Philippines: Islamic banking crucial to trade

ISLAMIC banking may play a vital role in Asean trading, especially for the Philippines, which has good business relationship with Indonesia and Malaysia, according to British Ambassador Stephen Lillie

Islamic banking is a system that is based on the principles of Islamic law, also known as Shariah, and guided by Islamic economics.

Two basic principles behind Islamic banking are the sharing of profit and loss and, significantly, the prohibition of the collection and payment of interest.

Since this system of banking is grounded on Islamic principles, all the undertakings of the banks follow Islamic morals. Therefore, investments involving alcohol, gambling, pork, etc. are prohibited.

Lillie said if the country wants to attract more investments, Islamic finance should be developed.

"The Philippines has a web of trade and investment and people to people links with the Middle East," Lillie said.

He added that as the country seeks for areas to capitalize on and expand these links, Islamic financial instruments may have a valuable role to play.

"Indeed as you seek to attract much needed foreign investment from a wide range of sources, (the Islamic links) would be crucial," Lillie said.

Lillie added diversifying and innovating investment products are also key to good trading systems.

In particular, he pointed out that Islamic finance is relative to the country because of the Muslim community which comprises about 8 percent of the population, bigger than other European countries.

The Muslim community in United Kingdom accounts for only 3 percent of its population.

Globally, Islamic finance has been growing at a rate of 20-25 percent in the past five years, according to Noel Bonoan, COO and vice-chair of Manabat Sanagustin & Co., CPAs, a Philippine partnership and a member of the KPMG network of independent member firms affiliated with KPMG International Cooperative.

"Islamic finance is increasingly emerging as a viable alternative to conventional finance and has significantly grown in popularity," Bonoan said.

He likewise pointed out that the lack of legislative and regulatory infrastructure in the Islamic finance market significantly adds to the cost and complexity of Shariah-compliant operations.

Idiosa Ursolino, senior vice president of the Al Amanah Islamic Bank of the Philippines, pointed out the challenges that stymie the development and expansion of Islamic finance institutions in the country.

One of these is the lack of Shariah advisers in the field of economics, banking and finance.

In the Philippines, the role of an Islamic finance institution is to provide developmental projects in the country, said Samira Gutoc, Al-Amanah director.

"One of our developmental projects is the improvement of the tuna industry in General Santos City," Gutoc said.

To date, there exists only one bank engaged in Islamic finance, the Al-Amanah Islamic Investment Bank, a subsidiary of the Development Bank of the Philippines.

It has been in existence for about 40 years and had to be taken over by the DBP, which infused P1 billion of fresh capital.

Amanah Bank started with a small capital of P50 million.

"In recent years Islamic finance has become one of the fastest-growing areas in financial markets. It is estimated that there are approximately $1 trillion worth of Shariah-compliant assets globally. Islamic finance as a global industry has seen a compounded annual growth rate of over 25 percent from 2006 to 2009 and market observers expect continued growth at an annual rate of 15-20 percent as the number of Islamic finance providers and investors increase," said Leah De Leon, undersecretary of the Department of Finance.

She also pointed out that in 2011, the Sukuk, Islamic financial certificates or bonds, became one of the drivers of growth for the Islamic financial system.

Sukuk issuance continues to grow at a rapid rate.

Data shows that the amount of outstanding Sukuks rose to $177 billion as of November 2011 from $143 billion as at end 2010.

(Malaya Business Insight/14 March 2012)


---
Alfalah Consulting - Kuala Lumpur:
www.alfalahconsulting.com
Islamic Investment Malaysia:
www.islamic-invest-malaysia.com