Two Banks in Philippines Secure Islamic Banking Window Licences

Islamic banking is catching up fast in The Philippines in the recent years and seeing the sector’s growth in the country, the Bangko Sentral ng Pilipinas (BSP) has approved the application of two Islamic banks to secure Islamic banking window licenses to provide wider financial access and alternative banking solutions to Filipino Muslims.

BSP Deputy Governor Chuchi G Fonacier said the two Islamic banks will have an Islamic banking window where it could be a dedicated branch offering Islamic banking products and services.

Fonacier clarified that the banks would not be completely Islamic banks but only a window where they could offer Islamic banking services.

One of two banks that secured licences is the Maybank Group’s Maybank Philippines, whose application for an Islamic banking license has been approved, while Fonacier did not name the other bank.

“Those two banks have been licensed and I think they’ll soon be starting their operation,” Fonacier said.

Earlier this April, BSP Assistant Governor Arifa A Ala said that the two banks are already in the advanced stages of discussions and could file their applications soon.

“We see that promoting Islamic banking and finance can generate more investments. And it is also a form of diversification of sources of funding that can be used by the Philippines for different infrastructure projects,” Ala said.

Currently, state-run Al Amanah Islamic Investment Bank of the Philippines and Card Bank have set up their own Islamic Banking Unit (IBU) to provide Islamic banking, financing and investment services.

According to BSP Governor Eli M. Remolona, 92% of those in the Bangsamoro Autonomous Region in Muslim Mindanao (Barmm) are unbanked.

Islam’s banking system is based on the principles laid down by the Shari’a law. Islamic banks do not sell or capitalize on assets for profit or interest and do not participate in the trade of alcohol, pork, or activities related to gambling.

The passage of Republic Act 11439 or the Islamic Banking Law enabled the Philippines to have more Islamic banks. The law is the legal basis for the establishment of Islamic banks and IBUs.

This is complemented by three laws, such as the RA 11054 or the Bangsamoro Organic Law; RA 11211 or the Amendments to the BSP Charter; and RA 11840 or the Amendments to the Philippine Deposit Insurance Corporation (PDIC).

Interest in Islamic Finance

In one of its reports, the World Bank said that although, Philippines is one of the earliest countries who introduced an Islamic banking institution as early as in 1973, no supporting infrastructure was developed since then.

A renewal of interest in Islamic finance is motivated by changing realities in the country as well as in the region given its rapid growth and advancement in Malaysia, Indonesia, and Brunei.

Due to growth over the last three decades, Islamic finance has grown beyond basic banking services and now includes well-developed investment banking, capital markets, insurance, and non-banking financial institutions.

This growth has been accompanied by development of eco-system and necessary regulatory and supervisory framework and institutions. Accounting and Auditing Organization of Islamic Financial Institutions (AAOIFI) and Islamic Financial Services Board (IFSB) are responsible for accounting, Shari‘ah governance, regulatory, and supervisory standards.

“Introduction of Islamic finance in a non-Muslim majority country and without any prior infrastructure is a challenge which requires effort and political will which needs to be evaluated against potential benefits and demand for the services,” the report noted.

It is difficult to make good assessment of the potential demand and potential size of the market. Discussions with stakeholders have indicated demand and interest in bank deposits/investments and micro-finance lending which is leading the policy makers to consider making Islamic finance available to achieve financial deepening and financial inclusion.

There is also potential demand for developing Islamic finance instruments for attracting investments to the Philippines through Shari‘ah compliant securities or banking sector, World Bank added.