During the recently concluded Philippine Property and Investment Exhibition (PPIE) 2023, Atty. Arifa A. Ala, Assistant Governor of the Bangko Sentral ng Pilipinas (BSP), has delivered an insightful presentation on the role of the Philippines’ central bank in supporting the global Islamic banking and finance growth, focusing on fostering financial inclusion for all Filipinos, and attracting potential foreign investors to get into the Philippine financial system.
In her presentation, Atty. Ala revealed that in order to attain their goal of convincing investors, they must first increase awareness on its approach to Islamic Banking by first understanding its true meaning.
“Islamic Banking is not a religious type of banking, but it is a business model. It’s about a partnership with the bank — the Islamic Bank becomes a partner of the customers,” she said.
Atty. Ala also clarified that while it is called Islamic Banking, it is not exclusive to Muslims.
Further, she explained the difference between Islamic Banking and conventional banking — that when you go to a conventional bank, you place your funds in a conventional deposit account. However, that is not the business model of an Islamic Bank, because in this type of banking, you become a partner of the Islamic Bank and then you share the profits and the risks, and the rising of that investment.
Atty. Ala also highlighted the reason why BSP is pushing for Islamic Banking. She said: “For the BSP, by accommodating Islamic Banking system, it can actually support our financial inclusion agenda. We can include the Muslim Filipinos who actually refuse to bank with the conventional banking system. In addition to non-Muslim Filipinos, they can have alternative financial investments.”
Alternative banking options for non-Muslims
In an interview with The Filipino Times, Atty. Ala shared how the BSP intensifies its efforts to extend alternative banking options for non-Muslims.
“For non-Muslims, Islamic Banking would attract those investors who would like to diversify their investment portfolios, so they can take a look at structure, products, and if that kind of structure or arrangement suits their financial requirements, then Islamic Banking products are also for them,” Atty. Ala said.
“I think one of the reasons why many Islamic Banks around the world have customers who are actually non-Muslims is probably the arrangement or the design of the product that suits their requirements. If they prefer partnership, if they prefer similar to a conventional trust department wherein there is transparency as to where the funds are being invested, and if there is constant providing of statements of accounts of where those funds were invested,” she added.
Attracting potential foreign investors
Atty. Ala also delved into the current initiatives of the BSP in a bid to attract potential foreign investors to get into the country’s financial system or to open with the Islamic Bank in the Philippines.
“First and foremost, we need to inform the potential investors that a clear legal and regulatory framework is in place. That’s very important because potential investors would like to understand and to be aware of the expectations of the regulators when they do come and invest in the Philippines,” she said.
As Islamic Banking complies with Sharia principles—which lays down governing principles for spiritual, mental, and physical behavior that must be followed by Muslims—the BSP has issued the Sharia governance framework simultaneously with the circular on the licensing framework.
Additionally, they have released regulations on liquidity risk management, capital requirement, modified capital requirement for Islamic Banking units — which are subsidiaries of universal commercial banks.
“Coupled with all this regulatory framework, we need to beef up capacity building initiatives because, as you know, there’s low awareness and even low understanding in Islamic banking and finance. We have been hosting a capacity building in coordination with our colleagues in the Asian Development Bank. The Philippine government, as an existing technical assistance on Islamic banking and finance, have hosted a number of capacity building initiatives both for the government agencies as well as the banking industry, and also even the Sharia scholars,” Atty. Ala explained.
Moreover, she stressed the need to highlight the liberalization of the banking laws in the Philippines to convince potential foreign investors.
“I think our Overseas Filipino Workers can help. They are actually part of our target markets in terms of widening the financial inclusion agenda of the of the Philippines. I would assume that the OFWs would have their bank accounts, but hopefully more and more would be more well versed on Islamic banking and finance,” she said.
Recently, Atty. Ala bagged the 2022 “WOMANi Professional Award” and was cited as one of the most influential women in Islamic business and finance. She dedicated the recognition with the BSP and the whole Philippine government.
“The award is actually an indication that the world has seen the great milestones that the Philippine government is able to achieve now in the area of Islamic banking and finance. And as a woman, I want all women to be empowered by being involved in decision making. There is no doubt that the insights that women bring to the table can be great solutions,” Ala stated.
The BSP’s participation in the PPIE is a huge step towards attracting foreign investors to open an Islamic bank in the Philippines. It is set to encourage more foreign investors to invest in the country’s Islamic banking sector to help drive economic growth and promote financial inclusion for all.
Watch her presentation here:
