Fitch Ratings said the Philippine government initiatives to develop the Islamic finance industry are likely to support the sector’s growth in the medium to long term.
The government is looking to incorporate sukuk in its 2025 financing mix, after its 2023 maiden sukuk, rated ‘BBB’, raised $1 billion.
The five-and-half year sukuk issuance helped the sovereign to diversify funding, tap GCC Islamic investors, deepen its debt capital market and establish a reference curve for other Philippine issuers to issue sukuk, Fitch said.
The government also aims to boost financial inclusion among Filipino Muslims, who form about 6 percent of the population but are largely underbanked. Islamic banking is estimated to have below 1-percent market share in the majority-Catholic country.
The 2023 sovereign sukuk is the only sukuk issued by an entity in the Philippines to date. However, growth is anticipated in the long-term.
Investors from the Middle East took up around 30 percent of the issuance, which was part of the country’s broader agenda to develop Islamic finance and diversify its investor base.
Fitch said the issuance could encourage government and private-sector entities, including financial institutions and corporates, to explore sukuk issuance, which would help the development of the local sukuk market.
To create an enabling environment, the government issued Islamic finance regulations, provided incentives and launched a tax neutrality law to ensure equal tax treatment with conventional banking.
These reforms prompted some activity in Islamic banking over the last two years, such as the entry of Islamic banking units (IBUs) of two conventional banks, namely Maybank Philippines and CARD Bank.
These join the Philippines’ long-established Al-Amanah Islamic Investment Bank of the Philippines. The first takaful licence was also recently granted to Pru Life UK, followed by Etiqa Life and General Assurance Philippines.
