The Bangko Sentral ng Pilipinas (BSP) is on the early stages of drafting a general law for the creation and regulation of Islamic banks in the country to better realize the opportunities the industry could offer, a high ranking BSP official said.
“Is there a place for Islamic banking in the Philippines? I believe the answer is yes,” BSP Governor Amando Tetangco Jr. said in his speech during the recent Islamic Banking and Finance Workshop.
However, the BSP governor noted that while there is one Islamic bank in the Philippines, the Al-Amanah Islamic Investment Bank of the Philippines, Islamic banking itself has not grown in large part because of legal constraints.
“The Al-Amanah Charter created the Bank but not a framework for Islamic banking per se. No such enabling law has so far been passed. In fact, the General Banking Law of 2000 defines Islamic bank as specifically pertaining to Al-Amanah Bank only. The GBL does not provide for the creation of other Islamic banks,” he said.
Tetangco took for example the situation in Mindanao, particularly the Autonomous Region in Muslim Mindanao (ARMM), saying that despite the region is a resource-rich area with vast potential, conventional banking has been slow to cover ARMM with only 8 percent of its municipalities have a banking presence.
“There is therefore a significant untapped market opportunity, not just for conventional banking but also and more importantly for Islamic banking,” he said.
Tetangco mentioned that to create a “truly responsive system” of Islamic banks in the country, certain principles will be important.
The principles include a system that allows critical mass of market players under a competitive but well regulated environment; the presence of appropriate linkages, including inter-bank markets that cater to the unique characteristics of Islamic banking; a level playing field where the Islamic banking system can operate alongside conventional banking; provision of innovative products and services to address the distinctive needs of Islamic finance; and regulatory framework that helps build a broader customer and asset base by increasing investor awareness and acceptance, while ensuring consumer protection.
“While the BSP would like to promote an increase in the number of Islamic banks that operate alongside conventional banks, the BSP is also looking at an “open approach” whereby conventional banks can operate Islamic banking windows, if they so desire, as long as the principles outlined just now are followed,” Tetangco said.
He added that the BSP intends to work toward attaining a suitable legal framework for Islamic banking in the Philippines, noting that monetary authority is currently in the very early stages of drafting a general law for the creation and regulation of Islamic banks.
“Consistent with this, we have included in our list of proposed amendments to our charter, a provision that will enable the BSP to develop regulations for the extension of financial facilities to Islamic banks,” he said.
However, Tetangco said that the task requires strong partnerships among key stakeholders in the government and the private sector and the support of key international organizations and friendly governments.
“Indeed, a well-crafted framework for an Islamic banking and finance system would ensure that our goal of stretching the coverage of our financial system [so it casts a wider net]is attained,” he said.