An overwhelming majority of the members of the House of Representatives of the Philippines have voted into law an Islamic banking bill regulating for the first time the establishment and operations of Islamic banks in the country, where such a dedicated legal framework has been lacking ever since the launch of Al Amanah Islamic Investment Bank of the Philippines back in 1973. MARC ROUSSOT reports.
A total of 221 representatives out of 297 supported the new law which allows the offering of Islamic financing products on a window basis, enables foreign players to tap the Philippines’s Islamic banking market, mandates Islamic banks to set up a Shariah board and paves the way for the government to achieve neutral tax treatment between Islamic and conventional banking.
The law, which authorizes Islamic banks to issue Sukuk to satisfy their capital needs, also comprises provisions on the offering of current accounts, letters of credit and guarantees as well as financing products like Mudarabah, Musharakah, Murabahah, Ijarah and Istisnah, among others.
“The State recognizes the vital role of Islamic banking and finance in creating opportunities for greater financial inclusion especially the underserved Muslim population, in expanding the funding base for SMEs as well as large government infrastructure through financial arrangements with risk-sharing as their core element […],” the law stipulates in its policy declaration, as seen by IFN.
As part of a recent regulatory push initiated by President Rodrigo Roa Duterte, the new law is a leap forward for the development of Islamic banking in the country where the industry has remained at a nascent stage for over four decades due to the lack of a conducive environment.
Although it will most likely take some time before all regulations are in place, as implementing rules remain to be released by Bangko Sentral ng Pilipinas, prospects are good in the Philippines which is home to a sizeable Muslim minority representing 5-6% of the population, while a number of players like Maybank and Sumitomo Mitsui, which have experience in offering Islamic products, are already established in the country.