VZCZCXRO9486
RR RUEHBC RUEHDE RUEHKUK RUEHROV
DE RUEHCL #0130/01 1921502
ZNR UUUUU ZZH
R 111502Z JUL 07
FM AMCONSUL CASABLANCA
TO RUEHC/SECSTATE WASHDC 7767
INFO RUEHRB/AMEMBASSY RABAT 8029
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUEHEE/ARAB LEAGUE COLLECTIVE
RUEHLO/AMEMBASSY LONDON 0286
RUEHFR/AMEMBASSY PARIS 0566
RUEHNK/AMEMBASSY NOUAKCHOTT 2267

UNCLAS SECTION 01 OF 02 CASABLANCA 000130 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN KDEM MO
SUBJECT: MOROCCO CAUTIOUSLY INTRODUCES ALTERNATIVE BANKING PRODUCTS 
 
REF: (A) CASABLANCA 00066; (B) LONDON 002596 
 
¶1. (SBU) Summary.  Morocco's Central Bank and the Professional Group 
of Moroccan Banks (GPBM) have moved cautiously in recent months to 
introduce shariah-compliant financial instruments in Morocco.  Banks 
have been authorized to issue a limited number of Islamic products, 
but are only allowed to refer to them as "alternative financial 
products."   In addition, these alternative products will be 
governed by standard contracts, and there will be no central shariah 
oversight system, both departures from traditional Islamic banking 
practice.  The experiment with shariah-compliant products is 
intended to increase the banking rate, reduce informal shariah 
transactions, and attract investors from the Gulf.  Morocco's 
cautious approach in offering these products stems from a desire to 
maintain its image as a moderate Islamic country.  End Summary. 
 
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CENTRAL BANK TAKES MEASURED APPROACH 
------------------------------------ 
 
¶2. (U) In late March 2007, Morocco's Central Bank, the Bank Al 
Maghrib (BAM), and the Professional Group of Moroccan Banks (GPBM) 
agreed to authorize banks to offer Islamic or shariah-compliant 
products.  The decision came with several stipulations.  First, 
banks cannot make any reference to Islam or shariah in marketing 
these new offerings, and must characterize them instead as 
"alternative financial products."  Second, banks are only authorized 
to offer the following three services: (1) Murahaba, by which banks 
sell assets (such as houses) to customers on a cost plus basis; (2) 
Ijarah, a leasing mechanism which can also involve a commitment to 
transfer the asset by sale at the end of the lease; and (3) 
Moucharaka, a profit and loss-sharing mechanism between two parties 
which both contribute money. 
 
¶3. (U) Morocco's banking system has decided to wade into Islamic 
banking waters slowly.  While banks are authorized to market some 
shariah-compliant products (albeit without referring to them as 
such), there are no Islamic banks in Morocco.  An early July article 
in the Gulf Times claimed that a Doha-based bank "intended to obtain 
a license to open an Islamic bank in Morocco."  The Central Bank, 
however, has never licensed an Islamic bank, and has no plans to do 
so in the near future. 
 
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UNIQUE FEATURES OF BANKS' ALTERNATIVE PRODUCTS 
--------------------------------------------- - 
 
¶4. (U) Reflecting the Bank Al Maghrib's cautious approach to 
offering alternative financial products in Morocco, certain features 
of the products are unique.  Banks will use standard contracts for 
all three services, something that typically has not been done in 
the Middle East or elsewhere.  The contracts will be based on rules 
set out by the Accounting and Auditing Organization for Islamic 
Institutions (AAOIFI), a Bahrain-based group that sets standards for 
shariah-compliant financial products. 
 
¶5. (SBU) The decision to rely on the AAOIFI is also a departure from 
traditional practice in the Middle East, where each bank has its own 
shariah board.  In Morocco, there will be no shariah board or 
centralized shariah oversight system, making it the only 
jurisdiction to offer Islamic banking products without a shariah 
certification process in place.  According to a London-based Islamic 
banking expert, this could cause problems since customers may 
question whether products have been sufficiently vetted to ensure 
they are truly shariah compliant.  Indeed, most observers believe 
that financial institutions entering the Islamic banking market need 
a reputable shariah board to attract Muslim investors. 
 
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WHY OFFER ISLAMIC FINANCIAL PRODUCTS NOW? 
----------------------------------------- 
 
¶6. (U) According to the Central Bank, the move to permit Islamic 
banking products is intended to encourage more people to bank by 
offering a broader range of products.  (Currently, only about 20 
percent of the population uses banks).  There is also the hope that 
offering official Islamic products will cut down on informal, 
shariah-compliant transactions.  On a larger scale, Morocco's 
banking system seeks to attract investors from the Gulf, who show 
strong interest in Morocco, but may consider Islamic financial 
products essential. 
 
¶7. (SBU) Given that Islamic banking has become increasingly popular 
globally in recent years, some also perceived a need for Morocco, 
 
CASABLANCA 00000130  002 OF 002 
 
 
with its traditional and religious Muslim society, to jump on the 
bandwagon.  Khalid Oudghiri, former CEO of Attijariwafa Bank, 
underscored this point in a meeting in March, saying that a lot of 
people want to invest in Islamic financial products and that there 
is significant pressure from the Middle East to offer them. 
 
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IMPLEMENTATION ISSUES 
--------------------- 
 
¶8. (SBU) In the wake of BAM's decision to offer alternative 
financial products, banks are experiencing growing pains as they 
figure out how the products will work.  At a forum chaired by BAM 
and GPBM representatives in late June, bankers discussed the issues 
they face.  Their discussion revealed that questions remain 
regarding practical implementation of the new products.  One banker, 
for example, could see how to use Murahaba to buy land, but not how 
to use it to finance the construction of a house.  Others were 
concerned about mixing Islamic sources of finance with conventional 
ones in banks that offer both types of services.  In response, both 
BAM and the GPBM acknowledged that they need six or seven months to 
observe the products in use before they can evaluate the market's 
reaction to them. 
 
¶9. (SBU) Comment: The Central Bank's cautious approach is prudent, 
but will bring its own challenges.  BAM will have to establish a 
clear legal mechanism for handling complaints, given the program's 
newness and the absence of a central shariah oversight system. 
Whether the products will actually take off is another question. 
Not all agree with Oudghiri that there is pent up demand for such 
products, particularly as there are downsides for potential 
customers.  If you opt for a shariah-compliant home loan, for 
example, you are not charged interest and therefore cannot benefit 
from tax provisions that make interest payments for such loans 
deductible.  Such issues aside, Morocco's measured approach offers a 
middle path that meets the desire of a segment of the population for 
Islamic products in a carefully controlled way, thereby reinforcing 
the country's moderate image.  End Comment. 
 
GREENE