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Developing*Islamic*Banking:*

A!Win&Win!Co&opetition!Story!Between!Philippines!and!Malaysia!

LT8A!Sarmiento,!Reena!Basman,!Tani!

Gaurav,!Shivesh!Agarwal,!Rikki!Kumar,!Sushant!Mukumkal,!Sooj!

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Islamic*Banking*in*the*Philippines*

Philippine! Islamic! Banking! started! in! 1973! as! Presidential! Decree! No.! 264.1! This! decree!

established! Al! Amanah! Islamic! Bank! with! an! initial! capital! of! 100! million! pesos! it! began! to! open! in!

regions!like!Cotabato,!Basilan,!Lanao!Del!Sur,!Palawan,!Basilan,!Sulu,!Tawi&Tawi,!Zamboanga!Del!Sur!and!

Zamboanga!Del!Norte.!And! in! 1989! it!was! re&charted! and!expanded! to! regions! in! Sultan!Kudarat! and!

Maguindanao!and!the!capital!increased!to!1!Billion!pesos2.!!

The!concept!of!Islamic!banking!by!the!Al!Amanah!Islamic!Bank!pertains!to!a!system!that!mirrors!

that! of! Sharia! (Islamic! Law).! Within! this! system,! the! collection! and! payment! of! interest! is! strictly!

prohibited;!it!forbids!the!kind!of!transactions!that!involve!interest!because!of!the!teachings!in!Islam!that!

all!income!should!be!determined!by!the!amount!of!work!in!congruence!with!the!factors!of!production.!!

One!of!the!reasons!why!the!Philippine!government!established!Al!Amanah!Bank!was!to!provide!

financing,!rehabilitation!&!reconstruction!in!the!affected!southern!regions!of!the!country!like!Mindanao,!

Sulu!&!Palawan.!!

However,!recently!Al!Amanah!Islamic!Bank!cannot!adhere!to!purely!Islamic!bank!because!of!the!

interest!bearing!operation!that!continues!to!coexist!with!Islamic!modes!of!financing.!Moreover!it!is!has!

also!been!not!complying!with!various!Islamic!codes!on!several!major!investment!activities.!!

There!are!efforts!from!the!Philippine!Government!to!revitalize!Islamic!Banking!in!the!Philippines!

through!Al!Amanah.!In!2008,!the!Development!Bank!of!the!Philippines!bought!Al!Amanah!and!pumped!

in!money!to!revive!the!bank.!!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1!Research!Report!on!Islamic!Banking,!University!of!Malaya,!Mohamed!Ariff!2!Al&amanah!Bank!Corporate!website!http://www.al&amanahbank.com.ph/History.html!

There! are! problems! concerning! the! growth! of! Al! Amanah! here! in! the! Philippines.!One! of! the!

main! reasons3! for! the! non&compliance! by! current! Islamic! banks! is! due! to! the! lack! of! fiduciary! and!

statutory!bodies!in!Philippines.!Moreover!the!regulation!governing!the!Sharia!supervisory!board!of!the!

Philippines!does!not!explicitly!state!the!rules!for!decision&making!&!appointment/dismissal!for!an!Islamic!

financial!institution!in!Philippines.!

Islamic!banking!in!the!Philippines!has!the!potential!to!be!profitable!and!help!the!local!economy!

with!an!estimated!8!million!Muslims4! in! the!Philippines! there!are!great!prospects! for! Islamic!banks! to!

grow!in!the!Philippines.!The! issue!here! is!that!there! is!that!Al!Amanah!is!not!supported!by!regulations!

and!government!auditing!body!that!would!help!it!adhere!to!correct!Sharia!compliance.!To!add,!since!this!

is! in! partnership!with! DBP! and! DBP! neither! has! the! scale! nor! the!wide! reach! as! the! other! banks,! Al!

Amanah!is!on!very!unstable!footing.!

Islamic*Banking*in*Malaysia**

Malaysia! has! been!one!of! the! leading! Islamic! financial!markets! in! the!world! today.! Presently,!

Malaysia's! Islamic! banking! assets! reached! USD65.6! billion! with! an! average! growth! rate! of! 18&20%!

annually.5! According! to! industry! experts,! Islamic! banking! will! grow! its! assets! with! commercial! banks!

globally!and!it!will!reach!$1.1!trillion!in!2012!from!$826!billion!2010.!Now!is!the!right!time!to!consider!

establishing! Islamic! sovereign! wealth! funds! to! further! advance! the! growing! globalization! of! the!

industry.6!And!as!one!of! the! leaders! in! the! industry,!Malaysia! is! in!position!to!be!one!of! the!countries!

that!will! lead!ASEAN! to!promote! Islamic!Banking!and!Finance! in! the! region,!which!will!help!boost! the!

importance!of!ASEAN!in!the!world!economy.!!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!3!Risk!Analysis!for!Islamic!Banks,!Worldbank!study,!Hennie!Van!Greuning!Zamir!Iqbal!4!U.S.!Department!of!State!Website!http://www.state.gov/j/drl/rls/irf/2010/148891.htm!5!Bank!Negara!Malaysia:!Annual!Banking!Statistics!2007!6!The!World!Islamic!Banking!Competitiveness!report,!Ernst!and!Young,!2012.!!

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Islamic! finance!was! introduced! in!Malaysia! in!1983!when!the! Islamic!Banking!Act!of!1983!was!

enacted.!The!Act!enabled!the!country's!first!Islamic!Bank,!the!Bank!Islam!Malaysia!Berhad!(BIMB),!to!be!

founded.! Because! of! this! and! the! liberalization! of! the! Islamic! financial! system,! the! establishment! of!

more! Islamic! financial! institutions! has! been! recognized.! BIMB! became! the! major! component! of! the!

Islamic!financial!industry!of!Malaysia.!!

Since!then,!Malaysia!had!been!successful!in!establishing!the!domestic!Islamic!financial!industry!

for!over!30!years!that!gave!the!country!a!solid!foundation!–!the!financial!bedrock!that!pushed!Malaysia!

to!be!one!of!the!top!financial!markets!for!Islamic!finance!today.!With!the!support!of!their!government,!

Malaysia! has! now! attracted! investments! in! the!Middle! East! and! other! conventional! banks! that! have!

Islamic!market!in!their!expansion!plans.!

The!innovations!that!Malaysia!established!were!the!use!of!various!Islamic!finance!concepts!such!

as!ijarah!(leasing),!mudharabah!(profit!sharing),!musharakah!(partnership),!and!the!Islamic!Banking!Act!

gave! these! financial! institutions! flexibility,! creativity! and! choice! in! the! creation! of! Islamic! finance!

products.!!

By!emphasizing!the!need!for!transactions!to!be!supported!by!genuine!trade!or!business!related!

activities,! Islamic! banking! set! a! higher! standard! for! investments! and! promotes! greater! accountability!

and!risk!mitigation.!

As!the!Malaysian!Islamic!financial!market!grows,!the!mission!of!the!Malaysian!Islamic!financial!

market!is!to!be!in!parallel!with!the!conventional!financial!markets.!But!according!to!the!latest!IMD!World!

Competence!Report,!Malaysia!is!lagging!behind!in!foreign!investors.!!

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Part!of!the!goal!of!the!regional!economic!integration!is!an!ASEAN!Economic!Community!(AEC)!by!

2015.!AEC!aims!to!transform!“ASEAN&into&a&region&with&free&movement&of&goods,&services,& investment,&

skilled& labor,&and&freer& flow&of&capital”.7!Championing!the! Islamic!Banking!space,!Malaysia!could!make!

cooperation!with!other!ASEAN!countries!a!start!for!boosting!their!foreign!investments.!

Call*for*Improvement*in*Sharia*Banking*

With!approximately!4.8!(10)!million!Muslims!in!the!Philippines,!the!need!for!Sharia!compliant!

finance!option!is!indeed!urgently!required.8!With!expertise!emanating!not!just!from!Malaysia!but!from!

other!ASEAN!neighbors!like!Indonesia!and!Brunei,!Philippines!can!build!its!Islamic!Banking!Regulations!

through!what!we!can!learn!from!their!experiences.!History!tells!us!that!before!we!can!truly!establish!a!

working!Islamic!Banking!network!in!the!Philippines,!we!should!address!the!challenges!of!our!neighbors!

from!3!angles.!

Sharia=compliant&banking&calls&for&transparency&and&regulation.&

The!banking!industry!in!the!Philippines!has!developed!quickly!in!the!last!decade.!With!“universal!

banks”!being!able!to!service!more!than!just!the!simple!savings!and!checking!requirements!of!Filipinos,!

loans!and!other!financial!instruments!have!long!been!offered!in!the!branches!of!the!top!banks.!With!

more!and!more!complicated!products!coming!out,!the!Philippine!government!worked!hard!in!the!

regulations!adhered!to!by!the!bank!in!order!to!protect!both!the!financial!industry!from!itself!and!of!

course!to!protect!the!consumers.!AMLA!requirements,!documentation!trails,!prudent!banking!practices!

have!all!been!backbones!of!the!Philippine!Banking!industry.!!

Sharia!compliant!banking!is!not!so!different!from!traditional!banking.!In!fact,!a!lot!of!existing!

Islamic!Banking!products!today!are!founded!on!traditional!banking!products!such!as!savings,!loans!and!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!7!http://www.asean.org/communities/asean&economic&community!8!“The&Future&of&the&Global&Muslim&Population”,!January!2011!by!the!Pew!Research!Center!

investments.!At!its!core,!Sharia!compliant!products!highlight!the!avoidance!of!Riba!(usury),!or!Gharir!

(risk!of!uncertainty)!in!its!financial!dealings.!With!the!help!of!organizations!like!Islamic!Development!

Bank,!5!basic!categories!for!savings!and!investment!exist!which!comply!to!the!Sharia!:!!

1)!Non&interest!earning!savings!and!current!accounts.!This!is!mainly!a!regular!CASA!product!

however!earnings!are!not!given!to!the!account!in!compliance!with!avoidance!of!Riba.!

2.)!Mudaraba!or!investment!accounts!similar!to!savings!and!time!deposits.!This!investment!

product!which!allows!the!investor!to!take!profit!from!their!“investments”!

3.)!Murabaha!or!cost!plus!financing.!This!financial!instrument!is!similar!to!loans!however!instead!

of!interest,!the!contract!carefully!words!that!the!“plus”!is!stated!as!profit!for!the!“reselling”!of!

the!asset!acquired!to!the!borrower!which!can!be!paid!over!a!stretch!period!of!time.!

4.)!Musharaka!or!a!form!of!equity!financing!and!joint!venture.!The!bank!will!share!in!the!funding!

of!a!venture!and!will!partake!proportionately!of!the!profits!(and!losses)!incurred!by!the!

“partner”!

5.)!Ijara!or!leasing!options.!This!allows!the!lending!institution!to!fund!assets!and!allow!the!other!

party!to!provide!installment!payments!in!order!to!lead!to!the!eventual!ownership!of!the!asset.!!

However,!in!order!to!comply!with!Sharia!regulations!3!aspects!should!exist!in!the!transaction9!

(as!stipulated!in!the!contracts).!The!first!one!is!that!profits!to!be!shared!must!be!proportional!to!the!

funds!contributed!to!the!account!and!these!cannot!be!in!lump!sums!or!in!guaranteed!amounts.!Second!

is!that!the!loss!of!the!“depositor”!should!not!be!more!than!the!amount!of!the!deposit.!The!last!one!is!

that!the!financial!institution!will!not!share!in!the!losses!except!for!the!time!and!effort!put!into!the!

management!of!the!funds.!With!no!regulations,!Sharia!banking!can!be!prone!to!abuse!if!put!into!the!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!9!Islamic!Banking,!A!Performance!Analysis!by!M.!Raquibuz!Zaman,!Spring!2001!

hands!of!careless!and!imprudent!fund!managers.!Given!this!risk!coupled!with!the!protectionist!

responsibility!of!the!government,!Sharia&compliant!banking!calls!for!more!regulation!put!in!place!in!

order!to!put!at!rest!the!worries!of!people!opting!for!this!type!of!banking.!

In!order!to!address!this!concern!for!lack!of!vesting!from!the!people!managing!the!funds,!there!is!

a!profit!(and!loss)!sharing!done!by!most!of!the!Sharia!compliant!banks.!However,!with!lack!of!required!

transparency!and!regulation,!especially!from!a!powerful!persona!like!the!government,!financial!

institutions!are!less!compelled!to!disclose!and!handle!accounts!with!a!certain!degree!of!ethical!standard!

and!prudence.!

The!government!can!work!with!the!Islamic!Development!Bank!as!well!as!countries!with!strong!

Islamic!Banking!backgrounds!such!as!those!part!of!MENASA!(Middle!East,!North!Africa,!South!Asia)!and!

ASEAN!neighbors,!especially!strong!South!East!Asian!players!like!Malaysia,!in!creating!the!regulatory!

framework!for!Islamic!Banking.!Things!like!mandatory!reporting!standard,!investment!regulations!and!

ethical!standard!policies!should!be!major!parts!of!the!regulatory!framework.!

Certifying!that!some!Filipino!banks!adhere!to!the!Sharia!way!of!banking!would!help!with!the!

movement!of!funds!across!countries!which!require!Sharia&compliant!products.!This!will!not!only!help!

grow!transactions!coursed!through!the!Islamic!Banking!system!but!will!also!give!Malaysian!banks!

attractive!investment!opportunities!in!other!regions!like!the!Philippines.!!

Sharia=compliant&banking&needs&competent&people.&

While!sharia&compliant!banking!has!been!around!since!the!70s!for!nations!like!Iran!and!Pakistan,!

Islamic!Banking!is!relatively!younger!in!ASEAN.!Should!the!Philippines!adapt!a!dual!banking!system,!it!

should!prepare!itself!in!the!production!of!competent!finance!managers!who!are!experts!in!the!

implementation!of!Islamic!Banking.!

The!government!should!lead!in!this!initiative!in!order!to!prepare!the!country!for!the!launch!of!

this!new!industry.!While!Islamic!Banking!is!very!similar!with!traditional!banks!it!still!needs!a!certain!

amount!of!focus!as!Sharia&compliant!banking!is!very!meticulous!in!the!way!it!crafts!contracts!as!well!as!

product!features!in!order!to!comply!with!the!avoidance!of!Riba!and!Gharir.!Prestigious!colleges!such!as!

University!of!the!Philippines!can!champion!this!initiative!by!providing!specialized!courses!on!Sharia&

banking.!

Sharia=compliant&banking&aims&to&be&efficient&and&fair.&

Because!of!the!way!financial!products!are!set!up!in!order!to!comply!with!Sharia&way!of!banking,!

costs!of!charges!and!“profit!taking”!by!the!institution!can!be!very!costly!to!someone!who!is!“leasing!or!

borrowing”!money!to!fund!assets.!This!inefficiency!makes!the!purely!Islamic!banks!less!competitive!than!

traditional!firms.!In!today’s!world!of!free!flowing!information!through!the!internet,!it!doesn’t!take!a!

genius!to!find!out!that!Sharia&banking!is!a!more!costly!alternative.!This!can!have!an!impact!as!Islamic!

communities!have!less!access!to!credit.!Opportunities!such!as!financing!small!businesses!such!as!setting!

up!Halal!fast!foods,!ownership!of!cars!and!homes!may!be!inaccessible!or!very!costly!for!people!

practicing!Islam.!Another!source!of!inefficiency!can!result!from!costly!management!of!funds.!Of!the!

Financial!Positions!of!the!top!20!Islamic!Banks!at!year!1996,!only!Malaysian!bank!Lambaga!Tabung!Haji!is!

generating!an!ROA!of!above!7%10.!Most!large!Islamic!banks!lingered!in!the!1%!ROA!mark.!Upon!closer!

look,!it!seems!like!companies!employing!the!dual&banking!system!shows!more!efficiency!as!they!strive!to!

be!as!efficient!as!the!traditional!financial!markets.!

In!the!Philippines,!there!are!many!well&run!Universal!banks!that!can!lead!the!initiative!of!

deploying!Islamic!Banking!in!the!Philippines.!Examples!of!such!banks!are!BPI!(known!for!its!product!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!10!Islamic!Banking,!A!Performance!Analysis!by!M.!Raquibuz!Zaman,!Spring!2001!

innovativeness!and!efficiency!in!service!and!in!handling!costs),!PNB!(known!for!its!great!locations!in!

provincial!outposts)!and!Landbank!(accessible!to!the!rural!sectors!of!society).!

Need*for*Islamic*Banking*in*the*Philippines*

With!so!much!work!to!be!accomplished!in!order!to!set&up!Islamic!Banking!in!the!Philippines,!this!

leads!us!to!the!question,!do!we!really!need!our!own!Islamic!Banking!group?!

Muslims!are!the!second!largest!religious!group!in!the!Philippines,!a!large!chunk!of!which!are!

devout!followers!of!the!Quran.!Implementing!Islamic!Banking!in!the!Philippines!has!2!benefits!for!the!

current!Muslim!population.!

The!most!important!benefit!being!the!easy!compliance!to!the!Sharia!of!the!Quran.!Putting!

money!in!the!financial!systems!where!it!can!be!reinvested!helping!the!economy!grow!instead!of!being!

kept!under!the!beds!for!fear!of!violating!the!Riba!when!placing!money!in!the!traditional!bank.!Another!

benefit!of!the!Islamic!Banking!system!is!that!it!gives!credit!access!to!the!Muslims!through!correct!

wording!that!complies!with!Sharia.!Access!to!credit!is!important!as!it!improves!the!opportunities!

available!to!Muslims!which!in!turn!allows!them!to!scale!and!improve!their!quality!of!life!and!future!

earning!prospects.!

Recommendations*in*launching*Islamic*Banking*in*the*Philippines*

Implementation!of!Islamic!Banking!in!the!Philippines!cannot!be!done!overnight.!Conscious!

deliberate!actions!are!to!be!undertaken!in!order!to!set&up!the!foundations!of!Islamic!Banking.!The!goal!is!

to!create!an!efficient!system!that!is!competitive!with!alternative!investment!options,!transparent!and!

trustworthy!in!its!dealings!and!most!of!all!sustainable!in!its!operations.!

In!the!short!run11,!the!government!needs!to!create!the!platform!from!where!the!Islamic!Banking!

industry!can!draw!competent!manpower!from.!This!would!require!encouraging!and!influencing!colleges!

to!set!up!courses!focused!on!Islamic!Banking.!An!example,!UP,!who!have!both!good!diversity!in!its!

students!and!!strong!finance!background,!is!the!perfect!institution!to!start!with!to!promote!and!

encourage!interest!in!Islamic!Banking.!!!

To!add,!the!Philippine!government,!backed!by!the!National!Commission!on!Muslim!Filipinos,!

should!already!start!talks!with!the!Malaysian!government!asking!for!support!in!training!Filipino!

graduates!in!order!to!jump!start!Islamic!Banking!in!the!Philippines.!Though!the!Philippines!can!be!viewed!

as!competition!by!Malaysian!bank,!cooperating!with!each!other!would!help!increase!the!awareness!and!

preference!for!Islamic!Banking!as!a!whole.!Also,!allowing!the!Philippines!to!be!part!of!the!Islamic!

Banking!network!would!benefit!Malaysia!as!Philippines,!with!its!bullish!outlook,!can!be!a!good!place!for!

investment!for!Malaysia.!!

Lastly,!the!government!can!already!start!talking!to!the!prominent!Universal!banks!in!the!country!

who!have!scale,!presence,!stable!management!and!innovative!teams!to!be!the!pilot!bank!for!the!

implementation!of!Islamic!Banking!in!a!few!years.!Scale!is!important!in!order!for!Islamic!Bank!to!be!

competitive!cost&wise!with!its!competitors.!Presence!is!a!key!driver!to!successful!implementation!as!

Islamic!Banking.!Because!of!the!wide!reach!and!accessibility!of!its!branches,!people!who!are!not!very!

familiar!with!Islamic!Banking!can!talk!to!a!representative!in!the!branch!to!know!more.!Having!a!strong!

and!trusted!brand!would!help!people!who!are!not!as!exposed!to!the!possibilities!of!Islamic!Banking!to!

try!it!out!and!subscribe!to!the!product!offerings.!By!partnering!with!existing!Universal!Banks,!we!are!able!

to!take!advantage!of!the!infrastructure!already!laid!out!by!the!established!big!banks.!This!will!save!the!

government!time!and!money!in!rolling!out!the!Islamic!Banking!system.!The!arrangement!is!a!joint!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!11!Short!term!plans!is!within!the!year,!medium!term!is!within!3!years,!long!term!is!5!years!and!beyond.!

venture!between!a!Malaysian!bank!such!as!Lembaga!Tabung!Haji!and!BPI!wherein!Lembaga!Tabung!Haji!

will!be!in!charge!of!training!and!overseeing!the!proper!compliance!of!Sharia!practices!while!BPI!will!

provide!a!desk!in!the!branch!in!order!to!offer!the!“deposits”!and!“investment!products”!which!are!Sharia!

compliant.!The!income!will!be!shared!between!the!2!institutions!in!a!mutually!agreed!upon!rate.!The!

government’s!role!is!to!establish!a!similar!rules,!regulations!and!audit!as!imposed!to!regular!banking!

practices.!

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In!the!medium!term,!the!government!can!look!into!establishing!on!the!job!trainings!for!Filipinos!

in!Malaysian!Islamic!Banks.!The!graduates!from!the!course!initially!established!by!the!government!can!

be!sent!to!Malaysia!in!order!to!train!and!be!proficient!regarding!the!ins!and!outs!of!Islamic!Banking.!The!

government,!in!cooperation!with!a!team!comprised!of!the!local!Filipino!bank!who!will!champion!the!dry!

run,!Malaysian!government,!the!Malaysian!bank!and!an!international!governing!body!such!as!the!Islamic!

Development!Bank,!should!already!draft,!iterate!and!have!approved!the!regulations!for!Islamic!Banking.!

The!regulations!should!especially!cover,!mandatory!reporting!standard,!investment!regulations!and!

ethical!standard!policies.!

In!the!long!run!the!goal!is!to!be!able!to!roll!out!efficiently!and!effectively!a!dual!banking!system!

in!a!Filipino!bank.!The!biggest!hurdle!that!the!initiative!will!be!facing!would!be!lack!of!consumer!

education.!Because!it!is!new!in!the!Philippines,!while!Muslims!are!most!susceptible!to!trying!the!service!

!

MALAYSIAN GOVT

PHILIPPINES GOVT

MALAYSIAN

BANKS

EXISTING!UNIVERSAL!BANKS

ISLAMIC COMMUNITY

ISLAMIC DEVELOPMENT

BANK

UNION OF!ARAB BANKERS

MENASA

Coopetition!between!Malaysian!Government!with!Philippine!Government!in!order!to!establish!Sharia!compliant!banking!in!the!Philippines.!Each!government!works!with!their!own!interest!groups!and!connects!them!with!their!counterparts!in!Malaysia.!!

Once!connected,!Philippine!and!Malaysian!banks!can!join!together!in!order!to!play!to!their!strengths!with!Malaysian!bank’s!expertise!in!Islamic!Banking!and!Philippine!bank’s!expertise!in!the!local!market!along!with!established!scale!and!infranstructure.!

Islamic!Development!Bank!and!other!international!Islamic!Banking!groups!will!be!consulted!in!establishing!regulatory!frameworks!

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out!and!people!can!see!the!potential!of!Islamic!Banking!(Table!1:!Personal!Opinions),!lack!of!general!

understanding!and!the!complicated!contracts!that!come!with!it!might!confuse!and!turn!off!the!potential!

users.!

Table!1:!Personal!Opinions!of!Surveyed!People12!

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A!survey!was!done!to!assess!which!products!are!being!used!in!the!Sharia&compliant!banking!

products.!(Table!2:!Usage!of!Products)!Not!surprisingly,!checking!account,!the!simplest!and!most!

common!type!of!product!is!the!most!popular.!Other!products!which!are!popular!in!conventional!banking!

are!not!as!utilized!in!Islamic!banking.!In!order!to!address!lack!of!consumer!education,!the!government!

and!Muslim!community!leaders!can!work!together!in!promoting!this!type!of!financial!alternative.!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!12!Corporate!Customer!Perceptions!of!Islamic!Banking!Products!and!Services,!5th!Harvard!University!Forum!on!Islamic!Finance:!Islamic!Finance:!Dynamics!and!Development,!Norafifah!Ahmad!and!Sudin!Haron!

Financial!seminars!and!best!financial!practice!in!adherence!to!Quran!teachings!can!be!included!in!

curriculum!of!Madrasa!(Muslim!school).!

Table!2:!Usage!of!Islamic!Products!vs!Conventional!Products!

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Another!initiative!for!the!long!term!is!to!ensure!that!a!body!is!established!in!order!to!certify!

banks!who!adhere!to!Sharia!practices.!In!a!like!manner,!banks!who!wish!to!adapt!a!dual!banking!system!

should!be!accredited!by!International!agencies!in!order!to!get!a!“stamp!of!trust!and!approval”.!This!

stamp!would!open!doors!to!other!Islamic!banks!wanting!to!invest!in!the!Philippines!and!would!like!to!

strictly!enforce!adherence!to!Quran!practices.!

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Addendums:!!

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Redding*Framework*

In!introducing!Islamic!Banking!and!Finance!in!the!Philippines!we!see!Al!Amanah!Islamic!and!Investment!

Bank!of!the!Philippines!as!the!state!owned!enterprise!that!will!give!credibility!in!the!entry!of!Islamic!

Banking!and!Finance!institutions!in!the!Philippines.!!

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Where!in!the!SOE!(AIIBP)!and!a!Multinational!Company,!like!a!Malaysian!Islamic!Financial!institution!will!

work!with!each!other!in!order!to!find!a!way!to!introduce!Islamic!Financial!products!in!the!local!market.!

The!result!of!this!working!together!is!a!Public!Private!Partnership!(PPP)!or!a!Joint!Venture!(JV)!with!the!

Redding'Framework'

AIIBP'

Culture'Coordina7on'Order'

Malaysian'Private'Islamic'Financial'Ins7tu7ons'

SOE'' MNC’s'

ASEAN'Enterprise'System''

PPP'or'JV'in'implemen7ng'IBF'

Philippine!Government!through!government!banks!like!Development!Bank!of!the!Philippines!and!

Landbank!of!the!Philippines,!Malaysian!private!banks.!!

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Order,*Coordination*and*Culture*

Because!of!the!weak!Islamic!financial!institutions!in!the!Philippines,!the!government!of!the!Philippines!

needs!the!help!of!foreign!investors!in!introducing!competent!and!innovative!Islamic!finance!in!the!

country.!The!lack!of!understanding!in!the!local!market!of!the!foreign!investors!will!help!the!partnership!

with!the!government!more!helpful.!!

In!developing!Islamic!Banks!in!the!Philippines,!groups!involved!in!the!PPP!and!JV!needs!to!consider!the!

institutions!that!could!help!in!the!introduction!of!Islamic!finance:!!

a) Financial!Capital!–!in!this!partnership!the!Malaysian!Private!Banks!will!give!the!financial!capital!

needed!for!the!partnership!to!flourish.!In!this!case,!the!government!could!also!give!tax!

exemptions!to!the!private!bank!to!get!the!Islamic!financing!rolling!in!the!Philippines;!!

b) Human!Capital!–!Malaysian!banks!will!have!to!train!locals!about!Islamic!banking!and!finance.!In!

return,!the!Philippine!government!will!also!give!their!expertise!in!management!and!conventional!

finance!to!the!Malaysians;!!

c) Social!Capital!–!the!involvement!of!the!government!in!the!partnership!gives!the!foreign!investors!

social!capital!in!their!planned!ventures!in!the!Philippines!about!Islamic!Banking!and!Finance.!!

Understanding!the!local!culture!will!help!the!smooth!transition!of!investments!in!both!Malaysia!and!

Philippine!side.!!

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