The Islamic banking system will also benefit the predominantly non-Muslim population, according to the Central Bank of the Philippines (BSP).
In a televised briefing, Assistant Governor of BSP Bank Arifa Alaa said that many Southeast Asian countries have well-developed Islamic financial systems that benefit even non-Muslims.
Alaa said that the Credit Facilities Bank would like to establish a banking system in which Islamic banks work side by side with conventional banks. This will create a system with “diverse players” and more products that can serve every need of Filipinos.
“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 benefit from products that can serve their specific requirements but for non-Muslims, it can be alternative financial products or services.
Alaa added that the Islamic Banking Law (Republic Act 11439) is very flexible and could allow more players to set up a full-fledged Islamic bank or create these types of institutions within traditional banks.
As such, she said, conventional banks under RA 11439, which was passed in 2019, can set up a unit or department in their enterprises. This was done to “provide flexibility” in establishing Islamic finance in the country.
Alaa added, BSP Bank established the Islamic Finance Coordination Forum where agencies such as the Securities and Exchange Commission, the Insurance Authority and the Bureau of Internal Revenue (BIR) coordinate to promote Islamic finance.
Alaa also said that BIR and the Ministry of Finance had issued circulars to “implement the tax neutrality clause” which stipulates that Islamic banking products cannot be taxed more or less compared to similar products in conventional banks. She added that the Insurance Authority has also issued guidelines for Islamic insurance.
“As we move forward with our information campaign, we expect more Filipinos to better understand and appreciate Islamic banking and finance and look forward to having an Islamic banking finance system that can also advance the government’s financial inclusion agenda,” said Alaa.
The BSP official said Islamic finance and banking in the Philippines is not new to the Philippines.
Amanah Islamic Investment Bank was established in the Philippines 50 years ago, in 1973. It is considered one of the oldest Islamic banks in Southeast Asia.
Alaa explained that the basic business model of Islamic banks revolves around profit and risk sharing. This is excluded from the basic Islamic Sharia principle that all Islamic banks and Islamic banking units must adhere to.
The ALA explained that if a person puts money into an Islamic bank, the individual becomes a partner in the Islamic bank; “Unlike a traditional bank when you put for example a fund into a deposit account – a debtor-creditor relationship is created.”
“In an Islamic banking institution, a partnership is created in which the customers and the Islamic bank share the profits and risks arising from the investment of that money,” she explained.
For further guidance on Islamic finance and banking services, Alaa said, the public can refer to the Islamic Banking Law as well as the Bills Settlement Payment (BSP) circulars, for example, Circular No. 1069, which relates to the Bills Settlement Payment (BSP) requirements in establishing Islamic banks and Islamic banking units.
There is also BSP Publication No. 1070, which contains the requirements and expectations of the Central Bank on the Sharia governance framework.
Alaa said this circular is important because the primary difference between an Islamic bank and a conventional bank is the requirement to comply with the principles of Islamic law.
She said that the Bank of Banking Facilities also has Circular No. 1116, which contains requirements for Sharia-compliant liquidity risk management tools for use by Islamic banking parties in the country.
The latest one is Circular 1139, which provides guidance on reporting requirements for Islamic banks and Islamic banking units.