Islamic banks and investment funds are mainly concentrated in the Middle East, the Persian Gulf and Malaysia. However, they’ve been long drawing interest from different countries due to the massive liquidity. Their total assets are now estimated at $ 2 trillion.
The Philippines government and key financial regulators are making a lot of efforts to promote and attract Islamic finance in the country. In the past few years, they have made great advances. For example, a bill has recently been introduced for organizing a comfortable environment for Islamic banks in the Philippines. When this law comes into force, the Central Bank of the Philippines is expected to issue licenses to these banks (including subsidiaries of foreign Islamic banks) under a simplified procedure.
If you are interested in more information on Islamic finance regulation in the Philippines, you may find this material helpful.
Central Bank supervises all financial institutions, including Islamic banks in the Philippines. If you intend to start financial activities in the Philippines, please keep in mind that you must obtain a banking license from the regulator. The licensing procedure for banks in the Philippines is the same as for conventional banks.
The Securities and Exchange Commission is responsible for overseeing the country's capital market and insurance industry. Meanwhile, it is expected that in the near future it will also supervise the Sharia-compatible products. It is believed that Islamic finance brings greater stability than the conventional financial sector due to the stringent conditions that Islamic products come with.
Investing with Islamic Finance
The inflow of foreign Islamic investment is hampered by legal uncertainty. The new law is expected to define the rules. It is envisaged in the proposed bill that a foreign entrepreneur will be able to carry out investment activities with Islamic finance in the Philippines only after establishing an internal subsidiary or establishing an affiliation in the Philippines. In this case, obtaining a financial license in the Philippines will be mandatory.
Islamic banking has an analog to asset securitization - the Sukuk investment certificate. In traditional banking, a special purpose company issues securities, secured by claim rights for a pool of loans with a fixed interest income. In Islamic banking, the Sukuk holder gains the right to a share in the asset or project that underlies the issue, and the income is generated through participation in the profit from the use of this asset.
Businessmen who intend to start a business with Islamic finance in the Philippines should be aware of the fact that at the moment there are no Sukuk lists in local exchanges. Instead, the Philippine Stock Exchange publishes a quarterly list of shares that fully comply with Sharia.
Such Islamic financial instrument as ‘takaful’ is also not yet available in the Philippines. It implies making insurance contributions to the insurer, provided that in the insured event the money will be returned. At the same time, part of the funds goes to the accumulation fund. Investors receive income indicated in the contract.
Meanwhile, it is assumed that in the new law on banks, the possibility of using this tool will be provided so that Islamic institutions feel comfortable in the Philippines.
We are now likely to see more steps being taken by other markets to accommodate Islamic banking. If you need more details on this topic, do not hesitate to contact IQ Decision UK for advice on regulating Islamic financial markets in the Philippines and other jurisdictions by filling out the form below or contacting us in any way convenient for you.