AN Islamic banking system will also benefit the country’s predominantly non-Muslim population, according to the Bangko Sentral ng Pilipinas (BSP).
In a televised briefing, BSP Assistant Governor Arifa Ala said many Southeast Asian countries have advanced Islamic financial systems that benefit even non-Muslims.
Ala said the BSP would like to establish a banking system where Islamic banks operate alongside conventional banks. This will create a system with “diverse players” and more products that can serve Filipinos’ every need.
“I would also like to highlight that Islamic banking and finance is not exclusive to Muslims, it is available to all – for Muslims, of course, they can take advantage of products that can serve their specific requirements but for non-Muslims, it can be alternative financial products or services,” Ala said.
Ala added that the Islamic Banking Law (Republic Act 11439) is also very flexible and can allow more players to establish a full-fledged Islamic bank or create these kinds of institutions within conventional banks.
She said as such, conventional banks under RA 11439, which was passed in 2019, can establish a unit or a department in their institutions. This was done to “provide flexibility” in establishing Islamic finance in the country.
The BSP, Ala added, created the Islamic Finance Coordination Forum where agencies such as the Securities and Exchange Commission, Insurance Commission and the Bureau of Internal Revenue (BIR) coordinate to promote Islamic finance.
Ala also said the BIR and the Department of Finance have issued circulars to “implement the tax neutrality provision” which mandates that Islamic banking products cannot be taxed more or lightly compared to similar products in conventional banks. She added that the Insurance Commission also issued guidelines for Islamic insurance.
“As we move forward with our information drive, we expect more Filipinos to better understand and appreciate Islamic banking and finance and we look forward to having an Islamic banking finance ecosystem that can also advance the financial inclusion agenda of the government,” Ala said.
The BSP official said Islamic finance and banking in the Philippines is not new in the Philippines.
The Al-Amanah Islamic Investment Bank of the Philippines was established 50 years ago, in 1973. It is considered one of the oldest Islamic banks in Southeast Asia.
The primary business model of Islamic banks, Ala explained, is about sharing profits and risks. This is culled from the fundamental Sharia principle that all Islamic banks and Islamic banking units should meet.
ALA explained that if somebody places funds in an Islamic bank, the individual becomes a partner of the Islamic bank; “unlike in the conventional bank when you place for example a fund in a deposit account—a debtor-creditor relationship is created.”
“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,” she explained.
For further guidance on Islamic finance and banking, Ala said, the public can refer to Islamic Banking Law as well as BSP circulars e.g., Circular 1069, which pertains to the requirements of the BSP in establishing Islamic banks and Islamic banking units.
There is also BSP Circular 1070, which contains the requirements and expectations of the central bank on Shariah governance framework.
Ala said this circular is important because the basic difference of an Islamic bank from a conventional bank is the requirement to comply with Sharia principles.
The BSP, she said, also has Circular 1116, which contains requirements for Sharia-compliant liquidity risk management tools to be used by the Islamic banking players in the country.
The last is Circular 1139, which provides guidelines on the reportorial requirements of Islamic banks and Islamic banking units.