The Senate on Tuesday approved on third and final reading a bill authorizing the expansion of Islamic banking system in the Philippines under the supervision of the Bangko Sentral ng Pilipinas (BSP) and regulation by the Monetary Board (MB).
Twenty senators voted to approve House Bill No. 8281, “An Act Providing for the Regulation and Organization of Islamic Banks.”
The measure, which seeks to put in place a sound legal and regulatory framework for the development of Islamic banks in the country, will likewise pave the way for the entry of foreign Islamic banks to operate in the Philippines, said Sen. Francis “Chiz” Escudero, chairman of the Senate Committee on Banks, Financial Institutions and Currencies, and sponsor of the bill.
Escudero said his bill does not exclude conventional banks from engaging in Islamic banking arrangements, including structures and transactions through a designated Islamic banking unit within the bank, and provided that there will be a system for segregating the transactions of the Islamic banking unit from its conventional banking transactions.
“Under this proposed measure, we will provide Islamic banking and finance a policy infrastructure that shall enable Islamic banks to organize and thereafter provide all Filipinos that economic opportunity for inclusive growth,” he said.
“Such infrastructure shall provide regulations of organization, capitalization requirements, powers and supervision of Islamic banks. The Philippines is seen as a top source of growth in Islamic finance and now is the most opportune time that we tap on Islamic banking and finance to broaden the participation of Muslim Filipinos in nation-building,” he added.
Once enacted into law, the Islamic banks may perform the following banking services:
• Accept or create current accounts;
• Accept savings accounts for safekeeping or custody with no participation in profit and loss except unless otherwise authorized by the account holders to be invested;
• Accept investment accounts;
• Accept foreign currency deposits;
• Act as correspondent of banks and institutions to handle remittances or any fund transfers;
• Accept drafts and issue letters of credit or letters of guarantee, negotiate notes and bills of exchange and other evidence of indebtedness, provided that such financial instruments are in accordance with the principles of Shari’ah;
• Act as collection agent insofar as payment orders, bills of exchange or other commercial documents covering Shari’ah compliant transactions;
• Provide Shari’ah compliant financing contracts and structures;
• Handle storage operations for goods or commodity financing secured by warehouse receipts presented to the Islamic bank;
• Issue shares for the account of institutions and companies assisted by the Islamic bank in meeting subscription calls or augmenting their capital and or fund requirements as may be allowed by law;
• Undertake various investments in all transactions allowed by Shari’ah principles and such other banking services as may be authorized by the MB;
• With prior MB approval, Islamic banks may issue investment participation certificates, sukuk, and other Shari’ah compliant funding instruments to be used by the Islamic banks in its operations or capital needs;
• Islamic banks may carry out financing and joint investment operations by way of mudarabah partnership, musharakah joint venture or by decreasing participation, murabahah purchasing on a cost-plus financing arrangement, lease (ijara) arrangements, construction and manufacture (istisna’a) arrangements and other Shari’ah compliant projects or through the use of funds whose owners desire to invest jointly with other resources available to the Islamic bank on a joint mudarabah basis in accordance with the foregoing arrangements, contracts and structures;
• With prior MB approval, Islamic banks may invest in equities of Shari’ah compliant undertakings that directly support the delivery of Islamic banking and financing services; and
• Islamic banks may exercise the general powers of a universal bank that are consistent with the principles of Shari’ah.
Under the bill, the BSP shall exercise regulatory powers and supervision over the operations of Islamic banks and shall issue the implementing rules and regulations on Islamic banking.
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