The National government may look to the Muslim world for financing as it seeks to diversify its sources of funds to minimize risks from financial crises.
National Treasurer Rosalia de Leon said a sovereign issuance of so-called “Sukuk” bonds would be possible once new regulations on Islamic banking, being developed following the signing of a peace deal in Mindanao, have been approved.
“We want to tap resources coming from the Middle East. That’s part of our diversification and it will also create a new asset class,” De Leon said in an interview.
Among the issues that needed to be addressed before any such issuance could take place included how earnings from these securities would be taxed. Under Islamic banking rules, charging interest rates on loans, including investing in debt securities, is not allowed.
The country only has one Islamic bank, Al-Amanah Investment Bank, which was established in 1973. The bank is currently owned by the state-run Development Bank of the Philippines (DBP).
The prevailing General Banking Law passed in 2000 prohibits the creation of any other Islamic bank in the country—a limitation the BSP wants to address, first through amendments to the central bank’s charter and, eventually, with the passing of a new law focusing only on Islamic finance.
With just 20 banks and 28 automated teller machines present in the region, only 8 percent of the municipalities in the ARMM have access to banking services. The lack of banking services in Mindanao contributed to the area’s underdevelopment, the BSP had said.
Data from 2012 showed that ARMM’s economy grew by just 1.2 percent that year. This was much slower than all of Mindanao, which grew by 8.2 percent. The entire country also grew by 6.8 percent in 2012.
De Leon said “Sukuk” bonds paid out through securitized “lease” payments. “That’s their version of interest rates,” she said.
Nazir Razak, CEO of Malaysian banking giant CIMB Group, said that once new rules on Islamic finance in the Philippines have been finalized, the bank would approach the government to help in its Sukuk issuance.