Considering the prominent size and influence of the Muslim population in the Philippines, it was only natural that the country would have some infrastructure of Islamic-compliant banking and finance to provide services for them. It was President Ferdinand Marcos who established the first Filipino Islamic bank in 1973, one of the first such institutions for Muslim customers around the world. The original charter of the Al-Amanah Islamic Bank was amended, then re-chartered once each, and ultimately became a subsidiary of the Development Bank of the Philippines (DBP) since 2008. It is the only such Islamic bank in the country to this day, but current President Rodrigo Duterte is changing that.
CNN Philippines reports that the President has signed a new law last week on August 22 that enshrines a national Islamic banking system that all such institutions should follow in the country. For a primer, Islamic banking systems have to be compliant with the tenets of Sharia law, which condemns as sinful the accruing and payment of interest in financial transactions. Republic Act 11439 thus provides a framework for the organization and regulation of Islamic banks in the Philippines, based partly on what has already been laid down in the charter of Al-Amanah Islamic Bank, the only Filipino Islamic bank.
Specific regulations in RA 11439 include the provision of powers to the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) to create new Islamic banks rather than relying on Presidential charters. It will also provide allowances for existing non-Islamic commercial banking institutions to open their own branch units that are Sharia-compliant, most likely in Muslim-majority provinces such as in Mindanao, where Al-Amanah banks already operate. Lastly, the Republic Act is an open invitation for foreign Islamic banks to set up branches in the country.
In addition, the new law calls for the creation of Sharia Advisory councils that will verify the compliance of any Islamic bank that wishes to open shop in the Philippines. This includes the prohibition on interest rates, which means the banks can only make business through cost-plus financing, profit-sharing, loss-bearing, joint ventures and safekeeping. Islamic banks under RA 11439 must also possess capital reserves and liquidity like other universal banks, in order to accept banking accounts, (current, savings, and investment) cash transfer and remittances, and foreign currency deposits; plus provide Sharia-compliant loans and finance contracts.
RA 11439 will go into effect in the middle of September, with Bangko Sentral Governor Benjamin Diokno welcoming the new common framework for present and future Islamic banks to provide Muslim Filipinos with financial services.
Image from Biron Law Office