Nour-Eddine Qaouar is a PhD Candidate in the Faculty of Letters and Humanities at Muhammad V University (Rabat, Morocco) where he studies the applicability of finance-related fatwās from classical sharīʿa to contemporary questions of Islamic finance. He is also Sharīʿa Auditor at Dar Assafaa, the Islamic window of Attijariwafa Bank, working with financial entities to ensure the sharīʿa compliance of their operations.
Interview condensed and edited for clarity
What are the major concerns of conventional banking as it concerns sharīʿa (i.e. why do normal banks not suffice)? Is it mostly the issue of usury (ribā)?
The issue with conventional banks is that they do not take sharīʿa into consideration when it comes to financial transactions and investments, including usury (ribā). Conventional banks have no financial services that satisfy the needs of a large segment of Moroccan society. Until 2014, my bank (Attijariwafa) did not have a sharīʿa auditor.
In addition, Islamic banks are now collaborating with conventional banks to create independent Moroccan Islamic banks. Attijariwafa Bank, where I work, is now transforming its Islamic window (Dar Assafa) into a full-fledged Islamic bank, Assafaa Bank. People thought the Islamic banks from the Gulf would take over after the legislation that allowed all banks to do Islamic banking in February 2017, but actually conventional Moroccan banks opened Islamic banking. Their capital is approximately 40% funded by foreign Islamic banks (mostly from the Gulf), but conventional banks fund them about 60%. The problem is that people wonder how they can continue in Islamic banking when there is a percentage of non-sharīʿa-compliant “ḥarām money” funding Islamic banks. So this remains a publicly-debated issue, and I have received many questions about it.
How do you respond to those concerns [about “ḥarām money” in Islamic banking]?
I say it’s a real issue. Some Islamic financial firms—for example AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions)—have said that it is permissible based on qiyās (analogical legal reasoning). AAOIFI has a board of reputed sharīʿa scholars who pointed to a ruling of Imam Mālik (founder of the Māliki legal school) regarding thieving tribes (mustaghriq al-dhimma) who would rob people and sell their stolen items in the market. Imam Mālik was asked about these thieves and whether one can buy these items despite being stolen. Mālik said it is allowed (jāʾiz) under the condition that we do not know from whom they stole—otherwise the items must be returned to their owner. By analogy, the conventional banks made their money in forbidden ways, but it still may be used as capital for sharīʿa banking.
Morocco is known as adhering to the Mālikī school of jurisprudence. How have Moroccan Islamic banks—or any for that matter—used the centuries-old legal traditions in establishing what is a very new domain for Islamic jurisprudence?
All Islamic banks do not necessarily follow one specific madhhab (legal school), so they tend to use talfīq (patching together content from multiple legal schools) even though Morocco’s religious realm is based on Mālikism. For example, the above example is from Mālikism and not found in the other madhhabs. Usually, Moroccan Mālikī scholars believe in adhering to one school, but Islamic banks are less interested. In 2015, the Central Bank of Morocco (Bank al-Maghrib) created a sharīʿa board with scholars nominated by the king that are working to strike a balance between Mālikism and the international trend of using talfīq in Islamic banking. The board only recently started their work a few months ago. But overall, Islamic finance has made significant progress because classical Mālikī fiqh is full of finance-related material.
What are some of the main technical issues that Islamic legal scholars are currently dealing with regarding Islamic finance in Morocco?
The recent project of law says that there are two major issues within murābaḥa, a form of Islamic financing in which a bank buys something and sells it to the client at a higher price, paid back over time (by contrast, a conventional bank would give the consumer a loan to repay with interest). The main issues, addressed by new fatwās issued by the Sharīʿa Board in March 2017, are penalties for both parties. The penalties concern what happens if the consumer does not pay their monthly payment, which has two types. In the case where someone does not want to pay (mumāṭala), a penalty is imposed as a percentage added to the person’s monthly payment. The second case is inability to pay due to hardship (al-iʿsār), in which case the reason is validated and the payment is delayed until the person is able. This was the policy of the bank where I work, but there were many who did not want to pay for the first reason. We gave their penalty money to charitable associations that help the poor.
But this past March, the Sharīʿa Board’s fatwās declared that the percentage penalty, even if given to charity, is usury (ribā). It said that if clients don’t pay, you must use jabr al-ḍarar, which means the bank’s lawyer makes a legal claim against the individual who has not paid in order to force the client to pay (including legal fees). In my opinion, getting rid of the penalties is a bit of a problem, and I believe they will revisit it.
What did Moroccans who wanted sharīʿa-compliant banking do before the emergence of ḥalāl banking? Why was it not available before the last few years?
We do not have a study that shows how Moroccans were dealing with the conventional banks except a Thomson-Reuters study which shows that almost 79% want ḥalāl financial products. But 6% of Moroccan enterprises do not deal with conventional banks. Cap al-Moucharak was the only active institution that provided sharīʿa-compliant finance for enterprises. It was an investment company working only with small-to-medium enterprises to finance them according to sharīʿa (not individuals).
Islamic banking for Attajariwafa (as Dar Assafaa) was founded in 2010 and was the only option for sharīʿa-compliant banking until this year. Before 2010, it was impossible to have Islamic banking at all.
What gave rise to the government’s recent authorization of sharīʿa-compliant banks and the ensuing emergence of several of them in Morocco?
The high political willingness played a key role in shaping the “political-economic” vision of this sector in Morocco. The king has been very supportive of increasing Islamic finance and also sees it as a way to connect economically to other countries with Islamic finance. Also, the Party of Justice and Development (parliamentary majority since 2011) significantly contributed to this. They were instrumental in passing the new regulations in parliament. If you look at the electoral platforms, it is only the PJD that is defending the project of Islamic finance in Morocco. So one of the problems we have is that only the Islamist party (PJD) supports Islamic banking.
The Central Bank itself has been gradually issuing circulaires (memoranda) since the Participatory Finance Law 103.12 was issued in 2015 in favor of Islamic financial sector. The centralization of the Supreme Council of Clerics within the central bank, which is the best sharīʿa governance model, is definitely a clear sign of state support. This prevents conflicting fatwās among multiple Islamic banks, and Morocco is now the only country besides Indonesia to have a centralized sharīʿa board for the bank.
After the recent elections—between parliamentary sessions—the government issued new regulations for Islamic finance as a way to deflect credit away from the PJD to the Central Bank.
How strong is the practical demand for Islamic banking in Morocco?
Socially speaking, studies (Thompson-Reuters 2014, IFAAS 2015) have shown that the vast majority of Moroccans would rather use Islamic financial services than conventional ones especially for religious convictions. Although the vast majority of people use conventional services, they are expected to use sharīʿa financial services once they are available.
Economically speaking, given the high unemployment rate (10%), inflation and investment drawbacks, the World Bank has admonished Moroccan policy-makers to move ahead with regulations within its financial, juristic, and fiscal framework to boost the Islamic financial sector in hopes of overcoming those issues. Also, the new sector will incorporate those who do not use conventional investment services into the financial system, which definitely will have, to some extent, a fruitful impact on Morocco’s economy. For instance, 6% of Moroccan enterprises do not deal with conventional banks, but now that we have Islamic banks, they will contribute that percentage to the economy. In addition, the Islamic financial sector will help Morocco’s financial system diversify its sources.
Can these banks reasonably expect to stay profitable while also sharīʿa-compliant? If so, how?
The Islamic financial sector would not be profitable in Morocco without making endeavors towards Islamic financial engineering (especially auditing and accounting) and sharīʿa governance. Islamic banks have to develop more sophisticated engineering models to boost their competitiveness with conventional banks and most importantly provide a good and profitable service to its clients, with respect to its juristic, fiscal, and auditing frameworks. All of the banks’ different entities like marketing, communication, sharīʿa compliance, risk management and so forth have to work side-by-side to get over any discrepancy between sharīʿa and banking operations/investment.
Sharīʿa compliance itself is of paramount importance, given that clients are particularly concerned about sharīʿa compliance more than anything else. This means that sharīʿa auditors are more entrusted to ensure the implementation of the sharīʿa governance standards set by the Sharīʿa Board within the Central Bank.