According to Bangko Sentral ng Pilipinas (BSP), an Islamic banking system will also benefit the country’s predominantly non-Muslim population.
In a televised briefing, BSP Deputy 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 build a banking system in which Islamic banks operate alongside conventional banks. This will create a “diverse player” system and more products that can meet all the needs of Filipinos.
“I would also like to emphasize that Islamic banking and finance is not exclusive to Muslims, but is available to all – Muslims can of course use products that suit their specific needs, but non-Muslims can use alternative financial products or services.” said Ala.
Ala added that the Islamic Banking Act (Republic Act 11439) is also very flexible and can allow more actors to set up a full-fledged Islamic bank or set up these types of institutions within conventional banks.
She said as such, conventional banks could set up a unit or department within their institutions under RA 11439, which was passed in 2019. 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 like the Securities and Exchange Commission, the Insurance Commission and the Bureau of Internal Revenue (BIR) coordinate to promote Islamic finance.
Ala also said that BIR and the Treasury have issued circulars to “implement the tax neutrality rule,” which stipulates that Islamic banking products may not be taxed more or less than similar products in conventional banks. She added that the Insurance Commission has also issued guidelines for Islamic insurance.
“As we advance our information drive, we expect more Filipinos to better understand and appreciate Islamic banking and finance, and we look forward to having an Islamic financial ecosystem for banks that can also advance the government’s financial inclusion agenda ‘ said Ala.
The BSP official said Islamic finance and banking in the Philippines is not new to the Philippines.
Al-Amanah Islamic Investment Bank of the Philippines was founded 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 profit-sharing and risk-sharing. This stems from the fundamental Sharia principle that all Islamic banks and Islamic banking entities should comply with.
ALA explained that when someone deposits money into an Islamic bank, the person becomes an affiliate of the Islamic bank; “Unlike with a conventional bank, for example, if you put an amount of money in a deposit – a debtor-creditor relationship is created.”
“In an Islamic banking institution, a partnership is established and the clients and the Islamic bank share the rewards and risks arising from the investment of those funds,” she explained.
For further guidance on Islamic finance and banking, Ala said, the public can refer to the Islamic Banking Law as well as BSP circulars, e.g. B. Circular 1069, which relates to BSP requirements for establishing Islamic banks and Islamic banking entities.
There is also BSP Circular 1070, which contains the central bank’s requirements and expectations for the Sharia governance framework.
Ala said the circular is important because the fundamental difference between an Islamic bank and a conventional bank is that it must comply with Sharia principles.
The BSP, she said, also has Circular 1116, which includes requirements for Sharia-compliant liquidity risk management tools to be used by the Islamic banking actors in the country.
The last is Circular 1139, which provides guidelines on the reporting requirements of Islamic banks and Islamic banking entities.