The Role of Islamic Banking Development and its impact on Financial Stability: Evidence from Morocco’s Financial Institutions

Abstract

This paper aims to study the major phases of participative Islamic banks development in the country of Morocco, and the evolution of the participative banking landscape from the introduction of this new financial industry. The paper starts by presenting a historical overview of the first steps of Islamic finance in Morocco. This study sheds light on the first experience of launching Islamic banking products and the constraints that have hindered their development. Secondly, the paper presents the new successful start of Islamic finance in Morocco, which is reflected by the effective launch of participative banks and windows. The paper presents and analyzes the evolution of the participative banking landscape in Morocco between 2017 and 2019, based on statistical data from reports published by the central bank of this country (Bank Al-Maghrib). The findings of this study show that Morocco's monetary authorities have drawn important lessons from the first experience of launching Islamic banking products so-called alternative products. Indeed, the successful development of participative banks in Morocco requires a favorable and encouraging political, economic, and legal environment. This paper also shows that although the ecosystem of this new banking industry is still incomplete, there is a rapid evolution of Morocco's participative banking landscape.