THE Bangko Sentral ng Pilipinas (BSP) lauded the recent signing of Republic Act No. 11439 or “An Act Providing for the Regulation and Organization of Islamic Banks.”
The law, which was signed by President Rodrigo R. Duterte last August 22, 2019, 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.
According to BSP Governor Benjamin E. Diokno, “R.A. No. 11439 will unlock the full potential of Islamic financing in fostering inclusive economic growth. With a well-defined regulatory framework now in place, the BSP looks forward to seeing greater participation in Islamic financing by both domestic and foreign banks.”
“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,” the Governor added.
Islamic banking business, as defined under R.A. No. 11439, 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, comprising of officials from various participating agencies (i.e., BSP, Asian Development Bank, Bureau of the Treasury, Department of Finance, Securities and Exchange Commission, Philippine Deposit Insurance Corporation, Insurance Commission, Bureau of Internal Revenue, Financial Reporting Standards Council, and National Commission on Muslim Filipinos) has been constituted to develop a regulatory framework for Islamic banking and finance, among others.
Moreover, the Bureau of Internal Revenue has completed its 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 which account for about 10% 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.
The law will take effect 15 days after its publication in the Official Gazette or in a newspaper of general circulation.
“The BSP shall continue to pursue measures that enhance access to quality financial products and services as well as foster the overall welfare of financial consumers. These measures include amendments to the Bank Deposit Secrecy laws, the Financial Consumer Protection bill, and Agricultural Financing reforms,” Governor Diokno added.