Metro Manila (CNN Philippines, August 30) — President Rodrigo Duterte has signed a law creating an Islamic banking system in the country as an alternative to commercial lenders.
Republic Act (RA) 11439 signed August 22 outlines the regulation and organization of Islamic banks, which follow a different business model that prohibits charging interest on loans.
Islamic banking structure is hinged on Shari’ah principles practiced by Muslims, which disallows riba or the receipt and payment of interest.
The law would allow the Monetary Board, the highest body of the Bangko Sentral ng Pilipinas (BSP), to authorize the creation of Islamic banks. Commercial banks are also given the option to set up Islamic banking units that would extend financial products compliant to Muslim practices. Foreign Islamic banks would likewise be allowed to set up shop in the country.
Islamic banks can accept current, savings, and investment accounts; take in foreign currency deposits; process remittances and fund transfers; and extend Shari’ah-compliant loans through credit guarantees or notes of exchange, and financing contracts.
Instead of the traditional interest on loans, Islamic banks must engage in cost-plus financing, wherein the bank acquires the asset and collect rent or lease from the borrower.
The BSP has been given the power to regulate Islamic banking players. However, the law created Shari’ah Advisory Councils, which would check whether Islamic banks actually comply with religious principles.
These bank must comply with regulatory standards imposed on universal banks, which include reserves for capital and liquidity, as well as sound risk management practices.
The Al-Amanah Islamic Investment Bank is currently the sole bank operating under this regime. It has been placed under the watch of the state-run Development Bank of the Philippines, but has remained the smallest player among big banks.
BSP Governor Benjamin Diokno welcomed the new law, saying it will “widen opportunities for Muslim Filipinos” in accessing financial services. He added that non-Muslims can also tap these Islamic banks to diversify their portfolios.
The law will take effect by mid-September.
