Making Islam and Muslims visible through Economics and Public Administration
I. Introduction: Visibly Beautiful but weak
The diagnosis of the Mindanao problem typically defaults on the lens and language of development economics, local politics or global principles like self determination and cultural integrity.
Economics provides a poignant perspective as 14 of the 20 poorest provinces in the Philippines
are in Mindanao. The economic situation in the Autonomous Region of Muslim Mindanao
(ARMM) where the Muslim population is concentrated is material for narratives on poverty and
photography. The poverty incidence in the ARMM has been increasing from 56% in 1991 to
62.5% in 1997 and 71.3% in 2000 and by 2015, 9 out of every 10 households in the Autonomous
region are classified as poor (Bangsamoro Development Agency, 2015).
In terms of total population though, less than 15% of the Philippine’s population of 100 million
are Muslims. More than 90% are recorded in Mindanao but Muslim migrant communities are
also growing in urban areas in the country. What is captivating, too is the image of 120,000 lives
that have been lost and the plight of 200,000 internally displaced people due to conflict
(UNCHR, 2015). Recent events in Marawi City show that global terrorism is also taking root in
this part of the country.
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Poverty and conflict in Mindanao and the status of life of Muslim communities continue to be
symptoms of the health of the entire Philippine politico-administrative system (Lara, 2014; Brillantes, 2005).
During the centenary of the founding of the University of the Philippines, the relevance of public
administration to Muslims and Mindanao was challenged. Thought leaders and students in public
administration were urged to seek more information, indigenized knowledge and better understanding of the different aspects and issues related to the issues in Mindanao (Tanggol, 2016).
The understanding of Mindanao and Muslims in Mindanao must go beyond stereotypes and popular analytical lenses. Mindanao, formerly the backdoor of the Philippines is now the front door
to East Asian Growth In the Philippines. Muslims are stereotyped as vendors selling fake DVDs
or pearls while postcard representations depict noble sultans and calm royalties. Insensitivity and
cultural ignorance have led many to conclude that being a Muslim and adhering to Islam are the
passports to have more wives and an opportunity to be with 99 virgins. The poverty of representation of Muslims and Islam must cease!
Mawdudi (1903-1975), a Islamic jurist and scholar articulated how economics, in particular
Islamic economics, would make Islam and Muslims visible (Kuran, 2010). Sharp and clear
visibility are important as the Philippines prepares for the enactment of the Bangsamoro Basic
Law (BBL). The draft BBL among others provides exclusive power to the Bangsamoro
government to promote and develop an Islamic banking system (Draft Bangsamoro Basic Law,
Section 3).
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And, as the governance and economics of public goods and financial services are concerns of
public administration, the discipline’s concepts, theories and tools may be able to contribute to a
sharpened and culturally sensitive and sensible image of Muslims and Mindanao.
III. Islam and Underdevelopment: a Weberian Pill for an Epidermal Diagnosis
In a study on the role of Islam in the perennial underdevelopment of Muslim countries, the area
of Mindanao, especially the ARMM, appears to mirror the health of Muslim countries:
Fifty-seven Muslim countries, consisting of a total population of 1.3 billion people, comprise roughly 21 percent of the world‟s population. Yet, these countries lag far behind other nations with their total Gross National Product (GNP) of only 8 percent of the world‟s GNP. Identically poor results are revealed from an analysis of the Human Development Index (HDI)..Out
of 57 Muslim countries, 21 received low scores, 31 countries secured medium scores and only 5
Muslim countries attained high scores in the HDI. (Ebhrahim 2015)
The epidermal diagnosis is that
Islam has impaired economic development by discouraging inquisitiveness, change and adaptation and muslims circumvented islamic prescriptions with ease” (Kuran, 2010). The underdevelopment of Muslim countries is traced to a) Muslims digression from the time-tested economic
prescriptions of Islam b) selfish materialism of Muslims (especially leaders) that resulted in
“corruption of the governance of the community” and c) failure to develop robust civil institutions to facilitate economic growth and check on the power of the ruling classes. (475)
Ebhraim’s deeper diagnosis of Islamic societies however “absolved Islam” as the cause of underdevelopment. To solve underdevelopment, the recommendation is a Weberian regimen composed of a healthy dose of institutions and leaders that have the knowledge and competence to
“act rationally and build progressive” Islam communities.
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He prescribed that “frail islamic societies specially those known for fundamentalisms,
extremisms and other modes of retrograde thinking” may be cured with shots of “intellectual
dynamism that is the hallmark Islamic communities.”
And, in matters pertaining to economics, the scholar Mawdudi warned Islamic jurists to stop
“making unilateral decisions without consulting financial economists trained in the field of Islamic economics.1” Economist and jurist are urged to conduct joint diagnosis to: a) develop institutions that enforce contracts and promote property rights; (ii) foster good governance d) provide
a conducive environment for private initiative; and (iii) structure a financial infrastructure that
promotes growth.
The thought about jurists in the Islamic world may benefit from a deep PA designed-pathology.
Perhaps Mindanao’s century-old conflict and underdevelopment is due to the pervasive presence
(or probably absence) of “jurists.”2 The “jurists” of Mindanao must not clone the jurists in the
Muslim world that according to Mawdudi “jeopardize the very survival of the Muslim world.”
In the Philippine setting, these jurists may perhaps be those institutions, political clans, warlords,
traditional leaders and other groups that defined political legitimacy and Islamic thought that infected consciousness of the “everyday Muslims” in Mindanao (Lara 2014, McKenna 1998).
1Qur'ānic injunction in verse 17:36 implores Muslims not to engage in matters which they are not qualified in.
2Jurists refer to islamic scholars that write and interpret new Islamic thinking and laws and issue fatwahs (rulings) that
become binding in Muslim communities or institutions.
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This paper looks at Islamic finance (IF) as it builds institutions that will promote economic
development and financial inclusiveness via culturally appropriate financing in the Philippines,
starting in Mindanao.
It must be noted though that the principles and structures of
IF are
applicable to Muslim Mindanao and the entire Philippines.
The paper builds on the diagnosis that :
no significant steps have been taken by the Philippine government to encourage Islamic banking
and governance in the country … and has relinquished its leadership in this field and has
watched its neighbor in the region surpass it.” (Sycip,et al. 2016, 38)
II. Islamic Finance
The Islamic finance industry and its instruments are guided by the teachings of the Holy Qur’an.
There are two (2) features of IF that may be subjected to the microscope of PA: its financial
instruments based on the Maqashid al Sharia (Objectives of Sharia or Islamic Law) and the
Shariah governance system.
The financial instruments in Islamic finance aim for equitable distribution of resources, social
fairness and respect for environment-based on Islamic laws or Shariah (Abdul-Rahman, Y.
2010). These issues are also close to the heart of public administration and governance and have
been the subject of many policy directives. The contractual obligations of two parties engaged in
Islamic finance is based on actual assets, shared equity and risks.
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Financial instruments that impose riba or interest, in whatever form of financial instruments or
business transactions is prohibited by the Holy Qur’an (2:275; 3:130). Also prohibited are
investments that are harmful to society like gambling and liquor. Risk-sharing in business
transactions and investments is a key principle in IF. For example, in the mudarabah or trustee
finance contract, the provider of capital - Rab-ul-Maal- supplies the funds needed to finance a
project while the other party or the entrepreneur -mudarib- offers labor and management
expertise. Profits are shared between them at a certain fixed ratio-based on their valuation of
their contribution to the business. In case of bad business, the Rab-ul Maal exclusively carries
the financial loss while the entrepreneur gains nothing and technically loses what could have
been earned based on the time and effort that the entrepreneur invested in the business.
Musharakah another profit-sharing instrument. In Musharakah, profits are divided based on
agreed upon ratios while losses are shared based on the amount of capital contributed.
The Qard al-hasan is a unique lending instrument. The Holy Qur’an encourages Muslims to
help the needy via the Qard. The provider of capital may charge borrowers a service fee to cover
the administrative expenses of handling the loan but the fee is not related to the amount of the
loan or the duration of the loan. The loan also hopes to make a poor borrower a big entrepreneur .
Investments that completely observe key principles of the Holy Qur’an are called “shariahbased.” Investment products that are still unable to fulfill the full guidelines are permissible and
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are classified as “shariah compliant.” These two types of compliance levels provide flexibility in
the implementation of IF. 3
There are other specific Islamic financing instruments. This paper will not deal with the details
of these instruments. The focus will be on the general principles that will lay the foundations of a
vibrant Islamic finance industry in the Philippines.
The second unique feature is the presence of the Shariah Board as implementing structure of .
islamic financial governance system. Governance in Islamic finance has elements of dichotomy:
governance principles are based on teachings of and jurisprudence based on scholarly discourse
on the Holy Qur’an and compliance are based on administrative and institutional regulatory
systems defined by the industry.
A Shariah board is the expert source on the law and its application in financial and banking
transactions” particularly the permissibility of the products based on the principles of the Holy
Qur’an and rulings of other scholars (Abdul-Rahman 2010, page 78; Nurhastuty, 2012). The
Board decides if an institution is engaged in “shariah-based” or “shariah compliant” financing.
The rulings are issued as fatwahs that are binding among all those involved in the transactions. A
3 An example of limited compliance is the presence of at least 50 Shariah compliant companies at the Philippine
Stock Exchange. Some of these companies are into liquor, pork and are engaged in interest-based investments.
These listed companies are still categorized as “shariah compliant.” Under the PSE guidelines, companies engaged
in in conventional interest-based lending, financial institutions, pork, alcohol, intoxicants, tobacco, arms and weapons,
gambling, casinos, derivatives, adult entertainment, music and human stem-cell research may still be considered
compliant provided that the companies' income derived from these activities must be less than 5%. This flexibility is
allowed under Islamic finance. PSE works with an internationally certified Islamic finance rating agency.
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fatwah passes through rigorous research, public discussions and consultation with other Islamic
scholars and financial experts in the industry.
The “Shariah Board” or council is distinct and different from the Board of Directors of the bank
that focuses on regulatory compliance or approval of investment products based on the rulings of
the Shariah Board. In the Philippines, the BSP recognizes that while the Shariah Council is not
directly involved in the bank operations and is not entitled to vote at board meetings they have
the important role of offering “ advice and undertake reviews pertaining to the application of the
principles and rulings of the Islamic Shari'a to the Islamic Bank's transactions, (Bangko Sentral
ng Pilipinas Circular Sections 3 and 4). The compliance with the Sharia and the implementation
of Sharia governance are monitored and audited by international institutions of regulation like
Accounting and Auditing Organization for Islamic Financial Institution (AAOIFI) and Islamic
Financial Services Board (IFSB).
The Shariah boards are most vital for a the future of Islamic finance. The board helps define the
regulatory regime of IF. A study of Shariah boards in three (3) Southeast Asian countries
emphasizes the importance of Shariah governance and regulation in IF:
A well-established Shariah Governance framework is important for a comprehensive regulatory
and supervisory infrastructure. Islamic banks will have to adhere to this framework for guidance
on the compliancy of their practices. The significance of Shariah governance is highlighted by
the fact that if we have an inadequate infrastructure the compliance of Islamic finance to Islamic
laws can be challenged. SOURCE?
The evolution of these unique features must be analyzed within the history of Philippine public
administration in Mindanao and the Philippine experience in Islamic finance.
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IV. Islamic Finance: Philippine Experience
In 2003, the Asian Development Bank (ADB) held its first Islamic Banking Conference. The
forum talked of the double digit growth (10-12%/year) of the assets of the global Islamic finance
industry. The forum articulated that Islamic finance is an approach to promote financial inclusion
particularly (ADB, 2015). Eighty percent of Muslims are also located in ADB member countries.
In 2015, there was a decline in the double digit growth rate of the IF industry. However the IF
industry will continue to grow as evidenced by the increasing share of IF assets in the domestic
financial market of many countries (IFSB, 2017).
These prognosis are good news to
invigorate the IF industry in the
Philippines.
In 1973, the
Philippine government, by virtue
of PD 264, established the
Philippine Amanah Bank (PAB).
The PAB, though not strictly
designed for Islamic financing,
affirmed the policy direction of
the Philippine government to generate investment and infuse capital for the rehabilitation and
economic development of Mindanao, especially among Muslims.
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The bank was mandated to:
... provide credit, commercial, development and savings banking facilities at reasonable terms to
the people of the primarily Muslim provinces of Mindanao, principally, the provinces of
Cotabato, South Cotabato, Lanao del Sur, Lanao del Norte, Sulu, Basilan, Zamboanga del Norte,
Zamboanga del Sur and Palawan for the establishment, acquisition, development and expansion
of agricultural, commercial and industrial enterprises. (Section 1, PD 264, August 2, 1973)
But, after more than 44 years of history,
the AIIB failed to build financial muscle.
Comparatively, IF in the neighboring countries, of Indonesia, Thailand, Malaysia, Singapore
have each gained at least a 15% share in the total domestic sector banking.
A negative balance sheet failed to discourage the Philippine government to persevere in the 1973
policy pronouncement to provide better life for Muslims in Mindanao.
Thus, in 1990, the
government under then President Corazon Aquino passed Republic Act No. 6848; the Charter of
Al-Amanah Islamic Investment Bank of the Philippines (AAIIB) aimed to:
… promote and accelerate the socio-economic development of the Autonomous Region by
performing banking, financing and investment operations and to establish and participate in
agricultural, commercial and industrial ventures based on the Islamic concept of banking. All
business dealings and activities of the Islamic Bank shall be subject to the basic principles and
rulings of Islamic Shari'a within the purview of the aforementioned declared policy. (RA 6848,
AIIB Charter Section 3)
The government infused an additional capital stock of PhP 1 billion. More importantly, the
charter empowered the AIIB
to be the only bank allowed to use financial instruments and
banking practices based on Islamic banking principles.
The new equity bolstered the health of AIIB. But a new mandate, fresh capital and market
control were not enough to revitalize AIIB. Recapitalization and monopoly failed to deliver the
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committed policy output of contributing to investments in Mindanao and making credit
accessible to the Muslim communities. The AIIB too operated without the guidance of a full
Sharia Board.
A World Bank study (WB, 2016) reported that:
From 1990 to 2006, the bank showed cumulative operating losses of PhP 554million, bringing
down its total capital base to negative PhP 510 million by 2006. During those years the bank
was losing an annual average of PhP 33 million from its operations or 64% of its initial capital
per year. (6-7)
But policy persistence and financial patience prevailed.
In 2008, the Development Bank of the Philippines (DBP) took full control of AIIB as a
subsidiary bank. The DBP acquired the shareholdings of the National Government, the Social
Security System and the Government Social Insurance System and owned 99.9 % of the Bank.
But the losses continued. From 2007 to 2014, total net losses amounted to PhP 436 million, or an
annual average net loss of PhP 45 million.
Four years after acquiring the AIIB, the DBP unveiled its plan to privatize the islamic bank to
attract foreign equity partners. The CB said that the decision to sale and the process of selling
the AIIB is best left to the legislative. They found it best to leave it to the Legislative to decide
how the government will go about the planned sale. The Central Bank though recommended an
“open approach” in Islamic banking. Other banks must be be allowed to open islamic financing
products (Tetangco, 2014 ).
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45 years and PhP 2 billion in new capital, Islamic finance in the Philippines and its sentinel
institution the AIIB, failed to ride on industry drivers for growth both locally and internationally.
Limited investments, low depositor base, high operating costs and low risk appetite cited as
reasons for failure. These problems are however standard problems in the financial sector and
reveal nothing new.
Based on the surgical analysis of CB Governor Tetangco’s , it was the failure in governance and
administration that contributed to the poor performance of the IF industry:
Islamic banking itself has not grown in large part because of legal constraints. The Al-Amanah
Charter created the Bank but not a framework for Islamic banking per se. No such enabling law
has so far been passed. In fact, the General Banking Law of 2000 defines Islamic bank as specifically pertaining to Al-Amanah Bank only. The GBL does not provide for the creation of other
Islamic banks. (Tetangco, 2014)
The BSP observed that the “regulatory environment in (Philippine) banking does not encourage
the growth of distinctive Islamic finance products as the focus is the legal basis and not the
substance of islamic lending (underscoring mine).” (Tetangco, 2014)
Perhaps, students and advocates of public administration were absent during the discussion and
debate on Islamic finance and banking. It would have been a crime on discipline if a PA scholar
was present in those discussions and failed to mention that besides money and a policy directive,
an enabling law and a clear governance and regulatory framework is part of the building block
for an industry and its institutions to grow and grow maturely.
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The limited number of Muslim scholars and experts on Islamic economics that have hands-on
experience in Islamic finance must have stunted the process of harmonization and cooperation
among conventional and Islamic financial experts. Muslim leaders lamented that the Mindanao
conflict provided little opportunity to look into the economic side of Islam. Academics from the
Mindanao State University (MSU) who were trained in Islamic accounting (in foreign countries)
are unable to fully apply their knowledge in the absence of an Islamic finance industry.
A harmonized regulatory system in countries with dual (Islamic and non-Islamic systems)
financial systems is a global concern. The IMF observed that while specialized standard-setting
bodies like the AAOFI have set “specific standards”,
all countries have unique risks (IMF,
2015). Addressing the risks has led to complex financial products and corporate structures that
restrict financial services to clients. In the Philippines for example, security threats in Mindanao
and personal knowledge about Muslims cause an investor to have poor risk appetite to set up or
enter into a business transaction in the Mindanao.
Despite these gaps in governance and regulatory structures and still limited practice of isalmic
financial skills, there are compelling signs to pursue Islamic finance in the Philippines.
In November 2015, the first Islamic finance forum was organized by 13 alims (Islamic scholars)
from 13 provinces in the Philippines and community leaders from Mindanao. The five (5) day
forum affirmed the need to advocate for Islamic economics and finance in the Philippines
consistent with the “social justice” teachings in the Holy Qur’an.
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In July 2016, an international forum on Islamic Micro-finance (IMf) was also hosted by the
National Council of Muslim Filipinos (NCMF).
The forum called for sustained efforts to
promote IF as an approach in inclusive finance and peace and development.
The Philippine Stock Exchange has also engaged Islamic finance accreditation groups to accredit
Shariah compliant investments at the PSE. There are at least 60 “shariah compliant” companies
listed at the PSE.4
Finally in 2016, a legislative step was taken to affirmed that the unaccomplished policy objective
in Muslim Mindanao will not be given up. Senate Bill 3150, “Philippine Islamic Financing Act
of 2016” was filed by Senator Paolo “Bam” Aquino to provide additional liquidity to strengthen
the ailing AIIB. The bill supported the position of BSP to open the entire banking industry for
Islamic investment products, including partnership with Islamic foreign banks.
After nearly 50 years there are better conditions and more support systems for the growth of IF
in the Philippines.
4
These listed companies are categorized as “shariah compliant.” This means that each company is still
involved in non-permissible operation, e.g. investment in interest bearing instruments but within the
prescribed Shariah standards (no. 21) of the Accounting and Auditing Organization for Islamic Finance
and regulatory audit of an accredited islamic accounting organization. For example, under the PSE
guidelines, companies engaged in in conventional interest-based lending, financial institutions, pork,
alcohol, intoxicants, tobacco, arms and weapons, gambling, casinos, derivatives, adult entertainment,
music and human stem-cell research may still be considered compliant provided that the companies'
income derived from these activities must be less than 5%. This flexibility is allowed under Islamic
finance.
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Today, there at least 600 Islamic financing institutions in 75 countries that provide a diversity of
financial models. There is also the Accounting and Auditing Organization for Islamic Financing
Institutions (AAOIFI) that was established in 1991 to assist Islamic banks to be compliant to
Islamic laws.
There are tested Islamic financing models in nearby countries like Malaysia and Indonesia.
Indonesia, whose prevailing social and economic conditions are similar to the Philippines
established its first Islamic Bank in 1992. A practitioner of IF, particularly islamic micro-finance
in Indonesia, narrated that it took them seven (7) years to understand IF, seven (7) years to
practice and another seven (7) years to build its foundations. The Philippines, based on the
history of the AIIB has doubled those years in experience and with a proper regulatory and
governance framework may perhaps grow more in assets.
VI. Conclusion: Regulatory and Financial Utopia
Islamic finance, based on the Maqasid al Sharia will bring social justice and redistribution
(Abdul, 2010).
Shared prosperity” and “distributive justice” are the social and religious
foundation of Islamic finance (Kustin, 2015).
Data from financial and multi-lateral institutions and private foundations like the Bill Gates
Foundation and the United Nations Development and United Nations Environment, affirmed that
the integration of IF specially Islamic micro-finance and takaful (a form of insurance) within the
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global financial system would help address the wicked challenges of climate change and extreme
poverty (UNDP ,2014; WB, 2015).
Caution remains to be needed.
... no financial system, no matter how perfect, can generate economic growth without the rest of
the economy following—and the rest of the economy cannot follow the financial sector unless
certain preconditions are satisfied. These preconditions are, in a nutshell, the rule of law, the
democratic package, the basic freedoms, and the avoidance of sectarian violence. (Cizakca
2015)
VIII. Doorstep Conditions for Islamic Finance
Islamic finance offers a new form of social and economic order in the Philippine finance
industry. For one, an “open approach” to Islamic banking in a country that had more than 40
years of weak
health requires “preconditions” or “doorstep conditions.”
These
doorstep
conditions will stimulate the process of transition (from conventional banking to Islamic finance
and from a closed approach to an open approach to Islamic banking.5
5 The term “doorstep condition” is borrowed from the studies regarding the rise of open access social orders. While
the word was used in the context of relationships that need to be built to reduce conflict and violence in the emergence of new social orders, the theory behind the term is being tested for other applications. For example, the relationship between a Muslim borrower and an interest based lender may be viewed as a form of economic and social
violence that need to pass certain “doorstep conditions” to ensure the growth of a new social order or institution like
Islamic finance. See North et.al, 2009.
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In general, there must be a systematic dosage of policy, regulation and management reforms and
widespread advocacy to induce the process of building a new social and institutional order.
The Islamic finance industry is one interesting field to apply regulatory perspectives.
Experiences from other countries show that the Islamic financial services industry “would derive
no benefit from being under-regulated” (ADB, 2015).
The application of regulatory concepts in the workings of the market is still evolving and more
so in emerging economies like the Philippines (Baylon 2016). An effective legal and regulatory
framework for Islamic finance, according to the ADB must contain the following:
• an enabling environment that accommodates and facilitates the development of what is
arguably still a young industry;
• a clear and efficient system that preserves the enforceability of Islamic finance contracts in a
context of “legal pluralism,” that is the coexistence of civil law (whether based on the common
law or on statutes) and the Sharī`ah; and
• a credible and reliable forum for the settlement of legal disputes arising from Islamic finance
transactions.
Another study by the World Bank (WB) recommended three (3) phases for the development of
IF. The primary phase involves a capacity building among banks and a “review of regulatory and
a supervisory framework to make necessary adjustments to issue licenses and to supervise
activities of the banks providing Islamic financial services.” (WBG, 2015, 9)
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Depending on the response of the market for Islamic products the second phase would be the
“full development of legal, regulatory, and supervisory framework based on best practices and
recommendations of international standard setting bodies.” (underscoring mine)
Finally, at the third phase, more advanced Islamic products may be developed like a capital
market, liquidity facility and what it termed as “advance supervisory and compliance
frameworks.” (WBG, 2015) In sum, the World Bank recommendation is to train people that may
build the market, then comprehensive regulatory policies would follow.
Indeed, 43 years (1973-2016) of capital investments failed to develop a the market. The moment
has come to invest in human capital, knowledge and some theorizing and then the regulatory
structures and instruments: substance before form.
Within the limited scope of this paper, the micro-supplements that will allow Philippine Islamic
finance to gather strength and catch up with the standards of a global industry may include three
(3) significant “doorstep condition” steps:
1. prepare the opening of the banking industry to IF: support an independent, i.e. “non partisan
politics”, gathering of religious scholars and financial experts (both Islamic and non-Islamic),
local and international, to review the social, legal and policy context of Islamic Finance and
further based on the Philippine context. The regulatory and shariah governance framework
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must be aligned with the principles and objectives of maqasid al shari’ah or principles of
shariah.
The framework will define the criteria and process in the establishment of the Shariah
Council at the national and local level. The functions of the Shariah Council, though still
untested, will be complex. Understanding its role vis-a-vis a bank's Board of Directors will
have to evolve. The complication will definitely emanate from the differences in perspective.
There may be tensions between the substance of lending (based on shariah law) and the
compliance to standard due diligence or risk management in conventional banking .
2. build the supply of human resource and knowledge base of the young industry: develop a
curriculum for the integration of Islamic economics in schools of economics and public
administration. An ummah (community) of advocates, scholars and religious and financial
experts in Islamic economics must be built.
3. establish transparency and encourage informed discourse, a focused public consultation on
Islamic economics among religious, political and financial scholars must be conducted with
the sustained support of the National Commission on Muslim Filipinos and the Central Bank
of the Philippines and the academe.
The expertise of internationally recognized and accredited institutions must be tapped given
the limited experience-based capacities of trained IF scholars in the Philippine. These
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institutions may include the neighboring banks in southeast Asia, Islamic Research and
Training Institute and recognized academic institutions in the region, e.g. International
Center for Education in Islamic Finance -Malaysia (for sukuk investmets) and Universitas
Islam-Indonesia and Baitul Ma-al Tamwil (for Islamic microfinance e.g. murabaha). In the
Philippines, the Al Qalam Institute of Ateneo De Davao is the lead knowledge resource base
on Islamic financing in Mindanao, and perhaps even the entire Philippines.
Again, to build credibility and attract Islamic investments within the framework of IF, the
AIIB, the current sentinel of IF in the Philippines must have a fully composed Shariah Board
or Advisory Council. 6
VIII. Conclusion
The institutional and policy response of the Philippines government on the “Mindanao
problem” specifically the Mindanao conflict has focused on regional governance to improve
the management of resources, delivery of services, and development outcomes and peace
negotiations and agreements among various groups, armed and unarmed (Brillantes, 2005).
A culturally appropriate economic model, i.e. Islamic economics with governance and
regulatory system based on the teachings of the Holy Qur’an is a specific form of
6 As of December 2016, the AIIB has not formed its own three-member Shariah Council due to the absence of quali-
fied individuals. Under the BSP Circular 105-96 section 3 the Shari'a Advisory Council of the Islamic Bank shall be
composed of at least three (3) but not more than five (5) members, selected from among Islamic scholars and jurists
of comparative law. Currently AIIB has one Shariah adviser. In other countries, it is called a Shariah Board. In the
Philippines, the use of the term council distinguishes the Shariah body from the Board of Directors of banks.
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government response. Islamic economics and finance require special attention. The
conditions to build the IF industry cannot simply be embedded in a standard development
agenda with only poverty reduction as an objective. A Islamic scholar from Cotabato
emphasized that Islamic finance is important not only because it will solve poverty but more
importantly because it is what the Holy Qur’an teaches.7
The moment is now and the models for a IF in the Philippines are present. The legislative
foundation has been filed. The
Bangsamoro basic law has
expressed provision for Islamic
finance. Community-based
organizations in Mindanao and
multi-lateral development
financing organizations have
started to venture into Islamic
micro-finance.8
These initiatives are crucial “doorstep conditions.” It does not need another centennial to
demonstrate the role of PA in transforming societies and making Islam and Muslims visible.
7 This was the advice of an Islamic scholar to this author during his presentation in a community forum on the impor-
tance of Islamic finance in Cotabato City in 2015.
8 From 2011-2015, this author worked with a development financing organization that invested in capacity building
and entered into mudarabah partnerships with 5 local organizations in Mindanao.
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