Revitalized Islamic banking to boost financial inclusion

The enactment of a new Islamic banking law will help the Philippines achieve better levels of financial inclusion by making banking services more accessible to sectors not traditionally served by bigger players, the central bank said on Friday.

In a statement, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said Republic Act No. 11439—officially named “An Act Providing for the Regulation and Organization of Islamic Banks”— “will unlock the full potential of Islamic financing in fostering inclusive economic growth.”

The law, which was signed by President Duterte last week, mandates the BSP to exercise regulatory powers and supervision over the operations of Islamic banks and to issue the implementing rules and regulations on Islamic banking.

“With a well-defined regulatory framework now in place, the BSP looks forward to seeing greater participation in Islamic financing by both domestic and foreign banks,” Diokno said. “This is expected to widen opportunities for Muslim Filipinos, including those from the Bangsamoro region, in accessing banking products and services. This is a great stride in our financial inclusion mandates.”

Islamic banking business refers to financial activities with objectives and operations that do not involve interest (riba) as prohibited by Islamic or Shari’ah Law.

Under the new law, Islamic banks will be able to carry out the business in accordance with Shari’ah principles, in addition to the general powers granted to corporations. In line with this, Islamic banks may provide Shari’ah-compliant financing contracts and structures and undertake various investments in all transactions allowed by Shari’ah principles.

An interagency working group on Islamic banking and finance—made up of officials from the BSP, Asian Development Bank, Bureau of the Treasury, Department of Finance, Securities and Exchange Commission, Philippine Deposit Insurance Corp., Insurance Commission, Bureau of Internal Revenue, Financial Reporting Standards Council, and National Commission on Muslim Filipinos—has been constituted to develop a regulatory framework for Islamic banking and finance.

The Bureau of Internal Revenue has also completed its draft regulation to implement the provision on tax neutrality under the law.

Islamic banking and finance promote inclusive finance by making it available to groups that avoid using existing conventional banking facilities due to their faith. In the Philippines, the potential market for Islamic banking products are mainly Muslim communities. —DAXIM L. LUCAS