As part of its campaign to foster awareness of Islamic finance, the Bangko Sentral ng Pilipinas (BSP) has been actively promoting both Islamic banking and finance, that it is not just for Muslims but also for non-Muslims, both local and foreign clients.

“(We want to have) a level playing field for all players in the Philippines. With our information drive, we expect more Filipinos to better understand and appreciate Islamic banking and finance,” said BSP Assistant Governor Arifa A. Ala in an interview with PTV “Laging Hand” program on Tuesday, Jan. 24.

The BSP has a system-wide efforts toward establishing a sustainable Islamic finance ecosystem in the country. It even has an existing agreement with the Philippine Economic Zone Authority for the promotion of Islamic finance.

Ala, who was recently cited as one of the most influential women in Islamic business and finance as the 2022 “WOMANi Professional Award” recipient in Jakarta, Indonesia, said the BSP has prepared the way for the smooth entry of Islamic banking and finance in the local financial system.

“The objective of the government is to establish a level-playing field for both conventional and Islamic banking system in the Philippines,” she said.

Islamic banks will provide the public both Muslims and non-Muslims alternative financial products that can serve their requirements, said Ala.

“Islamic banking law is very flexible. They have a choice of establishing a full pledged – meaning the entire institution is an Islamic bank -- or the existing conventional banks can also establish their Islamic banking units (IBUs).”

The aim of the BSP to create an Islamic banking sector than can operate viably alongside conventional banks, said Ala.

The key difference between an Islamic bank and a conventional bank is that depositors are “investors rather than lenders” in the former and they are just lenders in the latter. In a conventional bank set up, the bank pays fixed interest on deposit liabilities and charges interest on loans while an Islamic bank has risk sharing or profit and loss sharing. A non-Muslim bank is also “exposed to assets and liabilities mismatch risk” while an Islamic bank’s assets and liabilities are “better matched”.

Meanwhile, the BSP’s proposed capital requirement for Islamic banks are the same as conventional banks which is a range of P3 billion to P20 billion depending on how many branches will be put up.

Republic Act No. 11439 or the Islamic Banking Law was enacted in 2019. But it was only in 2022 that the BSP started creation of the Shari’ah Supervisory Board (SSB) in the Bangsamoro Autonomous Region in Muslim Mindanao (BARMM) to promote Islamic finance and Islamic banking in the region.

The SSB’s primary function is to issue Shari’ah opinions on Islamic banking transactions and products in the BARMM.

Last year, a joint circular and a memorandum of agreement with the Department of Finance, the National Commission on Muslim Filipinos, and the Bangsamoro Government on the establishment of the SSB was signed.

At the moment, the Philippines only has one Islamic bank, the state-owned Al Amanah Islamic Investment Bank. It is a subsidiary of the Development Bank of the Philippines and created by a presidential decree in 1973.