“Islamic banking is not exclusive to Muslims.” Thus states Arifa Ala, Assistant Governor of the Bangko Sentral ng Pilipinas (BSP) during the central bank’s Laging Handa press briefing held earlier this week.
“By establishing an Islamic banking system, we will be providing the Filipino people, whether Muslims or non-Muslims, financial products to serve their requirements,” Ala said during the briefing. “It could even provide an alternative set of financial products outside of conventional financial institutions.”
She adds that the government is currently adopting a “whole-of-government” approach to ensure a level playing field for both conventional and Islamic banking systems.
Islamic banking, also known as Islamic finance or Shariah-compliant finance, refers to financial activities that adhere to the Shariah law, the fundamental religious concept of Islam.
As such, it uses the Shari’ah principle, wherein risks and profits are shared both by the financial institution and the account holders.
“In an Islamic banking institution, a partnership is created and the clients and the Islamic bank share in the profits and risks arising out of investing those funds,” Ala elucidates as she explains the difference between conventional banks versus Islamic banking — wherein a debtor-creditor relationship is created whenever a person opens a bank account.
Islamic banking is not new in PH
Islamic banking, according to Ala, is not really new in the Philippines.
In fact, one of the first Islamic banks in Southeast Asia called the Al-Amanah Islamic Investment Bank of the Philippines (AAIIBP) was actually established in 1973.
It was established as the Philippine Amanah Bank under Presidential Decree No. 264 or “An Act Creating a Philippine Amanah Bank.” Its goal then was to promote and help accelerate the socio-economic growth of Mindanao, particularly in the economically depressed areas of Lanao del Norte, Zamboanga del Norte, and Zamboanga del Sur.
To date, the AAIIBP is the only Islamic bank in the country. It has branches in Mindanao provinces where there is a large number of Filipino Muslims such as in Cotabato, South Cotabato, Lanao del Sur, and Sulu. It has also since received a universal bank license from the BSP.
The lack of support and recognition for Islamic banking resulted in the deterioration of the bank’s operation. The signing of its Charter (Republic Act 6848) in 1990, however, paved the way for the bank to have a larger authorized capital stock amounting to P1 billion, consisting of 10 million common shares.
The Bureau of the Treasury (BTr) was eventually tasked to support the bank’s operations from 1990 to 2007.
Then, after acquiring shares previously owned by the national government, the Social Security System, and the Government Service Insurance System in 2008, the Development Bank of the Philippines (DBP) was able to obtain 99.9 per cent ownership of the bank’s shareholdings.
Promoting Islamic banking, which is “very flexible”
Ala confirms that the BSP has also inked a Memorandum of Understanding with the Philippine Economic Zone Authority (PEZA) recently to further promote Islamic banking and finance in the country, as well as encourage more investors.
“It is also very important that we make use of other tools and venues to promote Islamic banking even outside of our country because we have also liberalized the banking system in the Philippines whereby foreign investors can also establish Islamic banks here in the Philippines, either in the form of a branch or a full(y) fledged Islamic bank,” she said.
The bank’s Charter, she added, “is very flexible” and “was built to provide flexibility in promoting and developing Islamic finance in our country.”
Ala noted that the BSP has issued several circulars to boost Islamic banking, among them Circular #1069, which sets the capital requirements for the establishment of Islamic banks and Islamic banking units, and Circular 1070, which explains the requirements and expectations on the Shari’ah governance framework.
She said that a Shari’ah Supervisory Board was also established in the Bangsamoro Autonomous Region in Muslim Mindanao through a joint circular signed by the BSP, the Department of Finance (DOF), and the Bangsamoro government.
Ala added that the board has since been tasked to issue opinions on the Shari’ah compliance of Islamic products and services that will be offered here in the Philippines.
“This is very important because we need to ensure also that the products and services that will be offered by Islamic banking institutions are also compliant with Shari’ah principles,” she beamed.