Speaker Arroyo said the lack of effective access to responsive financing is one of the main challenges to the growth and development of Micro, Small and Medium Enterprises (MSMEs) in the country.
“This obstacle is doubly experienced by our Filipino Muslim entrepreneurs in the Autonomous Region in Muslim Mindanao (ARMM)-Bangsamoro Region and in different parts of the country with the absence of banking and financial services that are compliant with the principles of Shari’ah or Islamic law,” said Speaker Arroyo.
She said Islamic banking and finance in the Philippines is limited by three major challenges: 1) lack of a clear and regulatory framework for Islamic banking and finance, where existing laws do not provide for the policy infrastructure needed to enable Islamic banks to thrive and current tax laws also subject Islamic financing products to more taxes; 2) lack or scarcity of experts on Islamic banking and finance; and 3) lack or very low investor awareness and acceptance of Islamic banking and finance.
“According to the BSP, Islamic banking is the fastest growing component of the financial services worldwide. It continues to grow by 21 percent despite the challenging global context,” said Speaker Arroyo.
She said there are more than 600 Islamic financial institutions operating in more than 75 countries and almost all major multinational banks offer Islamic financial services.
“However, there is only one Islamic bank in the country-the Al-Amanah Islamic Investment Bank of the Philippines established in 1973. Thus, it is time to provide an environment where more of our IV entrepreneurs can thrive and prosper, and tap their full potential to help develop the ARMM/Bangsamoro Region and the whole country as well,” said the Speaker.
The bill declares that the State recognizes the vital role of Islamic banking and finance in creating opportunities for greater financial inclusion especially for the underserved Muslim population in expanding the funding base for small and medium-sized enterprises as well as large government infrastructure through financial arrangements with risk sharing as their core element.
The State also recognizes the role of Islamic banking and finance in contributing to financial stability through the use of financial contracts and services that are founded on risk sharing rather than speculation in compliance with Shari’ah principles.
The bill mandates the Bangko Sentral ng Pilipinas (BSP) to exercise regulatory powers and supervision over the operations of Islamic banks. The BSP shall issue the implementing rules and regulations on Islamic banking.
Islamic banks may exercise the general powers of a universal bank that are consistent with the principles of Shari’ah.
The measure also provides that the Monetary Board may authorize the creation of Islamic banks and the conventional banks to engage in Islamic banking arrangements, including structures and transactions, through a designated Islamic banking unit within the bank, provided that the Islamic banking unit is separate from its conventional banking transactions.
Likewise, the Board may authorize foreign Islamic banks to establish Islamic banking operations in the Philippines under any of the modes of entry provided for under Republic Act No. 7721, as amended, otherwise known as “The Liberalization of Entry and Operations of Foreign Banks.”
Islamic banks shall be allowed to perform banking services, such as accepting or creating current, savings accounts and investment accounts, foreign currency deposits, and shall act as a correspondent banks and institutions to handle remittances or any fund transfers, accept drafts and issue letters of credit or letters of guarantee, negotiation notes and bills of exchange, evidence of indebtedness, among others.
Islamic banks shall comply with pertinent laws, rules and regulations applicable to private corporations engaged in banking, such as “The Corporate Code of the Philippines” (Batas Pambansa Blg. 68), as amended.
Islamic banking units shall be operated and managed pursuant to a management and organizational structure which should be properly disclosed and segregated from the operations of the parent bank.
The capitalization requirements of an Islamic banking shall be equal to that prescribed by the BSP for a universal bank. The BSP shall take the necessary steps to have the shares of stock listed to any duly registered stock exchange.
In addition, the BSP shall prescribe prudential regulations and standards of conduct to promote the sound financial position of Islamic banks and to ensure integrity, professionalism, and expertise in the conduct of their business, affairs, and activities.
These standards shall take into consideration international best practice and principles relating to, but not limited to capital adequacy, liquidity, corporate governance, risk management, related party transactions, maintenance of reserve funds, prudential reporting, investment ceiling and limitations, prevention of an institution from being used intentionally and unintentionally, for unlawful activities and consumer protection.
The government shall endeavor to achieve neutral tax treatment between Islamic banking transactions and equivalent conventional banking transactions within the provisions of the National Internal Revenue code of 1997 (Republic Act No. 8424), as amended.
Any director, officer, employee, auditor, or agent of an Islamic bank who is found guilty of any act or omission in violation of any provision of the Act and its implementing rules and regulations shall be subjected to the sanctions and penalties under Section 34, 35, 36 and 37 of Republic Act No. 7653, and shall be punished by a fine not exceeding P 1 million or by imprisonment of not more than five years, or both, at the discretion of the court, without prejudice to administrative and criminal sanctions that may be imposed pursuant to existing banking laws and regulations.
The government shall provide programs for increased consumer awareness and capacity building required by the expanded Islamic banking system
The bill is also authored by former Rep. Sitti Djalia Turabin-Hataman, Reps. Ben Evardone, Amihilda Sangcopan, Gus Tambunting, Henry Oaminal, Jorge Almonte, Ma. Theresa Collantes, Jocelyn Limkaichong, Luis Ferrer, Orestes Salon, Julieta Cortuna, Wilfredo Caminero, Tom Villarin, Anthony Bravo, Enrico Pineda, and John Marvin Nieto.