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ISLAMIC
banking services in the country remain very small
despite the significant number of Muslims in the
country, and regulators should do more if they want to
capture the market that has huge potential, according to
a study of rating firm Moody’s Investors Service.
The
latest report, titled “Islamic Banking in
East Asia—Growing But Not Without Challenges,” said the country,
Singapore
and Thailand’s respective Islamic banks “remain very
small in terms of asset size.”
“Its
[Islamic bank] penetration across the region has been
somewhat patchy,” it said.
The
report said these countries should copy the initiatives
of Malaysia, where the Islamic bank assets now account
for about 15.4 percent of the estimated $62-billion
total banking-system assets.
It said
Malaysia, an Islamic state, made some reforms in the
past 20 to 30 years to develop the necessary legal and
regulatory framework for the industry to flourish.
“The
adoption of various incentives, including tax breaks,
has also proven critical to nourishing the business,”
Christine Kuo, Moody’s analyst and the author of the
study, said.
Kuo
compared
Malaysia with
Indonesia, which has the largest Muslim population in
the world. Despite the huge number, Indonesian Islamic
banks’ penetration rate is only less than 2 percent, or
about $3 billion.
Islamic
banking is a system of banking that follows Shari’a
principles and is guided by Islamic economics. Islamic
law prohibits usury, the collection and payment of
interest, or riba.
Islamic
law also prohibits investing in businesses considered
unlawful, or haraam, such as those that sell alcohol or
pork, or produce “bad” media, such as gossip columns or
pornography.
As such,
its investment alternatives are limited.
In the
Philippines there is only one such type of bank, Al-Amanah
Islamic Investment Bank of the Philippines, but it has
already converted part of its operations as a commercial
bank in order to keep up with its peers and earn profit.
Previous
negotiations with the government and the separatist Moro
National Liberation Front involved establishment of a
central bank that will govern the activities of these
banks. The measure never took off, however, as there is
only one bank, which is losing money, that caters to the
Muslims.
Since
its creation in 1973 as the Philippine Al-Amanah Bank,
the government has only paid up half of the P100-million
shareholding.
In 2000
the bank was reestablished as Al-Amanah Islamic
Investment Bank of the Philippines, with a P1-billion
authorized capital. Under the new Islamic bank, 51
percent or P510 million of the authorized capital was
supposed to be earmarked for subscription of the
national government.
But
since its first inception in 1973 and later in 2000, Al-Amanah
Bank merely operated from its original capital of P50
million and has since accumulated a total of P500
million worth of liabilities. The Bangko Sentral ng
Pilipinas recently gave final approval for state-run
Development Bank of the Philippines to fully acquire Al-Amanah.
The approval will enable DBP to gain full control of the
Islamic bank by acquiring the national government’s
stake pegged at around 69 percent; pension funds Social
Security System and Government Services Insurance
System’s combined holdings of 20 percent; and leaving
the rest to private investors. |
