International Finance
Islamic Banking

Philippines signs law to establish Islamic banking in the country

Islamic Banks will boost financial inclusion, especially among the country’s Muslim population

President Rodrigo Duterte has signed the Republic Act 11439 to create an Islamic banking system in the Philippines. The Act outlines the rules and regulations for the Islamic banks, that have a different business model from those of the commercial banks.

The Islamic banks work in compliance with the Sharia law, which prohibits them from charging interest on loans.

The act allows the Philippines’ central bank and its monetary board to create and supervise the Islamic banking system in the country. It also gives the commercial banks in the country the option to set up Islamic banking units in compliance with the Sharia law.

Philippines central bank Governor Benjamin Diokno believes the new law will unlock the full potential of Islamic financing in fostering inclusive economic growth.

Benjamin Diokno told the media that, “With a well-defined regulatory framework now in place, the Bangko Sentral ng Pilipinas (BSP) looks forward to seeing greater participation in Islamic financing by both domestic and foreign banks.”

He added, “This is expected to widen opportunities for Muslim Filipinos, including those from the Bangsamoro region, in accessing banking products and services. This is a great stride in our financial inclusion mandates.”

Based in Zamboanga, the Al Amanah Islamic Investment Bank of the Philippines is the country’s first and only Islamic bank. The new law will come into effect by September, will also open doors for foreign Islamic banks to enter and set up their business in the country.

However, the central bank will regulate and decide on the number of players in the country’s Islamic banking system. The decision will be made after weighing in on various factors such as financial stability, healthy competition, and the country’s economic condition.

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