Morocco is finalising a new securitisation law that will allow the state and companies to issue sukuk, the Islamic equivalent of bonds. Preparations for a corporate and a sovereign sukuk are already underway, according to Islamic finance experts.
Sukuk are Islamic financial certificates that represent ownership of tangible assets (as opposed to ownership of debt). Global sukuk issuance increased by 64 per cent last year to reach $138bn, according to rating agency Standard & Poor’s.
Only a few African countries such as Sudan and the Gambia have issued sovereign sukuk, according to S&P, but several have started considering the financial instruments, including South Africa, Egypt and Tunisia.
The introduction of sukuk in Morocco will involve reform of the country’s securitisation law, which was enacted in 2002 and amended in 2010 to broaden the range of eligible assets and allow institutions other than banks to use securitisation, according to Al-Khawarizmi Group, an independent Islamic finance consultancy that published a study on the potential of sukuk in Morocco in December 2012.
The government sent parliament an amendment to the securitisation law paving the way for sukuk at the end of last year, as part of a broader financial reform aimed at developing the role of securitisation in funding the economy, says Nouaman Al Aissami, head of the credit division at Morocco’s ministry of economy and finance. The law was adopted in January and will come into effect after it is published in the country’s official gazette, which is expected to happen in the coming months once some related regulations are finalised.
Morocco became interested in sukuk after a moderate Islamist party won a majority in the 2011 parliamentary elections, says Fayçal Jamali, co-author of the Al-Khawarizmi Group study. “Also as a result of worsening economic conditions in Europe, which is Morocco’s traditional trading partner, the country wants to diversify its funding instruments and attract Middle Eastern investors,” he says.
One Moroccan “large corporate” has already planned a $500m sukuk, currently on standby until the enactment of the law, according to Jamali. A sovereign sukuk is also in preparation, he says.
Nine out of 10 institutions surveyed by the Moroccan financial market authority (CDVM) last year said they would be interested in issuing sukuk if the law allowed.
Morocco’s political stability and above investment grade rating should draw interest from foreign investors. S&P assigns to Morocco a foreign currency rating of BBB-, its lowest investment grade. In Africa, only South Africa has a higher sovereign rating, one notch above Morocco at BBB.
The country can also count on a vibrant domestic investor community. The volume of assets managed by Moroccan mutual funds amounted to Dh241bn ($28bn) in 2012, more than a quarter of the country’s GDP, according to data from the Association des Sociétés de Gestion et Fonds d’Investissement Marocains (ASFIM) – the professional association of Moroccan OPCVM (mutual funds) managers.
Rim El Honsali, general manager at ASFIM, says that Moroccan OPCVM are interested in investing in sukuk. “The introduction of sukuks will allow the creation of a new asset class and will offer an opportunity of asset diversification for the OPCVM,” she believes.
“Sukuk are essential to assure the development of Islamic finance in Morocco, and with their introduction the country has the means to access a non-negligible amount of international financing,” she adds.
The development of the Moroccan sukuk market, however, will depend on further efforts by the government to promote sound economic policies, says Jamali at Al-Khawarizmi Group.
“The principle of sukuk is to finance the real economy,” he says, “so the government will need to identify the right projects to refinance.”
