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Bank-based investing RoSCA for Islamic finance: a new alternative to drain households savings and reduce financial exclusion

BOUSALAM, Issam and HAMZAOUI, Moustapha (2015): Bank-based investing RoSCA for Islamic finance: a new alternative to drain households savings and reduce financial exclusion.


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On the arrival of the new banking law in Morocco, in august 2015, conventional banks and their foreign rivals will finally have the possibility to create their subsidiaries dedicated to microcredit, participative finance and payment, and hence, supply the market with new Islamic financial solutions for money saving and financing. In order to drain the substantial households savings escaping to classic banks, and consequently, gain ground among these latter, we think that those new Islamic finance operators should target, in almost equal proportions, people with no access to formal financing and those with religious convictions about interest rate prohibition in Islam. For this purpose, we conceptualized an innovative bank based model of Rotating Savings and Credit Associations that allows its members to invest their savings by means of the bank, and raise freeinterest rate loans with no application and management fees. In fact, The conception of this model relied on the results of a survey questionnaire we administered among 725 subjects from different social categories in Morocco to comprehend the inherent features of this informal practice (RoSCA) locally called "Daret". The first part of the answers gave us a basic data we used, by means of the two-way ANOVA (Analysis of the variance), to determine which social characteristics interact together to motivate a person to join a RoSCA. As for the second part of the answers, it gave us insights into the functioning of traditional RoSCAs in Morocco and their members preferences and perceptions on different scales. After all, we based on these findings to conceptualize the model taking into account both equity between members and sustainability of the operation. Additionally, unlike the traditional types of RoSCAs that rely on confidence and social links between members, this bank-based investing RoSCA allows people with no prior cognition to be gathered. This by introducing the bank as a guarantor and withdrawing, temporarily, a deposit for default risk to estimate by means of a risk-rating matrix we proposed. The model is, also, found to be more attractive regarding its real economy promotion through investment, risk sharing process, and integration of financially excluded households.

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