THE Philippines is turning to Islamic finance to rejuvenate Bangsamoro, a Muslim-majority region whose economy has been stifled by decades of civil war.
The Bangko Sentral ng Pilipinas (BSP) has set up a task force with the World Bank and the country’s only Shariah-compliant lender to develop the industry, BSP Governor Amando M. Tetangco Jr. said in Manila on October 29. Bangsamoro is an autonomous region set to be created on the southern island of Mindanao after President Aquino signed a peace agreement with the Moro Islamic Liberation Front (MILF).
The Philippines said in July it planned to sell sovereign sukuk by mid-2016, following the United Kingdom and Hong Kong in creating a local benchmark for a global industry whose assets are forecast by the Malaysia International Islamic Finance Center to more than triple to $6.5 trillion by 2020. The Bangsamoro Development Agency says it needs P110 billion ($2.4 billion) to rebuild a region that has a poverty rate that’s more than double the national average.
“The Islamic banking industry may be a catalyst for the economic growth of the people of the Bangsamoro region,” Megat Hizaini Hassan, head of the Islamic finance practice at law firm Lee Hishammuddin Allen & Gledhill in Kuala Lumpur, said in an interview on Wednesday. “It may also be useful for the regulators in the Philippines to consider Islamic finance not just for Mindanao, but, rather, as a means of bringing in foreign investment.”
Banking liberalization
THE Philippines, which has considered a law to support Islamic finance since 1973, may amend the charter of Al-Amanah Islamic Investment Bank of the Philippines to allow other Shariah-compliant lenders, according to Tetangco.
“The idea is to allow Islamic banks to coexist with conventional banks and have a level-playing field. We’re working as fast as we can,” he said, adding that the measures would require congressional approval.
The Bangsamoro government is also waiting on legislative approval to be formally established after President Aquino submitted a bill to this effect on September 10. The Philippines signed a peace deal with the MILF in March to end a four-decade insurgency in Mindanao, home to most of the country’s 5 million Muslims. The pact also seeks to unlock investment in the mineral-rich south.
Bangsamoro supercedes the failed Autonomous Region in Muslim Mindanao, an entity created in 1989 during a previous attempt at peace. Some 49 percent of people in that area lived on less than $1.20 a day in 2012, compared with the national average of 20 percent. President Aquino attended a two-day forum that ended on Thursday in Davao City that aimed at seeking international aid and investment for Bangsamoro.
‘Dire need’
“THERE is a dire need for financial services to support economic development in Mindanao,” Idiosa B. Ursolino, senior vice president at Al-Amanah Islamic Investment Bank in Manila, said in an e-mail interview on November 4. “That could be made possible by a culturally friendly business environment like the Shariah-compliant business opportunities.”
The Philippine Stock Exchange (PSE) started publishing a list of Islamic equities in December 2013 to “extend financial inclusion to our Muslim brothers,” PSE Chief Operating Officer Roel Refran said the month before. Some 53 of 269 listed companies comply with the religion’s ban on interest, alcohol, gambling and pork, the PSE said in an October 8 statement.
The bourse plans to start an Islamic stock index this quarter, made up of at least 40 firms, PSE President Hans Sicat told reporters in Manila the same day.
The Philippines may offer “token amounts” of Islamic sovereign bonds before President Aquino’s term ends in June 2016 to diversify funding, National Treasurer Rosalia de Leon said on July 9.
International interest
WORLDWIDE sales of debt that pay returns on assets to comply with Islam’s ban on interest climbed 15 percent to $38.8 billion, so far, in 2014, buoyed by debut sovereign issuers, such as the UK, Hong Kong and Luxembourg.
The proposal to open up the Islamic banking industry in the Philippines is generating industry interest, said Suhaimi Zainul-Abidin, treasurer of the Gulf Asia Shari’ah Compliant Investments Association.
“There are some international banks that are interested in getting involved,” he said in an interview in Singapore on Wednesday, declining to name the lenders.
Yudith Ho, Liau Y-Sing & Siegfrid Alegado | Bloomberg