BSP issues rules for Islamic banks

Published December 30, 2019, 12:00 AM

by manilabulletin_admin


The Bangko Sentral ng Pilipinas (BSP) has released the guidelines for the country’s Islamic banks and Islamic banking units (IBUs) and approved the Shari’ah Governance Framework (SGF) to ensure compliance to the banking requirements.

BSP Deputy Governor Chuchi G. Fonacier. (Bloomberg Photo)
BSP Deputy Governor Chuchi G. Fonacier. (Bloomberg Photo)

BSP Deputy Governor Chuchi G. Fonacier signed the two circulars for the establishment of Islamic banks and IBUs (Circular No. 1069) and the SGF (Circular No. 1070) last December 27 after both resolutions were approved last December 13.

The guidelines will ensure protection of consumers of an Islamic bank or the IBU of a “conventional” bank which could be as significant as its own IBU branch.

In the circular memo, Fonacier said SGF is aligned with the central bank’s corporate governance for the “resilience and stability of the financial system.”

The SGF also ensures that the Islamic bank or IBU adheres to Shari’ah principles and each Islamic bank or IBU must include a Shari’ah Advisory Council that will include “persons who are competent in the field of Shari’ah and banking, finance, law or such other related disciplines.”

“The SGF is a comprehensive system that defines a set of appropriate institutional measures, arrangements, requirements, structure and policies of an Islamic bank or lBU to ensure that there is effective and independent oversight of Shari’ah compliance of its lslamic banking business,” said Fonacier.

BSP Circular No. 1069, in the meantime, sets the guidelines for the establishment of both the Islamic bank and the IBU of a regular or the non-Islamic banks.

According to Fonacier, the BSP is aware of the importance of lslamic banking as an alternative business model to promote its financial inclusion agenda. “In this respect, the BSP aims to promote an lslamic banking system that can operate alongside the conventional banking system, and an open approach where conventional banks operate lslamic banking units.”

The circular has minimum prudential requirements for the establishment of Islamic banks which are universal banks, and IBUs for local and foreign Islamic banks, as well as the creation of IBUs as a division, department, office, or branch of a conventional bank.

Meanwhile, SGF complements the existing regulatory corporate governance framework of the BSP.

President Rodrigo Duterte signed Republic Act No. 11439 or “An Act Providing for the Regulation and Organization of Islamic Banks” on August 22, 2019. The new law gives power to the BSP to regulate and supervise the operations of Islamic banks in the country.

The law defines Islamic banking business as 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.”

Shari’ah, which defines a set of rules and the lslamic financial system, refers to the practical divine law deduced from its legitimate sources such as the Qur’an, Sunnah, consensus of Muslim scholars, analogical sources of lslamic law.

In the Philippines, the potential market for Islamic banking products mainly comprises the Muslim population which account for about 10 percent of Filipinos.

The BSP said that 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.