The inability to develop a truly Islamic bank in the Philippines after 50 years of attempt remains one of the biggest hurdles in developing Islamic finance in this country.
Nevertheless, officials believe the Philippines has become an attractive venue for Islamic banking and finance with the issuance of key regulatory frameworks and licensing, including Sharia governance and tax neutrality coupled with the country’s strong economic fundamentals.
In his speech at the ASA Philippines Foundation forum yesterday, Trade Undersecretary Abdulgani Macatoman enumerated hurdles that an Islamic finance in Bangsamoro will have to deal with.
In breaking away from long years of failure of putting up an Islamic bank, Macotaman said the Islamic finance company must project credibility of the source of fund.
“They have to show that they are not paying ‘riba’ or interest from the funds provider, more so if the source is not an Islamic bank. This means the funds for Islamic financing operations are sourced through Islamic financing method, right from the financing wholesaler,” he said.
Another hurdle is ensuring there is no mixing of funds where the Islamic fund for Islamic finance operations is not mixed with other operations of the supposed Islamic finance company.
Macatoman said rules that govern the commercial banks to have Islamic windows should be followed to ensure they pass through an Islamic audit method with international credibility.
Macatoman said the finance company must also show its method of reinvesting excess funds is done in an Islamic way.
“This is probably the hardest as the Islamic financing company must earn from their idle funds to keep its operations afloat. By relying on income coming only from financing operations, this finance company may run into financial
illiquidity before it can independently stand on its own,” he added.
This goes back to the need to have an Islamic bank where the Islamic finance company can reinvest excess funds and free of riba.
Fourth hurdle, according to Macatoman, is the need to operate profitably amidst thin market at the beginning.
“ It takes time to educate people who were not used to tapping financing for their operations,” he said.
In the same event, Bangko Sentral ng Pilipinas deputy governor Chuchi Fonacier in aspeech read by BSP managing director Arifa Ala said the central bank has established the necessary reforms to ensure the Philippines “fosters an open and competitive financial system with a prospect for anticipated or Islamic banking.”
“For a country with Muslims representing around 10 percent of its people… financial inclusion will not be complete without touching on Islamic banking and finance. The role of Islamic finance in promoting social equity, cannot be overlooked, not when there are still predominantly Muslim provinces like the Bangsamoro Region in Muslim Mindanao where the poverty incidence is as high as 68 percent. Islamic finance can deepen financial inclusion, not only because it delivers Sharia-compliant products for the Muslim communities, but also because its very essence is based on the principles of social justice and equity,” Fonacier said.
The Islamic banking law took effect in 2019 and its guidelines on the establishment of Islamic banks and Islamic banking units were issued the same year, including the Sharia and governance framework where Islamic banks and Islamic banking units are required to establish their Sharia Advisory Council to ensure their products are indeed Sharia-compliant.
A revenue regulation issued by the Bureau of Internal Revenue provides Islamic banking products should not be taxed heavily nor more lightly than their conventional counterparts.
In addition, under the Bangsamoro Organic Law, the BSP together with the Bangsamoro government, the Department of Finance and the National Commission on Muslim Filipinos are mandated to jointly promote the development of an Islamic banking and finance system to include, among others, the establishment of a sherry as supervisory board in the Bangsamoro region.
“We hope to have the Sharia supervisory board established within this year,” Fonacier added.
The BSP currently chairs an interagency working group for Islamic banking with other government institutions to collaborate on how to promote and develop Islamic financing in the country. (Irma Isip)
