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Islamic banking seen to support Marawi rebuilding

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THE REHABILITATION of Marawi can be supported by the establishment of Islamic lenders and banking units that have Shariah compliant mechanisms as this can aid small businesses and build infrastructure in the war-torn area, an official of the Bangko Sentral ng Pilipinas (BSP) said.

“Islamic banking can play an important role in the rehabilitation of Marawi City by providing additional or alternative funding source for the programs and projects therein,” BSP Managing Director Arifa A. Ala said in an e-mail.

She said projects such as public infrastructure, housing settlements, livelihood and business development, social services and peace building are broadly in line with Shariah principles and can be funded through Islamic financing.

Ms. Ala said Islamic banks or Islamic banking units of traditional lenders can also provide salam financing, which is strategic for agricultural prospects in the Bangsamoro Autonomous Region in Muslim Mindanao (BARMM), including Marawi.

“The essence of the salam structure enables the Islamic bank to provide advance funding to a producer of goods (e.g. a farmer) to purchase seeds or fertilizers, while the underlying output (e.g. crops) will be produced and delivered in the future,” Ms. Ala said, noting this will be a boost for BARMM’s lands that are suitable for high-value crops and rice.

She added that Islamic financing provides Shariah-compliant products that can help small businesses in Mindanao.

Republic Act No. 11439 or the act providing for the regulation and organization of Islamic banks signed in August 2019. Its key provisions include allowing traditional banks to build Islamic banking operations, with the approval of the BSP Monetary Board.

The central bank has also issued BSP Circulars 1069 and 1070 outlining guidelines for the establishment of Islamic banks and banking units as well as the Shariah Governance Framework.

The Al-Amanah Islamic Investment Bank is the sole lender operating under Islamic banking principles in the country and has been operating under the Development Bank of the Philippines since 2008.

Ms. Ala said there were “numerous” inquiries and exploratory discussions from both local and foreign investors in relation to Islamic banking prior to the pandemic.

“However, no formal application to establish an Islamic bank or Islamic banking unit in the Philippines is received yet,” she said.

The official is hopeful that Islamic banking will improve financial inclusion in BARMM where 109 out of 118 cities and municipalities remain unbanked.

She said the essence of Islamic banking is the equitable distribution of wealth, where banks and consumers partner in profits as well as losses. With this, she said there are a variety of products that could be offered by upcoming Islamic banks in the country.

“Examples are cost-plus financing (murabaha), profit-sharing/partnership (mudaraba and musharaka), leasing (ijara), and forward sale (salam), among others,” she said.

The government last month inked a deal with the European Union for a new financing agreement worth €24.5 million (P1.405 billion) in forms of grants to support the Marawi rehabilitation and the containment of the pandemic in BARMM. — Luz Wendy T. Noble





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