By Melissa Luz T. LopezReporter

PHL Islamic banking framework up to legislators

Posted on February 05, 2016

AUTHORITIES are leaving the decision on the sale of the Al-Amanah Islamic Investment Bank (AIIB) and the drafting of an Islamic banking framework to Congress, citing the need for legal guidelines to govern the operations of this “non-conventional” system.

When asked about the plans of the central bank on Al-Amanah Bank, Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco, Jr. said they found it best to leave it to the Legislative to decide how the government will go about the planned sale, as well as on how the state will accommodate Islamic-based banking activities.

“We are of the consensus that the best way to move Islamic banking forward is to have appropriate legislation in place. Without it, there are too many legal and taxation obstacles to Islamic banking in the Philippines,” Mr. Tetangco said in an e-mail interview.

“In this regard, BSP has led the drafting of a law amending AIIB charter and creating an Islamic banking system. The bill thereon which has been filed in the House of Representatives aims to create an expanded Islamic banking system and address constraints including the issues on taxation.”

Islamic banking differs from commercial banking as it adheres to the Shari’ah doctrine as in the Koran. This prohibits the charging of interest upon loans -- instead, the lender earns by forging partnerships and lease-to-own deals with borrowers. The entities -- which employ a “risk-sharing” principle in banking -- will be allowed to accept or create demand deposits, take in savings for safekeeping, acts as collection agent insofar as interest-free payment orders, and provide financing without any collateral through sale or lease, among others.

Currently, Al-Amanah Bank is the first and only Islamic bank authorized to practice Islamic banking in the country.

The bank was formed by Presidential Decree (PD) No. 264, issued by then President Ferdinand E. Marcos in 1974. In 1990, the Charter of Al-Amanah Bank, under Republic Act No. 6848, was signed into law, authorizing the bank as the only institution to conduct Islamic banking business. The bank’s charter repealed PD 264.

State-run Development Bank of the Philippines (DBP) currently owns Al-Amanah Bank. DBP has expressed its plans to privatize the Islamic bank, but this has not been carried out since.

“We are approving its balance sheet, but the target really is to attract foreign equity partners or to privatize it in other words. That’s the direction,” DBP’s Isidro A. Sobrecarey, who sits as chairman of Al-Amanah Bank, said in a recent interview.

Mr. Sobrecarey said that while the DBP can opt to carry out the sale of Al-Amanah Bank by themselves, having an Islamic banking regime in place would “attract more prospective investors.”

“You have to have players coming in from our ASEAN (Association of Southeast Asian Nations) neighbors, and all of them will feel more comfortable in investing in Islamic banking financial institutions if there is a framework,” the DBP official added, citing the need to also level the playing field between Islamic and conventional banking systems.

Together, the BSP and DBP forwarded a proposed measure to Congress through House Bill 5989 filed by Anak Mindanao party-list Rep. Sitti Djalia A. Turabin-Hataman and Senate Bill 3150 filed by Sen. Paolo Benigno A. Aquino IV.

These measures, however, face unlikely passage within the 16th Congress as sessions are about to close.

Senator Sergio R. Osmeña, III, chairman of the Senate committee on Banks, Financial Institutions, and Currencies, said there was simply “no more time” for the bill’s passage when asked about its chances.

The House and Senate ended sessions on Wednesday to give way to the 90-day campaign period for the May 9 national elections. They return for three weeks on May 23 to June 10 but only to canvass ballots and formally close the 16th Congress.

The proposed measures authorize the DBP to sell Al-Amanah Bank and would also give the green light for the BSP to allow other banks to offer Shari’ah-based financial services in the country. A portion of the proposed Bangsamoro Basic Law also seeks to open Islamic banking activity in Mindanao. Both bills, however, hang in limbo.

Without an Islamic banking framework in place, Mr. Sobrecarey said the Philippines may be “missing out” on this segment, especially with a big opportunity in the country’s Muslim population.