The Bangko Sentral ng Pilipinas (BSP) aims to promote financial inclusion in the country, which involves catering to the unique financing needs of the Muslim community, among others. This can be done by cultivating a level playing field for Islamic banks.
Islamic banking refers to a banking or financing activity that upholds the principles of Shari’ah, based on justice, fair dealings, and harmony through the equitable distribution of wealth. It is anchored on two fundamental concepts—prohibition of interest and sharing of risk and reward.
Shari’ah forbids interest or riba, such as those on loans and deposits, as it is deemed unjust and does not promote wealth creation. Hence, instead of charging and paying riba, Islamic banks observe a profit-sharing scheme with their customers to foster an equitable partnership, with risk- and reward-sharing as the core element of the business relationship.
Income-generating ventures that are Shari’ah-compliant include trade, rent/lease, partnership, and agency, among others. Trade involves buying and selling of goods. Rental/lease agreements allow the use or occupation of a property for a certain period for a fee. Partnership is when a bank and a client enter a contract where one acts as a capital provider while the other acts as the entrepreneur who shares in the profits. Meanwhile, agency refers to an agreement where one acts on behalf of another for a fee.
Simply put, Islamic banks gain income through equity participation, where risks and rewards are shared by the bank and the customer instead of paying and charging interest. This system is beneficial not only to the Muslim community but also to non-Muslims, as it serves as an alternative to investments offered by conventional banks.
To date, Islamic banking in the country remains insufficient for its demand. Hence, the BSP, aligned with its goal to promote financial inclusion, pushes programs and initiatives that aim to bring forth new Islamic banking players—either full-fledged or sub-units set up by conventional banks. The BSP is coordinating with other government agencies and other stakeholders to further develop this segment in the financial industry.
With its efforts to develop Islamic banking, the central bank promotes a more inclusive banking community for all Filipinos.