Morocco’s latent Islamic capital awaits a market catalyst

Morocco’s participatory banking sector has expanded rapidly since its launch in 2017, building a sizeable base of Shariah compliant financing. However, this growth has yet to translate into meaningful demand for Islamic investment products – highlighting a structural imbalance in the market.

While financing activity continues to accelerate, reaching MAD34.1 billion (US$3.4 billion) by the end of 2024, according to the Ministry of Economy and Finance, investment deposits remain limited at MAD3.7 billion (US$370 million).

The divergence reflects a market that has developed primarily on the financing side, with asset management still in its early stages. This imbalance points to a broader dynamic: Morocco is sitting on a latent Islamic AuM opportunity but lacks the mechanisms to capture it, explained Walid Flifel, co-founder, CFO and head of compliance at EinveX, a fintech start-up identifying Shariah compliant listed counters on the Casablanca Stock Exchange.

“The issue is not a lack of demand, but rather the absence of a complete investment ecosystem. We have liquidity generated through participatory banking, but no efficient channels to transform it into investable products.”

Institutional constraints further reinforce this gap. He noted that Moroccan insurers alone manage MAD256.3 billion (US$25.6 billion) in assets, heavily concentrated in fixed income and listed equities. However, the limited availability of Shariah compliant instruments that meet requirements for liquidity, scale and governance had restricted allocations.

“The constraint is primarily economic and operational, not regulatory,” Walid said. “Institutional investors need depth and standardization. Without that, even a small allocation to Shariah compliant strategies becomes difficult to implement.”

Nonetheless, retail participation in capital markets is beginning to broaden, supported by recent IPO activity and increased investor engagement. This suggests that demand for investment products may be emerging, albeit gradually, noted Walid.

Ongoing regulatory developments are also encouraging. Recent reforms to Morocco’s fund framework have formally introduced participatory investment vehicles, addressing a key gap that had previously limited product development.

Still, challenges remain around product structuring, governance frameworks and distribution capabilities – which have discouraged asset managers from launching locally domiciled Islamic funds. Tax considerations also played a role, but Morocco partially addressed these issues through fiscal adjustments introduced in the 2020 Finance Law, which aimed to harmonize participatory finance taxation with conventional finance.

“The market has developed in reverse, financing first, investment later,” Walid said. “What is needed now is a credible first product that can demonstrate viability and build investor confidence.”