Guidelines on the Establishment of IBs and IBUs

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The Bangko Sentral ng Pilipinas (abbreviated as "BSP") has approved Circular No. 1069 on the Guidelines on the Establishment of establishment of Islamic banks (IBs) and separate Islamic banking units (IBUs) within conventional banks in the Philippines pursuant to Republic Act No. 11439 or the “Islamic Banking Act”.

The Circular outlines the following key requirements for the establishment of an Islamic bank in the Philippines:

  • Capitalization: The minimum capitalization requirement for an Islamic bank is set at PHP 1 billion, the same as for conventional banks.
  • Shari'ah Compliance: Islamic banks must comply with the principles and rules of Shari'ah, as well as relevant laws, regulations, and supervisory guidelines in the Philippines.
  • Organizational Structure: The organizational structure of an Islamic bank must include a Shari'ah Advisory Council (abbreviated as "SAC") responsible for ensuring the bank's compliance with Shari'ah principles.
  • Business Plan: An Islamic bank must submit a business plan to the BSP for approval, which must include the bank's target market, products and services, and risk management strategies.
  • Licensing: An Islamic bank must obtain a license from the BSP, as well as comply with all other regulatory requirements for banks in the Philippines.

The Circular also sets out the requirements for the establishment of an IBU, which must be a subsidiary of a conventional bank and must be fully compliant with Shari'ah principles.

Relationship to the AAOIFI

After the issuance of this circular, the BSP signed a Memorandum of Agreement with the Accounting and Auditing Organization for Islamic Financial Institutions (AOOIFI), the international standard-setting body for Shari'ah auditing, accounting, and governance, 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.

Related Issuances

These reporting guidelines were followed by the guidelines on the Shari'ah Governance Framework; Guidelines for Reporting Islamic Banking and Finance Transactions/Arrangements; and the Management of Liquidity Risk by IBs and IBUs. The Shari’ah Supervisory Board in the BARMM was established by virtue of a joint circular issued by the BSP, the Department of Finance, the National Commission on Muslim Filipinos, and the Bangsamoro Government. The Insurance Commission also issued Circular Letter No. 2022-04 on the Baseline Regulatory Framework for Takaful Undertakings in 2022, while the Bureau of Internal Revenue issued Revenue Regulations No. 17-2020 and Revenue Memorandum Circular No. 35-2022 to implement the tax neutrality provision in the Islamic Banking Act.

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