The enactment of a new Islamic banking law will help the Philippines bring about financial inclusion by making banking services more accessible to sectors not served by larger players, the central bank said on Friday (Aug. 30).
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 Rodrigo Duterte last week, mandated 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.
Diokno said the new law would bring banking services closer to Muslim Filipinos, including those from the Bangsamoro autonomous region.
“This is a great stride in our financial inclusion mandates,” he said.
Islamic banking operates without interest, which is prohibited by Sharia’ah law.
Under the new law, Islamic banks will be able to operate 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 Corporation, Insurance Commission, Bureau of Internal Revenue, Financial Reporting Standards Council, and National Commission on Muslim Filipinos — has been formed 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 Muslims who account for about 10 percent of the country’s population.
Islamic banking and finance 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 in their aim to diversify their portfolios./tsb