When I started my career in journalism over three decades ago at BusinessWorld, I was assigned to cover the banking sector under Gert Chavez. Coming from a background in Political Science and Economics, I had little experience with the complexities of banking and finance. My early days in the field were filled with a steep learning curve, and Islamic finance was a concept I initially struggled to understand.
At first, I couldn’t see why there was a need for a separate banking system catering specifically to Islamic principles. However, after in-depth briefings and further research, I came to realize that Islamic banking is not just a religious mandate but an alternative financial model. It operates on profit-sharing principles rather than interest-based loans, in adherence to Shari’ah, or Islamic law.
Islamic finance, which is designed to align with Islamic ethics, is particularly important for the Muslim community, which makes up approximately 6% of the Philippines’ population, or around seven million people. However, the relevance of Islamic finance extends beyond serving this demographic. Promoting the sector could help attract investments from the Middle East and neighboring Southeast Asian countries such as Indonesia, Malaysia, and Brunei.
In 2022, the Philippine government issued its first Islamic bonds, known as “Sukuk,” raising about $1 billion in dollar-denominated bonds. Approximately 30% of these bonds were purchased by Middle Eastern investors. Unlike traditional bonds, Sukuk offers investors ownership in assets or projects, rather than relying on interest payments, thus complying with the core tenets of Islamic finance.
Looking back, the government-owned Al-Amanah Islamic Investment Bank was the only institution involved in Islamic banking in the Philippines. Today, other banks, such as Maybank Philippines and CARD Bank, have joined the sector, with the latter opening an Islamic banking branch in Cotabato City. Additionally, two insurance firms now offer Islamic insurance (takaful), further expanding Sharia-compliant financial services in the country.
Islamic banking has the potential for significant growth in the Philippines, yet many businesses, policymakers, and the general public remain unfamiliar with its principles. Addressing this knowledge gap is crucial for the sector’s future success. There may also be a need for lawmakers to revisit the Islamic Banking Act (RA 11439) and consider additional measures, such as tax incentives for investors, to support Sharia-compliant banking.
Islamic banks also face the challenge of distinguishing themselves in a competitive market. To do so, they must demonstrate their value not only to Muslim consumers but also to non-Muslim clients. Collaborations with international Islamic financial institutions may be instrumental in expanding the industry. Ultimately, Islamic banking must prove its reliability and value, earning the trust of both its target demographic and the broader population.
At its core, Islamic banking emphasizes universal principles such as ethics, equity, and shared prosperity—values that resonate with both Muslims and non-Muslims alike. Unlike conventional banks, which operate on interest (riba) and speculative practices (gharar), Islamic banks focus on ethical investments and risk-sharing. They also avoid funding industries deemed haram, such as gambling and alcohol.
The Philippines stands to gain a great deal by embracing Islamic finance. It moves away from exploitative interest-based practices, instead tying investments to tangible assets and real economic activities. This approach encourages sustainable and ethical growth, minimizing speculation and promoting long-term prosperity.
Some of the key principles of Islamic banking include:
Murabaha (Cost-Plus Financing): The bank purchases an asset and sells it to the client at a marked-up price, ensuring transparency and shared risk.
Ijara (Leasing): The bank buys an asset and leases it to the client, allowing them to benefit from its use without the burden of ownership.
Musharaka (Partnership): Both the bank and the client contribute capital to a venture, sharing profits and losses equally.
Mudaraba (Profit-Sharing): The bank provides the capital, while the client manages the investment, with profits split according to pre-agreed terms.
I recall an enlightening experience from around 20 years ago during a trip to Singapore, where I heard Senior Minister Goh Chok Tong discuss Singapore’s strategy to attract Middle Eastern investments. In the aftermath of the 9/11 attacks, when Arab investors faced increased scrutiny in Western markets, Singapore capitalized on the opportunity to position itself as a hub for Islamic finance. This kind of strategic foresight could benefit the Philippines as well.
Islamic finance can play a transformative role in empowering Filipino Muslims, particularly in underserved regions like the Bangsamoro Autonomous Region in Muslim Mindanao (BARMM). By offering culturally sensitive banking services, Islamic finance promotes financial inclusion and helps integrate the unbanked population into the formal economy, fostering greater regional development.
Countries around the world have successfully integrated Islamic finance into their economies. The United Kingdom, for example, has embraced Islamic finance through institutions such as Al Rayan Bank, as well as sovereign Sukuk issuances. Japan and South Korea are exploring Islamic finance to attract Middle Eastern investments, while Singapore and Hong Kong have become regional hubs for Islamic banking in Asia. These global developments highlight the potential for Islamic finance to strengthen economic ties and trade relations with Islamic nations.
For the Philippines, Islamic banking offers an opportunity to attract investments in halal industries, infrastructure, and renewable energy. The country could also capitalize on tourism from Islamic countries, not just from the Middle East, but from Africa and Southeast Asia as well. Islamic banking is more than just an alternative financial system; it represents a bridge to financial inclusivity, cultural recognition, and economic prosperity.
Related Topics:
Why Social Comparison Is the Thief of Financial Contentment
How to Navigate Financial Stress During the Holiday Season
US Military Power Secures Global Financial Dominance, But Risks Loom
