The Philippine government is currently working on a legislation for the development of Islamic finance and a framework that would allow the country to set up more Islamic banks, reach out to its underbanked 10mn-plus Muslim community and issue government and corporate Islamic bonds, or sukuk, in line with President Rodrigo Duterte’s economic reform agenda to push the Islamic finance industry in the nation.
According to Benjamin Diokno, budget secretary in the Philippines’ Department of Budget and Management, the administration’s financing strategy aims at “continuously diversifying the country’s investor base” and to seek ways to fund Duterte’s multi billion “Build, Build, Build” infrastructure programme. Most of all, the issuance of sukuk would enable the country to tap funds from the 57 member-countries of the Organisation of Islamic Co-operation.
The initiative is supported by the Asian Development Bank, which earlier this year granted “technical assistance” to develop Islamic finance in the country. The Philippine central bank has been tasked in April 2018 to contribute to the development of a regulatory framework for Islamic finance and to strengthen regulatory and market capacity to deliver Islamic financial services. Plans are that the central bank shall exercise regulatory powers and supervise the future operations of Islamic banks. The target is to have this completed by December 2019.
The new legislation, in general, seeks to provide greater inclusion and to promote financial opportunities to the underserved Muslim population by authorising the establishment of more Islamic banks, including the entry of foreign Islamic banks to operate in the Philippines and conventional banks to establish Islamic banking windows with comprehensive banking services for retail and corporate clients. It also would provide a legal framework for the issuance of sukuk, Shariah-compliant financing contracts, commodity financing and to issue shares, among others. This would also enable Muslim investors to participate in the domestic capital market.
The move is also expected to strengthen the role of Al-Amanah Islamic Investment Bank of the Philippines, the first and only Shariah-compliant lender in the country under the helms of state-owned Development Bank of the Philippines. House Bill 8281, which aims at amending the charter of Al Amanah Bank, has already been approved on second reading last week, while its counterpart, Senate Bill 668, is still pending. Diokno said the legislative process may take another year before becoming reality and sukuk issuances could not be expected before the beginning of 2020 at the earliest.
Besides funding the “Build, Build, Build” programme through an additional, collateral-based or asset-backed financing structure, sukuk would also be used to rebuild and rehabilitate the war-torn Marawi City in the Philippines southern Muslim-majority island of Mindanao which has been almost completely destroyed by Islamist militants in a five-month battle last year. Islamic finance institutions would also give businesses in Mindanao more financing options to grow, and, in general, stimulate economic growth in the southern autonomous region, as well as in Filipino-Muslim communities in Metro Manila and other areas nationwide.
In turn, Muslim investors and bankers from outside, especially from other Muslim countries in Southeast Asia and the Middle East and Northern Africa, will have more reasons and incentives to participate in the growth of the Philippine economy. As soon as the framework stands, the Philippine Board of Investment plans – as a start – to go on an Islamic banking roadshow in Malaysia, Indonesia, Singapore, Saudi Arabia, the UAE, Qatar and Morocco, with other countries to follow.
People sit along a sea wall of Manila Bay in Manila (file). The Philippine government is currently working on a legislation for the development of Islamic finance and a framework that would allow the country to set up more Islamic banks, reach out to its underbanked 10mn-plus Muslim community and issue government and corporate Islamic bonds, or sukuk.
