RABAT - After years of watching from the sidelines, North Africa has begun to embrace Islamic finance as banking develops and governments try to channel more Arab Gulf petrodollars into an investment-starved region.

See my note in Aqoul on investment, needless to say calling the Maghreb 'investment starved' I find irritating.

But growth could be far slower than in the Middle East given resistance from secular-minded political and business elites and more flexible views on which loans and investments are Islamic, analysts say.

Bother, they would be better to cite greater price and risk sensitivity on the part of the population - although later in the arty they do mention indirectly, which I will highlight.

Morocco and Tunisia moved to authorise Islamic finance last year, partly to encourage the investment inflows on which their fast-growing tourism and real estate industries depend.

Islamic banking in Tunisia is still limited to one bank, Bank Et-Tamweel Al-Tunisi Al-Saudi -- an arm of Albaraka Banking Group -- but Dubai's Noor Islamic Bank last month opened a representative office seeking new opportunities in the Maghreb.

"Islamic finance is promising but not yet popular in Tunisia due to a lack of information," said economist Ghazi Boulila.

Or perhaps one might admit that the same economic product is priced higher.

Morocco now allows conventional banks to offer Ijara leasing products, Murabaha contracts to buy and re-sell an underlying good and Musharaka -- co-ownership financing structures.

Analysts say Morocco's tax regime, especially stamp duty rules on mortgages, put Islamic finance at a disadvantage.

An Attijariwafabank branch manager in Morocco's capital Rabat said he offered Islamic products but had sold none so far.

There is a genuine tax issue in Morocco - but Islamic finance is not being particularly singled out, merely the cretinous tax policies in Morocco get magnified in the "Charia Compliant" legal dance.

"I was astonished to find these products were more expensive than ordinary ones," said Khalid, a teacher. "My religious beliefs forbid me borrowing with interest and I thought this was the right opportunity ... but now I have abandoned the idea."

Marhaben ila lwaqiha khouia. It is a luxury product that is more expensive.

Secular plot?

Islamists blame Morocco's secular establishment for deliberately obstructing the development of Islamic finance.

"There is a plot against these products," said Najib Boulif, economist at the opposition Justice and Development Party (PJD). "Economic lobbies are pressing the government to ensure these products don't have an important role in the market."

While normally I am okay with the PJD they've been horribly demagoging this, blaming queerly enough the banks for the tax issues and the structural expenses. Given no one generally manages to budge the Tax Authority for anything, one can hardly call the Tax Authority's grasping and cretinous nature a "secular plot."

Quick note on Algeria:

Saudi-controlled Banque Albaraka d'Algerie has become one of the country's most successful private banks by offering more sophisticated products and better customer service than bigger public sector lenders, analysts say.

True, of course this is such a low standard....

In Morocco and Tunisia, competition with the region's conventional banks will be fierce as both have developed competitive lending with low interest rates.

Islamic banks in the Gulf often charge more than conventional banks and rely on clients paying a premium for loans and investments seen as acceptable for the pious.

In other words, it is a more expensive luxury product, and all the hype in world is not going to change that.

Further,

Interest or usury?

Just what is acceptable is a subject of some debate in the Maghreb.

Many North African Muslims subscribe to the Malikite school of Islamic thought that is seen as moderate compared to conservative strains of Islam in the Middle East.

Egypt's respected al-Azhar University has issued a fatwa, or religious opinion, calling on the faithful not to consider all interest as usury, only excessive interest.

By that measure, existing Maghreb lenders might already be Sharia-compliant, at least in the eyes of some customers.

Well, let's leave aside that weasel word "moderate" - the views on interest are largely more flexible. And with an interest rate cap and generally a very low interest environment, it is hard to argue that any lending going on in the formal sector is usury.

"Many Maghreb Muslims don't consider interest to be a sin by definition. They have done conventional banking all their lives and will continue to," said Anouar Hassoune, a vice president and senior credit officer at Moody's Investors Service.

Analysts warn that while a large segment of the North African population is receptive to the ideas of Islamic finance, the average customer would tend to be poorer and less creditworthy than his Gulf peer.

"A conservative Islamic bank that wished to safeguard its respect for Sharia could find itself attracting only a mass clientele more sensitive to religious aspects but also less profitable and more risky," said Standard & Poor's in a research note.

Emphasis Added
In other words, low margin, price sensitive and not fundamentally willing to pay above the going rate simply for the luxury of some legal gymnastics dreamed up for another school of thought in any case.

Further, the customer risk is, as the analyst notes, far, far higher.

Whatever the take-up of Islamic retail products, Islamic banks are already pushing into Maghreb countries by financing big real estate, industry and tourism projects.

Bahraini Islamic investment bank Gulf Finance House is behind a $1.4 billion "Equestrian City" project over 380 hectares in Marrakesh and a luxury seaside leisure complex in Tangier including golf courses and a congress centre.

It also has a $3 billion financial hub in the works in Tunisia, a $3 billion economic development zone in Algiers and an "Energy City" in Libya worth $3.8 billion.

"What we need in the Maghreb is infrastructure that can be financed with bank loans, capital and wholesale funding from the GCC (Gulf countries)," said Hassoune. "Islamic finance can play as a bridge between the Mashreq (Middle East) and the Maghreb."

Very fair analysis.