By Melissa Luz T. Lopez, Reporter

BSP backs bill allowing entry of more Islamic banks in PHL

Posted on September 16, 2015

THE HOUSE of Representatives has started discussing a proposal to allow other Islamic banks to operate in the Philippines, in attempt to put it at the same level as commercial banks.

The House committee on banks and financial intermediaries yesterday took up a proposal amending the charter of the Al-Amanah Islamic Investment Bank, which is currently the only Islamic bank in the country.

House Bill 5989 filed by AMIN Rep. Sitti Djalia A. Turabin-Hataman seeks to amend Republic Act 6848 by breaking the monopoly of Al-Amanah bank as the sole entity allowed to offer Islamic banking in the country, which would give the green light for the Bangko Sentral ng Pilipinas (BSP) to authorize new entities to come in.

The Al-Amanah bank remains a fully owned subsidiary of the Development Bank of the Philippines.

Islamic banking differs from commercial banking as it follows a risk-sharing principle as espoused by the Shari’ah doctrine, said Arifa A. Ala, director of BSP’s Integrated Supervision Department.

It adheres to laws based on the Koran and prohibits the charging of interest upon loans. Instead, the lender earns by forging partnerships and lease-to-own deals.

The Shari’ah-compliant entities will be allowed to accept or create demand deposits, take in savings for safekeeping, acts as collection agent insofar as interest-free payment orders, and provide financing without any collateral through sale or lease, among others.

Opening the market to other Islamic banks is seen to bring in more foreign capital to the Philippines, the central bank official said.

“It may also trigger inflows of foreign investments in the Philippines with the ASEAN integration,” Ms. Ala said. “Countries around the Philippines are actually into Islamic banking and we cannot exclude ourselves. Having a law that allows other Islamic banks is a good initiative.”

Islamic banks looking to start operations here would still have to comply with existing rules set by the BSP and by the Securities and Exchange Commission, and shall have the same capitalization required of universal banks as in the draft law.

Other changes sought under the bill is a provision on tax neutrality, which Ms. Ala said would level the taxes imposed on Islamic banking products with that of those offered by conventional banks.

A creditor applying for a car loan with a universal bank would be treated differently under an Islamic bank, Ms. Ala said as an example.

“They (Islamic banks) would not directly extend a loan to client, they would know the business of the client and ask for the purpose of the loan... They buy the car and sell it to the customer at a markup,” Ms. Ala said, though adding this left Islamic banking products more expensive because more taxes are imposed than the usual stamp taxes levied from commercial loans.

“The objective really is to provide a level playing field such that conventional banking products and Islamic banking products would have similar classifications,” she added.

Committee chairman and Batangas Rep. Nelson P. Collantes (3rd district) placed the measure under a technical working group for further studies.