ISLAMIC BANKING AND FINANCE IN THE PHILIPPINES · ISLAMIC BANKING AND FINANCE IN THE PHILIPPINES...
Transcript of ISLAMIC BANKING AND FINANCE IN THE PHILIPPINES · ISLAMIC BANKING AND FINANCE IN THE PHILIPPINES...
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 Shari’ah 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 Shari’ah (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