The Philippines, a predominantly Catholic nation, is showing “growth potential” for Islamic finance as it positions itself as a promising market. Even though Filipino Muslims account for about 6% of the population, there is a surge in interest and activity in Islamic finance, fueled by a combination of factors: supportive government policies, strong public demand, and growing interest from foreign investors. Moreover, the government is keen on boosting financial inclusion and promising Islamic finance prospects.
Government Support Fuels Growth
The government has taken decisive steps to cultivate this burgeoning sector. The issuance of the maiden sovereign Sukuk in 2023, raising USD 1 billion, marked a pivotal moment. As highlighted by Fitch Ratings, this landmark event diversified government funding sources, attracted GCC investors and established a benchmark for future Sukuk issuances in the Philippines.
Further solidifying its commitment, the government is exploring the issuance of more Sukuk bonds in 2025, as confirmed by Arifa Ala, Assistant Governor for Financial Supervision at the Bangko Sentral ng Pilipinas (BSP). This proactive approach demonstrates the government's determination to foster a thriving Islamic finance ecosystem.
The BSP has played a pivotal role in creating a conducive regulatory environment. The Islamic Banking Law, established under Republic Act 11439, provides a clear legal framework for Islamic financial institutions to operate while ensuring adherence to Shariah principles. To further incentivise growth, the government has implemented a tax neutrality law, ensuring equal treatment for Islamic and conventional financial institutions.
These proactive measures have yielded tangible results. The Philippine banking landscape now boasts three Islamic banking institutions: the long-established Al-Amanah Islamic Investment Bank of the Philippines, and Islamic banking units within Maybank Philippines and CARD Bank. Furthermore, the licensing of takaful operators, such as Pru Life UK, Etiqa Life and General Assurance Philippines, has expanded the reach of Shariah-compliant financial services.
A Growing Demand for Ethical Finance
A recent study by the Asian Development Bank (ADB) revealed a strong and growing demand for Islamic finance among Filipinos, particularly in the Bangsamoro Autonomous Region in Muslim Mindanao (BARMM), where 92% of the population remains unbanked, as reported by Daily Tribune. The study highlighted several key findings:
- High Interest: A significant portion of respondents, both Muslim and non-Muslim, expressed keen interest in Islamic savings accounts, business loans, and other Shariah-compliant products.
- Addressing Financial Exclusion: Islamic finance offers a viable alternative for the underbanked population, providing access to financial services that align with their values.
- Building Trust: Islamic finance's ethical and transparent nature resonates with many Filipinos, fostering trust and confidence in financial institutions.
This strong public interest, coupled with the growing remittance inflows from overseas Filipino workers, many of whom utilise Islamic banking services in the GCC and elsewhere, presents a significant opportunity for the growth of the Islamic finance sector in the Philippines.
Foreign Investment and Regional Collaboration
The Philippines is increasingly attracting the attention of foreign investors seeking to tap into the growing Islamic finance market. Several international financial institutions have expressed interest in establishing a presence in the country, bringing with them valuable expertise and capital.
To further strengthen its position, the Philippines is actively engaging with regional partners. A roadshow conducted last September by the BSP and the ADB in Malaysia and Indonesia highlighted the country's commitment to fostering regional collaboration. These engagements, which included meetings with key players in the Malaysian and Indonesian Islamic finance sectors, aimed to explore avenues for knowledge sharing, investment partnerships, and joint ventures.
Daily Guardian reports BSP Deputy Governor Chuchi G. Fonacier said in Kuala Lumpur that:
beyond serving a niche market, our vision extends to building a comprehensive Islamic financial system that provides ethical financial solutions that benefit everyone, regardless of faith.
Meanwhile, the BSP Assistant Governor Arifa A. Ala, addressing the Indonesian Chamber of Commerce and Industry, stated that:
the Philippines is ready and fully committed to building a vibrant Islamic finance ecosystem, and together, we can unlock the full potential for expanded financial inclusion.
Challenges and Opportunities
While the future of Islamic finance in the Philippines appears promising, several challenges remain.
- Limited Awareness: Raising public awareness about the principles and benefits of Islamic finance remains crucial.
- Developing Human Capital: Cultivating a skilled workforce with expertise in Islamic finance is essential for the long-term growth and sustainability of the sector.
- Product Innovation: Expanding the range of Shariah-compliant products to cater to the diverse needs of the Filipino market is crucial for sustained growth.
However, these challenges also present significant opportunities as The Philippines is embarking on an exciting journey in the world of Islamic finance. Hence, with a combination of government support, strong public demand, and a growing international presence, the country can unlock this sector's full potential. By embracing innovation, fostering collaboration, and proactively addressing challenges, the Philippines can create a vibrant and inclusive Islamic finance ecosystem that contributes significantly to the nation's economic growth and financial inclusion.
IFMAG NEWS
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