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  • ISLAMIC BANKING AND FINANCE IN THE PHILIPPINES

    Presentation at the Microinsurance Learning Session Diamond Hotel, 4 July 2014

    Atty. Arifa A. Ala Director, BSP

  • OUTLINE OF PRESENTATION

    Background on Islamic Banking and Finance

    Status of Islamic Banking in the Philippines

    Major Challenges to the Development of Islamic

    Banking and Finance in the Philippines

    How to Promote Islamic Banking and Finance

    Initiatives on Islamic Banking

    The Philippine Financial System

    Opportunities from Developing Islamic Banking and

    Finance

  • WHAT IS ISLAMIC BANKING AND FINANCE

    Conduct of banking/finance operations in consonance

    with Shariah principles (grouped into five categories - profit-loss sharing, sale and purchase, fee-based, free service, ancillary service)

    Characteristics

    Prohibits interest or a fixed pre-determined rate of return or riba

    Prohibits the undertaking or financing of antisocial & unethical

    businesses (e.g. gambling, prostitution, alcoholic liquor, nightclubs and narcotics)

    Requires compliance with Shariah (based on equitable distribution of wealth)

  • STATUS OF ISLAMIC BANKING

    Only one Islamic bank - Al-Amanah

    Islamic Investment Bank of the Philippines Established in 1973

    Does not operate as full-fledge Islamic bank

    Fully-owned by the Development Bank of the

    Philippines

    Operates 9 branches, 8 are located in strategic cities

    in Mindanao

  • 1. Lack of a clear legal and regulatory framework

    for Islamic banking and finance Laws are not able to anticipate the need for a system engaging

    many Islamic banking players

    R.A. No. 6848 is limited to Al-Amanah Bank

    Tax laws/regulations create tax disparities (Islamic finance products are subject to more taxes; become more costly)

    Existing laws do not provide for necessary infrastructures such

    as lender of last resort, deposit insurance system and

    secondary markets

    MAJOR CHALLENGES

  • 2. Lack or scarcity of experts on Islamic

    banking/finance - regulators and industry alike

    3. Lack or very low investor awareness and

    acceptance of Islamic banking/finance

    4. Lack of clear information on demand for

    Islamic banking/finance products in the

    Philippines

    MAJOR CHALLENGES

  • HOW TO PROMOTE ISLAMIC BANKING & FINANCE

    How to promote IBF?

    Provide level playing field

    Build pool of experts on Islamic

    Banking and Finance

    Establish clear legal and regulatory

    framework

    Build broader customer and asset

    base; increase investor awareness and acceptance

  • Islamic banking products are not disadvantaged vs. other products that are similar in economic substance and risk

    Islamic financial players are not inhibited from introducing Islamic finance products

    Facilitate interbank markets that cater to the unique characteristics of Islamic banking

    Establish necessary infrastructures such as lender of last resort, deposit insurance system and secondary markets

    Facilitate the entry of other Islamic banking players - The system should allow multiple players

    PROVIDE LEVEL PLAYING FIELD

  • INITIATIVES ON ISLAMIC BANKING & FINANCE

    Addressing lack of clear and regulatory framework for IBF

    - Coordination with other appropriate government agencies (SEC, PDIC, DoF, Insurance Commission) to

    address the lack of a clear legal and regulatory framework on Islamic banking and finance

    Addressing lack of facilities that cater to the unique characteristics of Islamic Banks

    - Proposed amendments to the New Central Bank Act to enable BSP to provide financial facilities to Islamic Banks, taking into consideration the peculiar characteristics of

    Islamic Banking

    Capacity building and increasing awareness on IBF -

    Hosting/supporting workshops on Islamic banking and finance

    Provide personnel with necessary trainings on Islamic banking and finance

    Supporting initiatives to enable Al-Amanah Bank to

    operate as full-fledge Islamic Bank

    What we do

  • PHILIPPINE BANKING SYSTEM

    Total Head Office Other Offices

    Universal and Commercial Banks 5,514 36 5,478

    Thrift Banks 1/ 1,856 70 1,786

    Rural and Cooperative Banks 2,650 561 2,089

    Total, as of March 2014 10,020 667 9,353

  • MAJOR GEOGRAPHICAL DISTRIBUTION OF BANKS AND ATM UNITS

    11

    0

    2,000

    4,000

    6,000

    8,000

    10,000

    12,000

    Banking Offices ATMs

    Luzon Visayas Mindanao Of which in ARMM

  • REGIONAL DISTRIBUTION OF BANKING OFFICES

    12

    NCR

    Ilocos

    Cag. Val C. Luzon CALABARZON MIMAROPA

    Bicol

    W. Vis.

    Central Vis.

    E. Vis.

    Zam. Pen. N. Mind. Davao

    SOCCSKSARGEN Caraga CAR ARMM

  • REGIONAL DISTRIBUTION OF BANKING OFFICES BY TYPE OF BANKS

    13

    0

    20

    0

    40

    0

    60

    0

    80

    0

    10

    00

    12

    00

    14

    00

    16

    00

    18

    00

    20

    00

    22

    00

    24

    00

    26

    00

    28

    00

    30

    00

    NCR

    Ilocos

    Cag. Val

    C. Luzon

    CALABARZON

    MIMAROPA

    Bicol

    W. Vis.

    Central Vis.

    E. Vis.

    Zam. Pen.

    N. Mind.

    Davao

    SOCCSKSARGEN

    Caraga

    CAR

    ARMM

    RCBs TBs UKBs

  • 14 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000

    NCR

    Ilocos

    Cag. Val

    C. Luzon

    CALABARZON

    MIMAROPA

    Bicol

    CAR

    W. Vis.

    Central Vis.

    E. Vis.

    Zam. Pen.

    N. Mind.

    Davao

    SOCCSKSARGEN

    Caraga

    ARMM

    Regional Distribution of ATM Units

    ATMs

  • PHILIPPINE FINANCIAL SYSTEM

    There is significant untapped market opportunity for

    banks in the Philippines

    Only about 30% of Filipino adults have deposit accounts at a

    financial institution

    Conventional banking has been slow in covering the

    Autonomous Region in Muslim Mindanao. With just 20 banks and

    28 ATMs present, only 8% of the municipalities of the ARMM have

    a banking presence

    Banks have 34% of their physical presence in the

    National Capital Region (where only 13% of the

    population resides and poverty is low)

  • OPPORTUNITIES

    Developing Islamic Banking and Finance in the

    Philippines can promote inclusive finance

    It may also trigger inflows of foreign investments which

    can in turn be deployed in building necessary

    infrastructures

    ASEAN Integration

    Liberalization of entry of foreign banks in the country

  • End of presentation

    Email Address: aala@bsp.gov.ph

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