Law institutionalizing Islamic banking signed

President Duterte has signed into law Republic Act 11439, which provides for the regulation and organization of Islamic banks in the country.

The Bangko Sentral ng Pilipinas (BSP) said the enactment of the new law would unlock the full potential of Islamic financing in fostering inclusive economic growth in the country.

BSP Governor Benjamin Diokno said the central bank is looking forward to seeing greater participation in Islamic financing by both domestic and foreign banks after President Duterte signed RA 11439 or “An Act Providing for the Regulation and Organization of Islamic Banks” last Aug. 22.

The law mandates the BSP to exercise regulatory powers and supervision over the operations of Islamic banks and to issue the implementing rules and regulations on Islamic banking.

“This is expected to widen opportunities for Muslim Filipinos, including those from the Bangsamoro Region, in accessing banking products and services. This is a great stride in our financial inclusion mandates,” Diokno said.

Islamic banking business refers to a banking business with objectives and operations that do not involve interest (riba) as prohibited by the Islamic or Shari’ah Law and which conducts its business in accordance with the principles of the Shari’ah.

Under the new law, Islamic banks shall have such powers as shall be necessary and prudent to carry out the business of a bank in accordance with Shari’ah principles, in addition to the general powers granted to corporations.

In line with this, Islamic banks may provide Shari’ah compliant financing contracts and structures and undertake various investments in all transactions allowed by Shari’ah principles. An interagency working group on Islamic banking and finance composed of officials from various participating agencies including the BSP, Asian Development Bank, Bureau of the Treasury, Department of Finance, Securities and Exchange Commission, Philippine Deposit Insurance Corp., Insurance Commission, Bureau of Internal Revenue, Financial Reporting Standards Council, and National Commission on Muslim Filipinos has been tasked to develop a regulatory framework.

Moreover, the Bureau of Internal Revenue has completed a draft regulation to implement the provision on tax neutrality under the law.

Islamic banking and finance promote inclusive finance by making it available to groups that avoid using existing conventional banking facilities due to their faith.

In the Philippines, the potential market for Islamic banking products mainly comprises the Muslim population that account for about 10 percent of the Filipinos.

Islamic banking and finance can also be attractive to non-Muslims, particularly investors within or outside the Philippines who may be looking for new asset classes, instruments and products in their aim to diversify their portfolios.