A measure creating a regulatory framework for the development of Islamic banks in the country has been signed into law by President Duterte.
Republic Act No. 11439 seeks to regulate and organize Islamic banks by authorizing the Bangko Sentral ng Pilipinas (BSP) to exercise regulator powers and supervision over the operations of Islamic banks.
“The State recognizes the vital role of Islamic banking and finance in creating opportunities for greater financial inclusion especially for the undeserved Muslim population, in expanding the funding base for small and medium-sized enterprises as well as large government infrastructure,” the law read.
The government also recognized the Islamic banks’ contribution 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.”
An Islamic banking unit is defined by the law as a division, department, office or branch of a conventional bank that conducts business in accordance with the principles of Shari’ah.
The new law empowers Monetary Board to authorize the establishment of Islamic banks in the country while the BSP exercises supervision and regulation.
The Monetary Board may also allow conventional banks to engage in Islamic banking arrangements. The new law also allows the entry of foreign Islamic banks to operate in the country.
“Islamic banks shall be licensed and regulated in the same manner as a universal bank,” the law read.
“The Bangko Sentral shall prescribe prudential regulations and standards of conduct to promote the sound financial position of Islamic banks and to ensures integrity, professional and expertise in the conduct of their business, affairs and activities,” it added.
RA 11439 also mandates Islamic banks to establish Shari’ah Advisory Council to provide advice and review applications of Shari’ah principles. The council, to be composed of experts in Shari’ah, banking, finance, law and other related disciplines, however, must not be directly involved in Islamic banks operations.
Under the law, Islamic banks may perform services such as accepting or creating current, savings accounts and investment accounts, and foreign currency deposits, acting as correspondent banks and institutions to handle remittances or fund transfers, and providing Shari’ah compliant financial contracts and structures.
The Islamic banks must also comply with laws, rules, and regulations applicable to a private corporation engaged in banking. The capitalization requirements must be equal to that prescribed by the BSP for a universal bank.
Any Islamic bank employee or official found guilty of violating the new law will be slapped with a fine as much as P1 million or imprisonment of not more than five years, or both at the court’s discretion.
The law also mandated the government to provide programs to promote consumer awareness and capability building required by the expanded Islamic banking system.
The law, signed by the President last August 22, will take effect 15 days after its publication in the Official Gazette or in a newspaper.
Source: Manila Bulletin