Morocco’s Islamic finance development hinges on Takaful

Since the introduction of Islamic finance in Morocco in July last year, the absence of Takaful, which is expected to be accommodated during the first half of the year, has created significant impatience among market players who see this new segment as a catalyst for growth. MARC ROUSSOT writes.

There may not be any quantitative studies determining retail demand for Islamic insurance in Morocco; however, with insurance penetration estimated at 3.64% of the population back in 2016 by the Supervisory Authority of Insurance and Social Welfare, opportunities for Takaful operators are huge.

The demand also comes from Islamic banks that require Islamic insurance to cover their activities, in particular financing agreements. So far, Islamic banks have either recommended people to wait from signing up for a real estate Murabahah — the only financing product accommodated so far — or to undergo a medical checkup, commit to subscribing to a Takaful once accommodated and designate someone to take over the Murabahah should there be a problem if they still decide to proceed (see IFN Report Volume14 Issue34: ‘Company Focus: Bank Assafa’).

“At the beginning, Takaful will mainly cover Islamic banking products such as Shariah compliant financing agreements in the case of death or infirmity of the client, damaged assets bought with an Islamic financing, pension savings schemes, theft and loss of debit cards”, shares Nouri Saadia, the deputy general director in charge of operations for insurance of persons and damages as well as Takaful at AXA Assurance Maroc.

“Once Shariah compliant insurance is accommodated, Takaful operators’ turnover will be highly correlated to participation banks’ activity that is already showing positive signs,” confirms Hassan Boubrik, the chairman of the Supervisory Authority of Insurance and Social Welfare, Morocco’s insurance regulator. “Later on, the development of the Islamic insurance industry will depend on Takaful operators’ product offering, their capacity to attract clients and the introduction of other parts of the participative finance ecosystem,” adds Hassan.

The end of a long legislative process
Since the release of the Takaful law in September 2016 that forbids insurers to offer Islamic insurance on a window basis, insurance companies have been preparing for the creation of their Islamic subsidiary. For instance, AXA started in 2017.

“The high level of implication and willingness from the authorities and market players themselves in regulating Takaful lead us to be optimistic on the launch of the industry that is expected to occur by the end of the first half of the year,” affirms Mohamed Nadi, in charge of new markets and Takaful at AXA Assurance Maroc.

IFN understands that after months of concerted efforts between insurance companies, the Ministry of Economy and Finance and the Central Secretariat of the government, the Higher Council of Ulemas’s greenlight is the last step before the launch of the sector.

However, some clarifications and adjustments are required on certain technical, accounting and fiscal aspects to ensure that a holistic and appropriate framework is in place for the launch of this new activity. As an example, it is still unclear as to how profits from the Takaful fund will be taxed.

Other issues like the absence of a re-Takaful company, the price competitiveness vis-à-vis conventional insurance peers whose wider portfolio enables them to mutualize risks and optimize reinsurance cost, as well as the dearth of Shariah compliant investment products, will all be challenges to deal with once the industry is up and running.

This article first appeared in IFN Volume 15 Issue 05 on the 31st of January 2018

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