RABAT, Sept 11 (Reuters) - Morocco's government is considering allowing foreign companies to list on the Casablanca stock exchange and creating a second market dedicated to small and medium-sized businesses.

The foreign companies' shares could be listed in foreign currency or in Morocco's dirham, the government said after the cabinet agreed a draft law on Thursday at the weekly cabinet meeting.

It would be the first move since the early 1990s to develop Casablanca's stock market, whose index has lost more than 20 percent in the last five years, according to data compiled by Reuters. Morocco was downgraded to "frontier market" status by index provider MSCI in 2013, due to lack of market liquidity.

The law, which would need parliament's approval, would make it easier for small and medium-sized companies to get access to capital.

The North African kingdom also plans to allow the creation of Islamic banks and enable private firms to issue Islamic debt, after parliament approved the moves last year.

It also released a decree to create a sharia board of Islamic scholars to oversee a fledgling Islamic finance industry.

"It is another step in Morocco's structural reforms," a government statement said.

The draft law would tighten control by the exchange and by the new Moroccan financial authority (AMMC) over broking activities.

It also proposes the creation of mutual funds, including exchange traded funds (ETFs) and real estate funds, and would allow trading in sukuk or Islamic bonds.



(Reporting By Aziz El Yaakoubi; Editing by Ruth Pitchford) ((aziz.elyaakoubi@thomsonreuters.com; +212623934595)(;))