BSP to strengthen collaboration for Islamic banking

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said they will continue to work with the private sector as well as other government agencies to push for Islamic banking until a “viable” Islamic finance ecosystem is in place alongside the conventional banking sector.

“By now, we may already have visualized the potential and opportunities, as well as the challenges, that this endeavor brings. While the tasks ahead are new and numerous, these are birth pains which I am optimistic of overcoming,” said Diokno during the signing on Wednesday, May 4, of the memorandum of agreement (MOA) on the establishment of the Shari’ah Supervisory Board (SSB) in the Bangsamoro Autonomous Region in Muslim Mindanao (BARMM).

The MOA is a cooperation of the BSP, Department of Finance, the Bangsamoro Government, and the National Commission on Muslim Filipinos (NCMF).

With SSB, Diokno said the Philippines will be among a handful of jurisdictions that have institutionalized a Shari’ah governance oversight body for Islamic banking and finance.

The joint circular also created by BSP and other government agencies is a signal to the rest of the world that SSB will put in place the necessary infrastructure to accommodate an expanded Islamic banking and finance ecosystem.

NCMF Commissioner Yusoph J. Mando said they expect the SSB in BARMM to “provide opinion on Shari’ah issues, guidelines and decisions regarding the modern banking practices and delivering of ‘fatwa’ on the contemporary issues offered by the management to fulfill the demand of the numerous stakeholders.”

“In addition, this should develop Shari’ah governance policies and implement those guidelines approved, and develop new products, observe and monitor banking functions, identify problems and (find) solutions as well as they should ensure Shari’ah principles and compliance,” said Mando on Wednesday.

Mando also said the NCMF believes that with all of these in place, it will enhance the “integrity of the Islamic banking and will increase the level of confidence among the Muslim community towards Islamic financial institutions.”

The SSB and the joint circular are mandates according to the provisions of the Bangsamoro Organic Law (BOL) for the development of an Islamic banking and finance ecosystem. Article 32 mandates the BSP, the DOF, the NCMF and the Bangsamao Government or the “founding agencies” to jointly promote the development of an Islamic banking and finance system.

The BSP, in particular, is mandated to determine the type of organizational structure of the SSB and its composition. BSP Deputy Governor Chuchi G. Fonacier said Wednesday that the SSB ensures compliance to the Shari’ah governance framework or SGF and it is an essential Shari’ah compliance oversight body under this framework. She said that it oversees the application of Shari’ah principles such as the prohibition on “Riba” or interest.

“Therefore, a robust oversight function not only enhances public confidence and trust but also triggers widespread customer and investor acceptance, and provides credibility on Islamic banking and finance, in general. This, among others, is the impact of the creation of the SSB,” said Fonacier.

The central bank official also said that Islamic banking for the BSP is crucial for the promotion of its financial inclusion agenda for poverty alleviation and inclusive growth.

For the DOF, Fonacier said the SSB opens investment opportunities for the Southern Philippines and for NCMF, Islamic finance advances the rights and well-being of Muslim Filipinos.

“Finally, for the BARMM, Islamic banking not only provides the stimulus for economic growth in the region, but also embodies the genuine autonomy” as envisioned under BOL, said Fonacier.

BARMM Minister Mohammad S. Yacob agreed and noted during the MOA signing event at the BSP that the realization of the Islamic financial system is “in part and parcel of our struggle to chart a better future for our people especially the poor and those needing the most help.”

“We are deeply convinced that the establishment of the Shari’ah Supervisory Board in the (BARMM) takes us closer toward realizing (our) mission. With the (SSB) now in place, we now have a foundational mechanism for the operationalization of Islamic banking and finance in the Bangsamoro and the Philippines,” said Yacob.

He cited Asian Development Bank estimates of some $1.9 trillion global Islamic finance assets as of 2015 alone. This asset segment is also one of the fastest

growing in the global financial system, said Yacob. Meantime, according to S&P Global Ratings, global Islamic finance will likely grow by 10 percent to 12 percent from an estimated $2.2 trillion as of end-2020.

“Through the SSB, the Philippines moves closer to unlocking these vast wealth of economic opportunity and potential while honoring customs and culture of each Bangsamoro constituents all at the same time,” said Yacob.

Diokno on Wednesday said the SSB will serve as a strong arm in reinforcing BSP’s commitment on financial stability grounded on sound corporate governance in the delivery of financial products and services in the country. “By issuing Shari’ah opinions on Islamic banking products and services, the SSB will play a key role in driving the business model of Islamic financial institutions and the sustainability of the Islamic banking products or services that will be made available to all Filipinos,” he said.

Diokno also said that the SSB will boost trading activities, participatory financing schemes and entrepreneurial undertakings with financial institutions that are committed to provide end-to-end Shari’ah compliant products and services. “Clearly, the SSB can shape the Shari’ah governance oversight on Islamic banking and finance and complement existing conventional governance frameworks,” he added.

To encourage and promote Islamic banking in the country, the BSP wants to lower the required capital to set up an Islamic bank or Islamic banking unit (IBU) which is a minimum P3 billion up to P20 billion depending on the number of branches. The current minimum capital requirement for Islamic banks or IBUs is the same as for the universal and commercial banks.

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