THE BANGKO SENTRAL ng Pilipinas (BSP) will collaborate with an international Islamic banking standard-setting body for the promotion of these kinds of financial services in the country.

The central bank signed a memorandum of agreement with the Accounting and Auditing Organization for Islamic Financial Institutions (AOOIFI), it said in a statement on Wednesday.

“[The agreement] covers the possible adoption of relevant AAOIFI standards by the local Islamic banking and finance industry, and cooperation in the areas of capacity building and technical assistance,” BSP Governor Benjamin E. Diokno said in a statement.

The AAOIFI is a nonprofit body that develops, maintains, and promotes standards on Shari’ah, accounting, auditing, governance, and ethics for Islamic financial institutions.

It has members from over 45 countries that include central banks and regulatory authorities, financial institutions, accounting and auditing companies, and legal firms.

“As banking system supervisor, the BSP recognizes the importance of establishing formal ties with AAOIFI as this strengthens the BSP initiatives on Islamic banking and finance in the country,” Mr. Diokno said.

The BSP is also an associate member of the Islamic Financial Services Board, an international body that issues prudential standards for the Islamic financial services industry, particularly in the areas of banking, capital markets and insurance.

Republic Act No. 11439 signed in August 2019 provided for the regulation and organization of Islamic banks in the country. Under the law, the BSP will be the regulatory body in charge of authorizing Islamic banks or banking units in the market.

In December 2019, the BSP issued Circular 1069, which provided the guidelines for the establishment of Islamic banks and banking units, and BSP Circular 1070, which outlined the Shari’ah governance framework.

Islamic banks that operate under Shari’ah principles do not implement “riba” or interest. These lenders can issue Shari’ah-compliant funding instruments such as “sukuk” upon approval by the Monetary Board.

Central bank officials have said a number of players have expressed interest in setting up Islamic banks and banking units in the country. However, no applications have been filed yet due to the pandemic.

Currently, Al-Amanah Islamic Bank is the only lender operating under Shari’ah principles in the country. — L.W.T. Noble