IN THIS age of digital technology and social media, surprisingly there are still 571 cities and municipalities across the Philippines that are not served by formal banking channels.
Out of the country’s 17 regions, the Autonomous Region in Muslim Mindanao (ARMM) has the most number of unbanked localities as of June 2017, comprising 20% of the national total according to the latest data from the Bangko Sentral ng Pilipinas (BSP).
Based on BSP’s national baseline survey on financial inclusion published in 2015, Mindanaoans conduct financial transactions mostly through cooperatives and microfinance NGOs. Among those who have some form of savings, 74% kept their money at home instead of depositing them in banking institutions.
Muslim communities are often limited by the business models of traditional banks, in addition to the monetary and documentary barriers that prevent many Filipinos from opening deposit accounts.
But a bill creating a legal framework for Islamic banking has languished in Congress for many years. Unlike conventional banking, Islamic banking adheres to Shari’ah principles that observe risk sharing and prohibit interest charges on loans. Lenders earn instead from lease-to-own deals with borrowers.
Whatever happened to the Al-Amanah Islamic Investment Bank, the only Shari’ah-compliant Filipino lending institution? Last I heard the Development Bank of the Philippines absorbed it yet remains inactive to this day.
And how about the basket of stocks that satisfy Shari’ah principles launched by the Philippine Stock Exchange (PSE) in 2013? This was supposed to improve liquidity in the local equities market and enable PSE to tap the global Islamic funds that have invested heavily in the Malaysian bourse.
Until now, PSE’s plan to create a sub-index of mutual funds or exchange-traded funds for Shari’ah-compliant stocks has not taken off. Of the 30 listed companies selected to compose the PSE composite index, only six have been deemed Shari’ah-compliant as of mid-2017.
With ARMM as one of the poorest regions in the country, the thrust of getting more Muslim Filipinos on board formal financial channels becomes more imperative. Congress should therefore fast-track the law on Islamic banking to facilitate the inclusion of ARMM’s unbanked communities into the mainstream of economic growth.