Islamic banking in the Philippines

Not many of us are aware that there is such a concept as Islamic banking, and that there is actually a special bank for our Muslim brothers and sisters.

In a country like the Philippines where there is a significant Muslim population, this financial system is indeed very important.

Islamic banking pertains to a system of banking that is consistent with the principles of Sharia (Islamic law). In this type of banking system, the collection and payment of interest, which Muslims refer to as “riba,” is strictly prohibited.

Islam forbids transactions involving interest because of its teachings that all income must be determined by the supply of work associated with the factors of production.

It emphasizes that if money is lent for interest, capital is consequently augmented without any effort. Profit-Loss sharing in Islam encourages Muslims to invest their money and become partners in order to share the profits and risks of the business.

Islamic law prohibits investing in sectors contrary to Islamic values such as gambling, alcohol, tobacco, the arms industry and pornography.

In an Islamic mortgage transaction, instead of loaning the buyer money to purchase the item, a bank might buy the item itself from the seller and resell it to the buyer at a profit, while allowing the buyer to pay the bank in installments.

The Philippines actually pioneered in Islamic banking with the creation of the Al-Amanah Islamic Investment Bank of the Philippines in 1973. Al-Amanah even antedated the establishment of the Dubai Islamic Bank in 1975.

However, for a variety of reasons, principally lack of expertise in this new field and lack of general public awareness, Al-Amanah failed to really take off the ground.

In the 1980s, the Government of Malaysia and Bank Negara began actively promoting Islamic banking in Malaysia. The following decade saw the development of a regulatory regime for Islamic Financial Institutions by the Central Bank of Bahrain.

Financial institutions and products designed to comply with the central tenets of Sharia are among the fastest growing segments of the global financial industry. The number of Islamic financial institutions worldwide now exceeds three hundred, with operations in 75 countries and assets in excess of US$400 billion.

Islamic banking has also been estimated to be growing by as much as 20% a year, largely fuelled by wealth from oil.

With these developments, interest in Islamic banking has been rekindled. With Monetary Board approval, the Development Bank of the Philippines recently obtained full control of Al-Amanah Islamic Investment Bank by acquiring the national government’s 69 percent stake in the bank.

Forward-looking DBP President Rey David sees in Al-Amanah a new opportunity for DBP to expand its SME operations in Mindanao as well as other banking services to include remittances especially from the Middle East.

DBP has already sent 15 top executives to Malaysia to hone up their skills in Sharia banking.

Rey David believes that under new management, the refurbished and rebranded Al-Amanah could serve as gateway to Brunei, Indonesia, Malaysia and to the economies of other Muslim countries.

Link: http://www.mb.com.ph/articles/245575/islamic-banking-philippines