Bangko Sentral to ease rules on Islamic banking

INQUIRER FILE PHOTO

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) wants to relax the regulations covering Islamic banking to support the sector. This is seen as a potential driver of financial inclusion in the country.

The BSP is collecting comments from the industry on a draft circular that would amend the basic guidelines in establishing Islamic banks (IB) and Islamic banking units (IBU).

Stakeholders have until May 28 to send their feedback.

Islamic banking, as defined in Republic Act 11439, refers to a banking business with objectives and operations that do not involve interest, which is prohibited by the Islamic or Shari’ah Law, an Islamic bank conducts its business following the principles of the Shari’ah.

The proposed changes to the rules include the removal of the “reasonable transitory period not exceeding five years.” This was meant to check the compliance of new IBs and IBUs with the minimum capitalization requirement.

READ: Regulatory push seen attracting interest in Philippine Islamic banking

Less requirements

Accordingly, the draft circular would no longer require new IBs and IBUs to submit their capital buildup plan no later than six months before the end of the transitory period.

But IBs and IBUs would still have to submit prudential reports to the BSP. There would be an observation period of up to three years from the beginning of Islamic banking operations.

This is to allow new IBs and IBUs to familiarize with the data requirements and prescribed guidelines and to make the necessary system adjustments.

READ: BSP grants Islamic banking window license to 2 firms

At the same time, the proposed amendments would just require an IBU of a conventional bank to just consolidate its liquidity positions, activities and transactions into the bank-wide reports. This, instead of submitting a separate report to the BSP.

The opening of a new branch or branch-lite unit for the IBU operations would be subject to the payment of the prescribed processing fees based on the bank’s category. However, the opening of IBU in existing branches or branch-lite units would not be subject to any fee.

BSP data showed that 29 percent of the cities and towns in the Philippines remain unbanked. The Bangsamoro Autonomous Region in Muslim Mindanao is the most unbanked region.

Islamic banking and finance can promote inclusive finance by making it available to groups that avoid using existing conventional banking facilities due to their faith.

It can also be attractive to non-Muslims, particularly investors within or outside the Philippines who may be looking for new asset classes, instruments, and products to diversify their portfolios. INQ

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