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Factsheet June 22, 2020

Questions and Answers: New US$500 million support to promote key reforms for digital transformation

  • What are the Financial and Digital Inclusion Development Policy Financing (DPF)’s main objectives?

The overarching objective of this program is to foster financial and digital inclusion in Morocco. Strengthening resilience of vulnerable households and entrepreneurs and their access to digital infrastructure and services are core objectives of the program.

The program will also support Morocco in its response to the COVID-19 pandemic and lay the foundation for recovery. It will support government efforts to (i) enhance financial inclusion outlined in the National Financial Inclusion Strategy; and (ii) accelerate the development of an accessible, quality, and affordable digital broadband service over the Moroccan territory.

  • What specific measures under the current DPF target the poorest categories of the population?

Overall, the program supports Morocco’s efforts to improve financial inclusion for small businesses and vulnerable populations including women, the rural population, and youth. Key policy actions under the program that target vulnerable segments of the population include:

Micro-insurance: Large segments of the Moroccan population (youth, female and rural populations, MSMEs etc) still do not have access to insurance products. Microinsurance products developed to address the existing gaps remain limited: as of 2018, only 1.6 percent of the Moroccan population have signed microinsurance contracts, compared to 23 percent in India. The Takaful Law, supported under this program, will allow financial institutions to offer new Sharia-compliant insurance products. The program aims to increase the number of microinsurance contracts issued from 450,000 in 2019 to 550,000 by 2023. The program also seeks to cushion individuals, households, businesses, and communities from economic shocks by diversifying the offer of microinsurance products.

Micro-finance: The microfinance sector in Morocco reaches only around 2.6 percent of the population, compared to 14.5 percent in Peru. The program supports policies to help microfinance institutions diversify their funding sources and financial service offerings, and eventually become deposit-taking financial institutions. This will not only improve access to financial services for unbanked segments of the population – especially self-entrepreneurs, women, and MSMEs – but it will eventually ensure that vulnerable populations have the financial tools to manage economic shocks and encourage them to invest.  This takes on added importance with COVID-19, as microfinance is expected to contribute to the resilience and recovery of vulnerable segments of the population.

  • How can Micro, Small, and Medium-sized enterprises (MSMEs) benefit from the reforms supported by this Program?

MSMEs are the backbone of the economy and are hence a vital source of income and jobs. The Program supports cross-cutting policy reforms to unleash their potential. These include:

Promoting access to digital services for innovative startups: Lockdown measures in response to the COVID-19 crisis opened new opportunities for digital services; however, young enterprises in Morocco have very limited access to digital and financial services that would help them grow. Alternative financial services such as crowdfunding (Internet-based financing source in the form of donations, lending, or equity) are still nascent in Morocco: in 2018, only US$3 million was mobilized by Moroccan startups, compared to US$348 million in Kenya. The program supports also more flexible foreign exchange regulations for start-ups to import goods and services required by their activities. This is expected to increase the number of businesses with e-commerce activities and will create an environment conducive to the development of crowdfunding platforms and contribute to ensuring access to finance for young enterprises.

E-procurement and SMEs: The use of e-government procurement (e-GP) remains limited in Morocco: by the end of 2016, only four bids had been submitted electronically. Without a well-functioning e-GP system, Morocco limits its ability to meet open contracting standards, and to promote both fair competition among suppliers and value for money. The program supports reforms to enhance the transparency of the e-procurement system by making e-GP mandatory. The reform will lower barriers to entry for small businesses to participate in public procurement and will help achieve the government target of 30 percent of contracts awarded to SMEs, self-entrepreneurs and cooperatives annually.

  • What are the priorities emerging from the Covid-19 outbreak that are addressed in the current Program?

While preparation of this program started in mid-2019, it has become even more critical in the context of the ongoing COVID-19 pandemic. The reforms supported by the DPF series will contribute to the following three priorities that have emerged:  (a) mitigate the impact of the COVID-19 pandemic, through cash transfers and the expansion of social protection programs; (b) help the build resilience of households and MSMEs; and (c) support the recovery by expanding digital and financial inclusion.

  • The DPF, which consists of a budgetary injection, supports reforms conducive to financial and digital transformation. How is the achievement of such reforms being assessed?

The Ministry of Finance, Economy and Administration Reform (MEFRA) is the project implementing entity. It will coordinate the implementation with other ministries and institutions involved in the reform program (including Bank Al-Maghrib, ANRT (Telecom Regulator), the Ministry in charge of industry, commerce and digital economy, and others). It will assess progress based on a set of performance indicators. The World Bank will continue to provide regular implementation support in the form of policy advice and technical assistance (TA) to the institutions involved in the implementation of the reform program.

  • This is the first tranche of the DPF in a programmatic series of three. What will be the objectives of the two other tranches and what is the timeline for their implementation/adoption?

The implementation of the reforms requires a programmatic approach, hence the two additional tranches.  The two additional tranches have the same objectives. However, given the uncertainties of the impact of the crisis, the program provides additional flexibility for these subsequent operations in the series.