is a venture in which the participative bank engages in a project in order to make profits and share the losses with the co-party, the sharing of losses and profits being determined in advance. Finally, moudaraba is quite similar to moucharaka except that in this case, only the participative bank carries the losses the project may incur.
These four financial products represent 90% of the products offered in the global Islamic finance industry, but participative banks may develop and offer other Islamic products, provided that these are previously approved by the Sharia Financial Committee. The Draft Law further provides that other credit institutions that do not qualify as participative banks may, under specific circumstances, offer Islamic finance products.
The introduction of Islamic finance into the Moroccan legal system can be considered as a step towards harmonising local laws with international practice given the importance of Islamic finance in the current global marketplace, whether in Western or Middle Eastern countries. It can thus be assumed that this reform will attract new investors both locally and internationally.
As stated earlier, the main intention of the legislator when preparing the Draft Law was to reinforce banking regulation by the Moroccan authorities. In the preamble of the legislation, the lawmakers state that their objective is to prevent future occurrence of a systemic risk that may result from other international financial crises. To achieve that, the Draft Law is adding a new chapter called “macro-prudential supervision” to the current banking Law 34-03, whereby a new governmental supervisory body is created.
This new body, called the Supervisory and Coordination Committee of Systemic Risks, will be in charge of analysing the risks on the stability of the financial market and will collaborate with similar foreign governmental bodies to prevent systemic risks. It will be composed of members of the central bank, the treasury, the insurance and reinsurance supervisory authorities, as well as the capital market authority. Additionally, to improve the sector’s supervision, the Draft Law mandates credit institutions to appoint independent board members.
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