Opportunities abound in Islamic banking

ISLAMIC BANKING is quietly becoming a major part of the financial services industry worldwide. According to a report by international financial data and market services firm LSEG and the Islamic Corporation for the Development of Private Sector (ICD) of the Islamic Development Bank Group, Islamic finance sector reached $4.9 trillion in assets in 2023.

- Bjorn Biel M. Beltran

The Islamic Finance Development Indicator (IFDI) report assesses Islamic banks' performance in 136 countries around the world across five metrics: financial performance, governance, knowledge, sustainability, and awareness.

"Malaysia, Saudi Arabia and the United Arab Emirates top this year's IFDI as they continue to maintain the development of their local industries, which are supported by enabling ecosystems and infrastructure," the report said.

"At the same time, less developed Islamic finance jurisdictions Kenya, Malawi, the Philippines and Tanzania posted notable milestones that advanced the progress of their own industries."

Indeed, the Philippines has slowly been making strides in developing the Islamic financial sector since the passing of Republic Act No. 11439, or the Islamic Banking Law of the Philippines, in 2019.

It was enacted to provide a clear regulatory framework for Islamic banking in the country, supporting financial inclusion particularly for Muslim Filipinos and aligning the Philippines with global Islamic finance standards. Prior to this law, the sector was limited to the state-owned Al-Amanah Islamic Investment Bank, initially established as the Philippine Amanah Bank in the 1970s, with no comprehensive system for new entrants.

Before the law was passed, the lack of a comprehensive legal framework was a major obstacle that hindered the growth of the industry and prevented the entry of new players. The new law addresses this by providing guidelines for the establishment of new Islamic banks and Islamic banking units within conventional banks.

"Since passage of the Islamic Banking Law, the industry has seen progress with Maybank Philippines, Inc. (MPI) being the first private bank to launch an Islamic banking unit," Maybank Philippines said in an interview.