Moroccan Banks Gain Upper Hand in Sub-Saharan Markets

Rabat - Moroccan banks are well-positioned to gain a significant advantage over international banking groups seeking to increase their presence in sub-Saharan Africa. The introduction of participatory banking institutions has created a new avenue for financial services, catering to the growing demand for sharia-compliant products.

Regulatory Changes and Sharia-Compliant Products

The Moroccan banking sector has been at the forefront of Islamic finance, with regulatory changes allowing for the establishment of fully-fledged participatory banks and windows of traditional banks. The creation of a central sharia board of elders has ensured the effective regulation of this segment, paving the way for five new institutions to enter the market in 2017.

Participatory Banks

These participatory banks, including Umnia Bank, Bank Assafa, Bank Al Tamwil Wal Inmaa, Bank Al Yousr, and Al Akhdar Bank, have already made significant strides in attracting deposits and extending finance. By October 2018, they had opened over 70 branches, attracted Dh228m (€20.5m) in deposits, and allocated Dh523m (€47m) in finance.

Industry Expert Insights

Industry experts believe that these banks are well-positioned to reach 5-10% of the country’s population that is currently not part of the banking system due to religious reasons. The necessary investment for new participatory institutions has been supported by joint ventures with Middle Eastern banks, which have a track record in the participatory finance segment.

Government Support

The Moroccan government has also taken steps to position the country as a participatory finance centre, inaugurating its participatory bond market in October 2018 and selling Dh1.1bn (€98.9m) worth of sukuk (participatory bonds).

Challenges for Traditional European Banks

Meanwhile, traditional European banks may struggle to compete with these new entrants, given Morocco’s high banking penetration and mature environment. “European banks earn up to 45% of their revenue from commissions. In Morocco, commissions account for between 15% and 20%, so there is still some room for local institutions to increase some of the returns they get through margins,” said an industry expert.

Future Growth

As one of the region’s most developed banking industries, Morocco’s future growth will likely come from abroad, with regulatory changes aligning the sector’s solvability requirements and debt-classification criteria with international norms. The incorporation of new non-banking actors in the financial sector may bring about regulatory challenges, but Moroccan banks are well-equipped to navigate these issues.

Conclusion

In conclusion, the emergence of participatory banking institutions has given Moroccan banks a significant advantage over international competitors seeking to increase their presence in sub-Saharan Africa. With their sharia-compliant products and local expertise, they are poised to capitalize on the growing demand for Islamic finance in the region.