NextGen Day

MANILA, Philippines — As part of a whole-of-government initiative to stimulate investment in Islamic banking, the Bangko Sentral ng Pilipinas (BSP) is currently collaborating with the Bangsamoro administration, as well as numerous other government institutions.

BSP Governor Benjamin Diokno said in a virtual briefing on Thursday that monetary authorities have established a comprehensive set of regulations to encourage greater investor and consumer participation in Islamic banking.

This comes after various legislation, including the Organic Law for the Bangsamoro Autonomous Region in Muslim Mindanao, the Act Amending the BSP Charter, and the Act Providing for the Regulation and Organization of Islamic Banking Banks, were signed into law in recent years.

Circular No. 1069, which addresses the licensing framework; Circular No. 1070, which discusses the Shari’ah Government Framework; and Circular No. 1116, which talks about liquidity risk management, according to Diokno.

According to him, the central bank released a reporting framework for Islamic banks and Islamic banking units on March 23, 2022, which is “aligned with the BSP’s unified regulatory and supervisory framework.”

“It emphasizes that existing regulations apply to Islamic banks and Islamic banking units to the extent that they are consistent with Shari’ah principles or requirements,” he added.

According to Diokno, Islamic banking divisions must keep their books and records separate from those of a conventional bank.

“This intends to ensure that transactions of the Islamic banking unit are carried out in conformity with Shari’ah standards, in addition to increasing transparency,” he stated.

Islamic banking differs from traditional banking in that it does not charge interest in accordance with Shari’ah law, which encourages risk-sharing.

The Al-Amanah Islamic Investment Bank of the Philippines is the country’s only Islamic bank.

Amanah Islamic Bank was established in 1973 by Presidential Decree No. 264 and was originally known as Amanah Islamic Bank. It has a PHP50 million market capitalization.

Following the acquisition of the shares of the national government, the Social Security System (SSS), and the Government Service Insurance Corporation (GSIS) in 2008, the Development Bank of the Philippines (DBP) now owns 99.9% of the company.

Diokno said the BSP has received inquiries about the establishment of Islamic banks or Islamic banking units as a result of the enactment of several laws supporting the establishment of such, including from a foreign bank.

He did say, however, that no formal application has yet been presented to the BSP.

“It’s possible that potential players are conducting market research,” he added.

“Law awareness or understanding of Islamic banking remains a key problem,” Diokno remarked when asked about challenges or concerns voiced by financial institutions over the establishment of Islamic banks.

“To solve this, the government is required to establish capacity-building programs that address the specific needs of various stakeholders, both public and private,” he explained.

Other difficulties, he noted, include the need for cash to develop a Shari’ah governance system.

According to BSP deputy director and head of the Islamic Banking Supervision Group lawyer Noel Tianela, capital requirements for establishing an Islamic bank or Islamic banking unit range from PHP10 billion to PHP20 billion, depending on the number of branches.

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