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Morocco's Islamic Finance Sector Expands, Driven by Real Estate Boom
In a significant development for Morocco's financial landscape, Islamic financing, known locally as participative financing, has experienced substantial growth in 2023. According to the latest report from Bank Al-Maghrib (BAM), the central bank of Morocco, the sector reached a total of MAD 21.4 billion ($2.4 billion), marking a considerable increase from MAD 17.4 billion ($1.9 billion) in the previous year.
The real estate sector emerged as the primary beneficiary of this financial expansion, accounting for an impressive 80.4% of total participative financing. Equipment financing followed at 13.5%, while consumption and cash flow financing represented 6.1% of the total.
BAM's 20th annual report on banking supervision highlighted that Murabaha contracts dominate the participative financing landscape in Morocco, constituting 99% of all financing types. Salam contracts make up the remaining 1%. Murabaha financing demonstrated remarkable progress, with a year-on-year growth of 20.1%, reaching total outstanding amounts of MAD 28 billion ($3.2 billion). The net amount, excluding advance margins and unrealized profits or costs, stands at MAD 21.2 billion ($2.4 billion).
Within the Murabaha portfolio, the allocation remains heavily skewed towards real estate at 81%, followed by equipment at 13.6%, and consumption at 5.5%. This distribution underscores the significant role of the property sector in driving the growth of Islamic finance in Morocco.
The trajectory of Murabaha financing has been noteworthy since its introduction in 2018, with the sector recording its highest annual growth rates in the early years. Between 2019 and 2020, it grew at an impressive year-on-year rate of 75%.
As of May 2022, Morocco's Islamic banking sector comprises five banks and three participative funding structures within conventional banks. It's worth noting that Morocco was the last Arab country to implement the necessary legislative framework for Islamic banking institutions.
January 2022 marked a milestone for the sector with the introduction of Morocco's first Takaful insurance institution, operating in compliance with Sharia law. Concurrently, a collaboration between two Qatari financial institutions, an international insurance company, and Moroccan banking group CIH resulted in the creation of an Islamic financing insurance provider named Takaful Insurance.
While Morocco has made significant strides in developing its Islamic financing sector, it still lags behind the more established Islamic financing industries in other Muslim countries. For context, the global Islamic financing market boasted a total market cap of $2.2 trillion in 2021, with major Islamic banks predominantly situated in the Middle East.
As Morocco continues to nurture its Islamic finance sector, the country appears poised for further growth and innovation in this rapidly evolving financial landscape. The robust performance of participative financing, particularly in the real estate sector, suggests a promising future for Islamic finance in the North African nation.