Islamic Finance in the Philippines

Islamic finance in the Philippines is traceable to 1973 with the establishment of the Al-Amanah Islamic Investment Bank (abbreviated as "AAIIB"), pursuant to Presidential Decree No. 264. In 2019, Republic Act No. 11439 or the “Islamic Banking Act” was signed into law, paving the way for the establishment of Islamic banks (IBs) and separate Islamic banking units (IBUs) within conventional banks in the Philippines.

Laws and Regulations on Islamic Finance

AAIIB Charter

Creation of the Bank

The AAlIB, then having the corporate name "Al-Amanah Islamic Bank," was created in 1973 by virtue of Presidential Decree No. 264.

Amendment of the Bank Charter

The bank's charter was subsequently amended the following year in 1974 by virtue of Presidential Decree No. 542.

Re-Chartering of the Bank

AAIIB was re-chartered in 1989 by virtue of Republic Act No. 6848, providing the legal framework for its operation as an investment bank.

The Islamic Banking Act

To ensure conformity with Shari'ah principles, the law requires IBs/IBUs to establish a Shari'ah Advisory Council. To promote a level playing field for lslamic banking, the law requires tax neutrality with their substantially equivalent conventional transactions. The Islamic Banking Act also mandates consumer education and capacity building.

Implementation of the Islamic Banking Act

Bangko Sentral ng Pilipinas

The Bangko Sentral ng Pilipinas (abbreviated as "BSP") has issued various implementing circulars such as the Guidelines on the Establishment of IBs and IBUs; Shari'ah Governance Framework; Guidelines for Reporting Islamic Banking and Finance Transactions/Arrangements; and the Management of Liquidity Risk by IBs and IBUs. The BSP has entered into a Memorandum of Agreement with the Accounting and Auditing Organization for Islamic Financial Institutions (AOOIFI) to cover the possible adoption of relevant AAOIFI standards by the local Islamic banking and finance industry, and cooperation in the areas of capacity building and technical assistance. The BSP has also issued a memorandum to address Frequently Asked Questions on Islamic Banking in the Philippines.

Bureau of Internal Revenue

The Bureau of Internal Revenue has issued Revenue Regulations No. 17-2020 and Revenue Memorandum Circular No. 35-2022 to implement the tax neutrality provision in the Islamic Banking Act.

The Bangsamoro Organic Law

Republic Act No. 11054 or the “Bangsamoro Organic Law” established the Bangsamoro Autonomous Region in Muslim Mindanao (abbreviated as "BARMM") . The law also has provisions on the promotion and development of Islamic banking and finance.

Implementation of the Bangsamoro Organic Law Provisions on Islamic Finance

Creation of a Shari'ah Supervisory Board

The Shari’ah Supervisory Board in the BARMM was established by virtue of a joint circular issued by the BSP, the Department of Finance (abbreviated as the "DOF"), the National Commission on Muslim Filipinos (abbreviated as the "NCMF"), and the Bangsamoro Government.

Islamic Finance Roadmap

The Bangsamoro Government is currently finalizing a roadmap for Islamic finance in the BARMM and the Philippines in general.

Tax Neutrality for Islamic Finance in the BARMM

The Bangsamoro Government is working on tax neutrality between Islamic finance transactions and their conventional counterparts in the development of the Bangsamoro revenue code.

Other Government Issuances on Islamic Finance

Insurance Commission

The Insurance Commission issued Circular Letter No. 2022-04 on the Baseline Regulatory Framework for Takaful Undertakings in 2022.

Department of Justice

The Department of Justice rendered Opinion No. 36, s. 2022, which opined that the Republic of the Philippines, through the DOF, can validly execute under existing laws a Shari'ah-compliant financing instrument called Sukuk, which will be issued following a structure denominated as a Commodity Murabarah via a Tawarruq Arrangement.

Islamic Finance in the Philippines

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