Rabat — A new report from the ratings agency Fitch Ratings has argued that Morocco’s attempts to establish a sharia-compliant financial infrastructure continue to be impeded by various challenges.
The Moroccan government has recently approved a new law concerning sharia-compliant insurance, known as takaful, earlier this month on July 10. The new legislation has been designed to further promote the growth of Islamic financial institutions, commonly referred to as “participation banks.”
Under takaful, individuals and companies collectively contribute towards a singular fund to be used for reimbursement in the event of damage or loss. Following the government’s new legislation, companies will be permitted to launch these takaful subsidiaries.
However, the report also pointed out a number of challenges that have the potential to disrupt the growth of the industry.
Firstly, funding continues to be an obstacle for the growth of local participation banks. A lack of capital and liquidity is expected to hinder the ability for participation banks to grow rapidly.
Regardless, Fitch Ratings remained optimistic for the industry’s potential in Morocco.
Jamal El Mellali, the Associate Director of Financial Institutions at Fitch Ratings, said, “Recent developments in Morocco are consistent with the country’s efforts to build a cohesive Islamic finance ecosystem.”
The report also outlined the concern of public awareness and trust in Islamic financial infrastructure. With the industry still being relatively new and in its emerging stages, it will take time before the public has adequate trust in these institutions.
The report also cited similar developments when Islamic finance was introduced to Turkey and Indonesia, where it experienced rapid growth but then stalled at around 5% to 6% of total lending.
For the foreseeable future, Islamic finance will continue to face a number of challenges to growth in Morocco; however, the future still holds great potential for the industry.