Islamic Banking in the Philippines

Manila Bulletin, February 28, 2010 | Go to article overview

Islamic Banking in the Philippines


Not many of us are aware that there is such a concept as Islamic banking, and that there is actually a special bank for our Muslim brothers and sisters.In a country like the Philippines where there is a significant Muslim population, this financial system is indeed very important.Islamic banking pertains to a system of banking that is consistent with the principles of Sharia (Islamic law). In this type of banking system, the collection and payment of interest, which Muslims refer to as “riba,” is strictly prohibited.Islam forbids transactions involving interest because of its teachings that all income must be determined by the supply of work associated with the factors of production.It emphasizes that if money is lent for interest, capital is consequently augmented without any effort. Profit-Loss sharing in Islam encourages Muslims to invest their money and become partners in order to share the profits and risks of the business.Islamic law prohibits investing in sectors contrary to Islamic values such as gambling, alcohol, tobacco, the arms industry and pornography.In an Islamic mortgage transaction, instead of loaning the buyer money to purchase the item, a bank might buy the item itself from the seller and resell it to the buyer at a profit, while allowing the buyer to pay the bank in installments.The Philippines actually pioneered in Islamic banking with the creation of the Al-Amanah Islamic Investment Bank of the Philippines in 1973. Al-Amanah even antedated the establishment of the Dubai Islamic Bank in 1975.However, for a variety of reasons, principally lack of expertise in this new field and lack of general public awareness, Al-Amanah failed to really take off the ground.

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