Bangko Sentral seeks feedback on licensing of Islamic banks

The Bangko Sentral ng Pilipinas (BSP) is now in the process of requesting feedback for the draft of the Shari’ah Governance Framework and the licensing of Islamic banks. 

Months after President Duterte signed the law to regulate Islamic banks in the country, the Central Bank has drafted the policy framework for both Shari’ah Governance and Islamic Bank Licensing in the Philippines. The drafts of these are now undergoing policy exposure, including being posted on their web site for feedback and suggestions. 

The essential components of the Shari’ah Governance Framework include requiring Islamic banks to have and effective board of directors (BOD) and management oversight over their Shari’ah compliance. 

“The BOD shall be ultimately responsible and accountable for ensuring full conformity of the Islamic bank or Islamic banking unit with the Shari’ah principles. The BOD needs to be fully cognizant of the risk of Shari’ah noncompliance and its potential implications on the reputation and business of the Islamic bank or Islamic banking unit,” the BSP said. 

Islamic banks are also required to have a Shari’ah Advisory Council. The banks are also compelled to have independent and effective compliance and internal audit functions.

For Islamic bank licensing, the BSP’s drafted measures allows Islamic banks to perform the standard banking services, as well as to carry out Shari’ah compliant services, such as financing and joint investment operations by way of mudarabah partnership, musharakah joint venture or by decreasing participation, murabahah purchasing on a cost-plus financing arrangement, lease (ijara) arrangements, construction and manufacture (istisna’a) arrangements, and other Shari’ah compliant contracts and structures. 

They are also allowed to undertake various investments in all transactions allowed by Shari’ah principles and invest in equities of Shari’ah compliant undertakings that support the delivery of Islamic banking and financing services.

On top of that, with prior monetary board approval, Islamic banks may investment participation certificates, sukuk, and other Shari’ah compliant funding instruments to be used by the bank in its operations or capital needs.

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I HAVE always enjoyed reading Dean West’s blogs, which are insightful and laced with a bit of humor. Dean is founder and president of Association Laboratory Inc., a US firm that provides quality information and strategic insights to association leaders.

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