The Bangko Sentral ng Pilipinas (BSP) is seeing more Islamic financing activities in the Philippines following the signing of Republic Act (RA) 11439 or “An Act Providing for the Regulation and Organization of Islamic Banks.”
In a statement on Friday, the BSP quoted Governor Benjamin Diokno as saying that the new law signed by President Duterte on August 22 “will unlock the full potential of Islamic financing in fostering inclusive economic growth.”“With a well-defined regulatory framework now in place, the BSP looks forward to seeing greater participation in Islamic financing by both domestic and foreign banks,” Diokno added.
Under the law, the BSP is mandated 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 law is expected to widen opportunities for Muslim Filipinos, including those from the Bangsamoro Region, in accessing banking products and services.
The BSP added that an interagency working group has been formed to develop a regulatory framework for Islamic banking and finance.
The working group is comprised of officials from BSP, Asian Development Bank, Bureau of the Treasury, Department of Finance, Securities and Exchange Commission, Philippine Deposit Insurance Corp., Insurance Commission, Bureau of Internal Revenue (BIR), Financial Reporting Standards Council, and National Commission on Muslim Filipinos.
Islamic banking business, as defined under RA 11439, refers to a banking business with objectives and operations that do not involve interest (riba) as prohibited by the Islamic or Shari’ah Law and which conducts its business in accordance with the principles of the Shari’ah, the BSP said.
Under the new law, Islamic banks shall have such powers as shall be necessary and prudent to carry out the business of a bank in accordance with Shari’ah principles, in addition to the general powers granted to corporations, it added.
“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,” the BSP said.
Moreover, the BSP said the BIR has completed its draft regulation to implement the provision on tax neutrality under the law.
The BSP said 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 mainly comprises the Muslim population which account for about 10 percent of the Filipinos, the BSP said.
“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,” the BSP said.
The law will take effect 15 days after its publication in the Official Gazette or in a newspaper of general circulation.