Shariah compliant digital banks could be a reality in the Philippines as Bangko Sentral ng Pilipinas (BSP) is set to issue guidelines for digital banks in the country which will also accommodate Shariah compliant banking operations, IFN Fintech has learned.
The move is part of the central bank’s efforts to promote digitalization, innovation and efficiency in the financial services industry and minimize physical touchpoints, especially amid the coronavirus crisis, which has left the nation under a state of public health emergency since March 2020.
BSP confirms that the draft circular, which is currently under review to be finalized soon, includes digital banks as a distinct classification of banks under the apex bank’s Manual Regulations for Banks, which also include Islamic banks.
Also included in the circular are the scope of authorities and regulators, stockholding limits and capitalization regulations of digital banks, and details on their conduct of business in the country.
The central bank has been vocal about its support for financial institutions looking to adopt a digital banking business model, “in view of the potential for digital innovations to elevate the reliability and inclusivity of financial services available to Filipino consumers,” as it has said in a statement in June 2020, particularly the underserved market.
However, the absence of a separate licensing framework for fully-fledged digital banks means that the banks fall under the existing bank licensing regime, categorizing them as existing universal, commercial, thrift, rural or Islamic banks offering digital-centric financial services. The new guidelines would pave the way for a dedicated regulatory framework and a strong infrastructure for digital banks, allowing and encouraging financial institutions to pursue digital business models.
The regulations fall under the digital payment transformation roadmap of BSP, which had, earlier in 2020, finalized and issued regulations that include a licensing framework for establishing Islamic banks and Islamic banking units, prompting interest from foreign Islamic banks to set up operations in the country.
Al-Amanah Islamic Investment Bank of the Philippines, the country’s lone fully-fledged Shariah bank, had, in late 2019, partnered with fintech company Fexco to launch mobile solutions for its customers.