New $350 million program unleashes opportunities for financial sector growth in Morocco
The World Bank has unveiled a $350 million program to support wide-ranging reforms of financial intermediation in Morocco. The operation supports new sources of financing for small and medium enterprises (SMEs) while improving the regulatory oversight of the banking sector.
The operation also supports capital market development by broadening the range of instruments and strengthening the protection of Moroccan investors. Finally, it addresses the financial sustainability of the civil service pension fund, thereby preserving its role as a major institutional investor. The program will eventually unleash new financing solutions for small enterprises and the real economy more broadly.
To improve access to finance and promote financial inclusion, the Second Capital Market Development and Small and Medium Enterprise Finance Development Policy Loan (DPL) supports the expansion of the state’s loan guarantee schemes into Morocco’s regions. It also supports the development of credit information on new borrowers to facilitate lending decisions, as well as the provision of alternative payment services outside the traditional banking system.
This will over time improve the financial lives of households and small enterprises with hitherto limited or no access to the formal financial system. With the financial sector exposed to new risks as the economy develops and Moroccan companies diversify into Africa, the DPL also supports enhanced central bank supervision of banks particularly those belonging to large financial conglomerates that could pose a risk to the entire financial system.
Stabilizing the finances of the Caisse Marocaine des Retraites, the mandatory pension fund for civil and military services, is a key part of the program. The reform gradually increases both the retirement age and contributions, as the first stage of a comprehensive reform toward restoring financial soundness to the pension system.
The reform raises immediately the minimum pension payments for those at the lower end of the salary scale to protect the least well-off retirees and women survivors. Taken together, the reform safeguards the pension promises made by the State to its civil servants.
“Morocco has made significant progress over the past two decades in modernizing its financial system and creating an environment conducive to private sector development,”” said Marie Francoise Marie-Nelly, World Bank Maghreb Country Director for the Maghreb and Malta. “Global experience shows that private initiative is the engine of job creation, and better access to finance for SMEs, along with other financial inclusion efforts while safeguarding financial stability, will help unlock the immense potential of Morocco’s youth and women.”
Low-income households in particular are expected to benefit from the reforms supported by the DPL. Increased access to finance for small and medium enterprises will create more opportunities and generate jobs. The rise in pensions for those at the bottom wage scale will prevent any sudden drop in take home pay and help maintain their levels of consumption.
Apart from providing new sources of financing for women entrepreneurs, the reforms create new systems for electronic payments allowing women to by-pass many social and economic hurdles that have excluded them from the economy.
“Strengthening capital markets and creating a dynamic, private sector-led economy will also allow Morocco to capitalize on new investment opportunities,” said Gabriel Sensenbrenner, World Bank Lead Financial Sector Economist and Team Leader. “This program will equip the financial system with instruments that help it allocate resources to where they are most productive, while safeguarding financial stability. This is particularly important as Morocco becomes a hub for Africa’s economic development.”
This DPL complements an operation approved in March this year supporting equity financing for innovative young and fast-growing enterprises in Morocco. It is also aligned with the World Bank Group strategy to help develop capital market solutions to mobilize private financing for infrastructure projects in client countries.