Duterte signs law regulating Islamic banks

President Rodrigo Duterte has signed into law the regulatory framework for Islamic banks in the country.

Duterte signed Republic Act 11439 on August 22, a copy of which was released by Malacañang to reporters on Friday.

Islamic banking, as defined by the law, refers to banking business with objectives and operations that do not involve interest (riba) as prohibited by the Islamic religious law Shari’ah and which conducts its business transactions in accordance with Shari’ah principles.

The measure placed Islamic banks under supervision and regulation of the Bangko Sentral ng Pilipinas (BSP).

The BSP’s Monetary Board may authorize conventional banks to engage in Islamic banking arrangements, including structures and transactions through a designated Islamic banking unit within the bank.

The board may also allow foreign Islamic banks to operate in the Philippines, taking into account what the economy requires as well as the preservation of stability in the banking system and maintenance of healthy competition.

The BSP may require Islamic banks to maintain reserves against their deposit accounts and funds held in trust or under investment accounts.

Islamic banks may perform the following banking services:

• Accept or create current accounts

• Accept savings accounts for safekeeping or custody with no participation in profit and loss except unless otherwise authorized by the account holders to be invested

• Accept investment accounts

• Accept foreign currency deposits

• Act as correspondent of banks and institutions to handle remittances or any fund transfers

• Accept drafts and issue letters of credit or letters of guarantee, negotiate notes and bills of exchange and other evidence of indebtedness, provided such financial instruments are in accordance with the principles of Shari’ah

• Act as collection agent insofar as payment orders, bills of exchange or other commercial documents covering Shari’ah compliant transactions

• Provide Shari’ah compliant financing contracts and structures

• Handle storage operations for goods or commodity financing secured by warehouse receipts

• Issue shares for the account of institutions and companies assisted by the Islamic bank in meeting subscription calls or augmenting their capital and or fund requirements

• Undertake various investments in all transactions allowed by Shari’ah principles and such other banking services as may be authorized by the MB

• Issue investment participation certificates, sukuk and other Shari’ah compliant funding instruments to be used by the Islamic bank in its operations or capital needs

• Carry out financing and joint investment operations

• Invest in equities of Shari’ah compliant undertakings that directly support the delivery of Islamic banking and financing services

• Exercise the general powers of a universal bank that are consistent with the principles of Shari'ah

At present, Al-Amanah Islamic Investment Bank of the Philippines is the only Islamic bank operating in the country. —Virgil Lopez/VDS, GMA News