The Bangko Sentral ng Pilipinas (BSP) will provide more perks to any conventional or non-Muslim banks that will go into Islamic banking to create the seed market for Islamic finance to take a firm hold in the country. “The BSP aims to incentivize the conventional banks to test, explore and develop the market for Islamic banking products and services with prudential safeguards to support the entry of a critical mass of Islamic banking players in the country,” said BSP Governor Felipe M. Medalla over the weekend. Qualified conventional banks that will set up Islamic banking units (IBUs) will be provided with prudential relief in “meeting the minimum capital requirement which shall be based on the actual number of branches/units being used in Islamic banking operations.” “The application of BSP’s enforcement framework provides prudential safeguards to ensure accountability on the committed business plan and capital build-up plan after the transitory period of covered banks with IBU to promote market discipline in the financial system,” said Medalla and the BSP. Medalla did not say what would be the additional perks, but the BSP on April 18 issued Circular No. 1173 which approved the modified minimum capitalization for conventional banks with an IBU. The BSP will apply universal and commercial banks’ minimum capital requirement to IBUs. Presently, big banks are required to put up a minimum P3 billion to P20 billion capitalization depending on the number of branches. For example, a bank with just one head office will be required P3 billion capitalization while a bank with 10 branches should have at least P6 billion capitalization. If up to 100 branches, the requirement is P15 billion and more than 100 is P20 billion. BSP Deputy Governor Chuchi G. Fonacier explained in the circular that a conventional bank that is a commercial bank or a subsidiary of a universal or commercial bank, which complies with the minimum capital requirements applicable to its respective banking category, may be allowed to operate an IBU within a reasonable transitory period not exceeding five years. Meanwhile, Fonacier said that not later than six months prior to the end of the transitory period, the conventional bank allowed to operate an IBU will have to submit an acceptable capital build-up plan. This should include the following: the IBU's strategies, financial projections including underlying assumptions; other relevant information to ensure sustained viability of the lslamic banking operations; and the bank's compliance with the minimum capital requirement based on the number of branches used in the operations of the lBU. “Periodic reports on the status of implementation of its capital build-up plan shall be submitted to the appropriate supervising department of the Bangko Sentral to assess the bank's continuing compliance with its capital build-up plan,” said Fonacier. In applying for an IBU license, a conventional bank must be compliant with the BSP’s prudential criteria and has a system for segregating the lslamic banking transactions of the IBU from its conventional banking business, as well as establishing an appropriate Shari’ah Governance Framework (SGF). The capital requirement is one of the reasons why there are few IBU applicants. A hefty capital is also needed to establish an SGF. The SGF ensures that the Islamic bank or IBU adheres to Shari’ah principles and has a Shari'ah Advisory Council. Republic Act No. 11439 or the Islamic Banking Law was enacted in 2019. But it was only in 2022 that the BSP started the creation of the Shari’ah Supervisory Board SSB in the Bangsamoro Autonomous Region in Muslim Mindanao to promote Islamic finance and Islamic banking in the region.