Bangko Sentral ng Pilipinas Advances Islamic Finance

The Bangko Sentral ng Pilipinas (BSP) underscored the Philippines' growing potential as a key player in Islamic finance during the launch of an Asian Development Bank (ADB) report.

The event drew high-profile attendees, including ambassadors from Malaysia and Indonesia, Monetary Board Members, government officials, and representatives from financial institutions and the private sector. I Photo: Bangko Sentral ng Pilipinas Facebook

BSP Governor Eli M. Remolona, Jr. highlighted the BSP's collaborative efforts with the ADB in establishing a regulatory framework to foster the growth of Islamic finance.

"The Bangko Sentral ng Pilipinas, together with the Asian Development Bank, is fostering an environment that supports the expansion of Islamic finance in the country," he said.

A significant milestone in these efforts occurred in June 2023, when the BSP granted its first Islamic banking unit (IBU) license to a rural bank.

This was followed by a second license issued to a commercial bank in July 2024, with both institutions launching their IBUs this year, signaling the sector's development.

BSP Deputy Governor Chuchi G. Fonacier emphasized the transformative potential of Islamic finance in achieving financial inclusion.

"Let us collectively harness the immense opportunities that Philippine Islamic finance offers, positioning it as a cornerstone for an inclusive financial system that serves all Filipinos," she said.

The ADB’s report, Unlocking the Potential of Islamic Finance in the Philippines: A Market Analysis and Landscape Report, identified key factors driving Islamic finance growth, including the Philippines' expanding economy, the government's commitment to financial inclusion, and the unbanked population, which accounts for 29% of Filipinos.

The report also highlighted the unmet financing needs of micro, small, and medium enterprises (MSMEs) and growing demand among businesses and individuals for Islamic financial products.

BSP Assistant Governor Arifa A. Ala expressed optimism about the sector's future.

“May this event inspire confidence among stakeholders, particularly market players and investors, that the opportunities in Islamic finance will soon become realities, contributing to a more inclusive and prosperous Philippines,” she stated.

The report also detailed regulatory reforms to ensure a level playing field between Islamic and conventional financial institutions, such as tax neutrality measures.

Key initiatives include the Islamic Finance Coordination Forum and the operationalization of the Shari’ah Supervisory Board in the Bangsamoro Autonomous Region in Muslim Mindanao (BARMM), ensuring compliance with Shari'ah principles and alignment with national priorities.

Asghar Ali Sayed, ADB Co-Team Leader for the Islamic Finance for the Philippines Technical Assistance project, highlighted the investment potential identified in the report.

“This report offers valuable insights and recommendations on the compelling investment opportunities within Islamic finance. By embracing these opportunities, investors can contribute to the country’s economic development while providing ethical and socially responsible financial solutions,” he said.

The event drew high-profile attendees, including ambassadors from Malaysia and Indonesia, Monetary Board Members, government officials, and representatives from financial institutions and the private sector.

It follows similar roadshows held in Malaysia and Indonesia in September 2024 to showcase the Philippines' readiness to attract global Islamic finance investors.

These initiatives mark a significant step forward in positioning the Philippines as a hub for Islamic finance in the region, supporting economic growth while promoting inclusivity and ethical financial solutions.