The Bangko Sentral ng Pilipinas (BSP) is leading strong multisectoral efforts to usher in the development of Islamic banking and finance in the Philippines.
Cognizant of the need for a whole-of-government approach to promote Islamic banking and finance in the country, the Islamic Finance Coordination Forum (IFCF), an interagency body chaired by the BSP, provides an effective and efficient venue for all government agencies and institutions involved in coordinating efforts and initiatives to create an enabling environment for the promotion of Islamic banking and finance in the country.
Other IFCF member-agencies are the Securities and Exchange Commission (vice chair); Bureau of the Treasury, Philippine Deposit and Insurance Corporation, Department of Trade and Industry, Bureau of Internal Revenue (BIR) and Insurance Commission (IC).
Other institutional members include Financial Reporting Standards Council, National Commission on Muslim Filipinos, Bangsamoro Government; Auditing and Assurance Standard Council and Asian Development Bank.
“The IFCF harmonizes the initiatives of various agencies, regulators, and institutions to bring forth a more conducive environment for the development of Islamic finance,” BSP assistant governor Arifa Ala said.
IFCF is rolling out capacity-building programs to foster an understanding of Islamic banking among various regulatory institutions.
The collegial body is also working on policy initiatives meant to support the growth of Islamic finance.
The IC is drafting the implementation of a framework for takaful—an Islamic alternative to conventional insurance—in the domestic capital market while the BIR is looking at issuing subsequent Revenue Memorandum Circulars to provide the specific tax treatment of other Islamic banking and finance contracts/arrangements.
The BSP has also recently issued the circular meant to provide regulatory guidance on the minimum capital requirements to conventional banks that are qualified to apply for an Islamic banking unit license.
While IFCF was constituted only in August 2022, an interagency technical working group (ITWG) on Islamic banking composed mainly of the same government institutions forming the IFCF worked on the maiden policies in support of Islamic banking and finance.
Prior to the creation of the ITWG and IFCF, a task force on Islamic banking within BSP was formalized as early as 2009 to revive the proposed bill on Islamic banking.
The BSP Task Force pushed for the passage of Republic Act No. 11439, or the Islamic Banking Act, in August 2019. The landmark law provides the legal basis for the entry of other Islamic banking players and the powers of Islamic banks, and grants the BSP with authority to issue a broader set of rules and regulations on Islamic banking, among others.
The BSP issued two circulars in December 2019 that laid out the implementing rules and regulations of the said law, solidifying efforts to create a flexible regulatory environment that encourages Islamic banking investments. Circular No. 1069 specifies the licensing requirements for the establishment of Islamic banks and Islamic banking units, while Circular No. 1070 details the Shari’ah Governance Framework for such institutions.
While the COVID-19 pandemic disrupted economic activities, including investments, the much-improved health situation bodes well for efforts to promote Islamic finance in the country.
“The BSP is working with the Bureau of the Treasury and the Department of Finance for the first sovereign sukuk or Islamic bonds that will accelerate the growth momentum for Islamic banking,” Ala said.
Other efforts toward the development of Islamic banking and finance in the country include that of the Philippine Economic Zone Authority, which signed a Memorandum of Understanding (MOU) with the BSP for the promotion of Shari’ah-compliant banking and finance through the establishment of green ecozones and halal hubs, among others.
The BSP and the Accounting and Auditing Organization for Islamic Finance Institutions also signed an MOU to advocate a stronger Islamic banking and finance industry.
The PDIC, which under its amended charter, is mandated to grant insurance coverage to Islamic banking products classified as deposits by the BSP.
The BSP said that given all these initiatives it is optimistic that more Islamic banking and finance players will soon operate in the Philippines.