Banking on Bangsamoro
- Asif Ahmad
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Asif Ahmad is the British ambassador to the Philippines. This commentary originally appeared in the Philippine Daily Inquirer, July 28, 2014 issue.
The signing of the Comprehensive Agreement on Bangsamoro on March 27 was a historic moment for the Philippine government and the Bangsamoro people, promising to usher in a more peaceful, more prosperous future for Mindanao and the rest of the country.
While the Framework Agreement and its four annexes set out both sides’ positions on vital issues like justice, wealth, and territory, the greater challenge now is to make sure that the average man or woman in Cotabato or Sulu will be able to feel the benefits of peace by sharing in the gains of national growth. However, inclusive growth will be impossible without the provision of inclusive finance.
The United Kingdom has long believed that access to finance and credit is essential to creating a dynamic economy and ensuring that the fruits of economic growth are to be shared fairly. In this spirit, we have encouraged the use of Islamic finance within Britain and promoted the capability of financial institutions to offer Sharia-compliant products to global customers. The deep and liquid pool of Islamic financial products and services in the UK have allowed different types of investors, both Muslim and non-Muslim, to direct capital to viable business ventures and invest in economic growth. The attraction for many is the way in which such funds are structured and the direct connection to real economic activity.
I, and many others, believe that the Philippines would see tremendous advantages from promoting the growth of Islamic finance in the country. One of the ways that the British government can help is our Chevening scholarship program, through which we send future national leaders to take graduate courses of their choice in world-class UK universities. For example, Maharlika Alonto of this year’s batch of scholars chose to study MSc investment banking and Islamic finance at the University of Reading. Having worked for Amanah Islamic Bank in the Philippines, Maharlika intends to use this opportunity to contribute to the economic development of Muslim Filipino communities. She notes that the impending Asean integration will bring new financial opportunities to the entire country, not just to Bangsamoro.
While there is a significant Muslim minority here, it is important to note that Islamic financial services are not exclusively for Muslims. First and foremost, they are viable financial products that happen to be Shariah-compliant. Specifically, Shariah instruments cannot bear interest, which would rule out most mainstream financial products, such as bonds or mortgages. Instead, Islamic banking replaces interest income with cash flows from productive, real assets like property. The religious observance is similar to many ethical investment schemes that avoid sectors such as gambling and liquor.
Why should the Philippines encourage the growth of these financial products in its economy? First, it would open up economic opportunities for the poorest Filipino families, both in Bangsamoro and beyond. Muslim Filipinos comprise about 5 percent of the national population, but have not had the social and economic benefits enjoyed by other communities in the republic. As a marginalized group without easy access to credit, Muslim Filipinos find it more difficult to raise the capital to build new businesses, making it harder to create jobs and boost growth. Encouraging Islamic banking to take root here would allow dynamic firms, British or not, to seize new opportunities by catering to the vital financial needs of an underserved and untapped consumer market ready to reap the fruits of peace and stability.
Second, the creation of a market in both government and corporate Sukuks, or Islamic bonds, would allow the public and private sectors in the Philippines to access a deeper, more diverse pool of potential investment to fund future growth. Beyond domestic investors, these bonds would also attract more diversified investment portfolios managed from Europe, Southeast Asia, and the Middle East. With sovereign wealth funds and private institutional investors currently searching the global markets for higher returns and safer assets, this is the perfect moment for the Philippines to join Malaysia, Singapore, Indonesia, and Brunei Darussalam in opening up a new funding channel for the economy through Islamic investment from all over the world.
Prime Minister David Cameron has said that he wants London to stand alongside Dubai and Kuala Lumpur as a global hub of Islamic finance, and the British government has worked hard to encourage the market to grow, not only to serve the 2 million Muslims in Britain but also to attract untapped funds seeking the attributes of Sharia. The UK is currently home to over 20 banks that offer Shariah-compliant products, including HSBC Amanah and Standard Chartered Saadiq, as well as six specialist Islamic banks. Over £23 billion has been raised through 53 different Sukuks listed on the London Stock Exchange. And on June 25, the UK became the first Western country to raise finance through a government Sukuk—in this case, about £200 million.
It is, therefore, encouraging to hear that the Philippine Bureau of Treasury might also be floating government Sukuks in the near future. Right now, the Philippine Stock Exchange is drawing up lists of Shariah-compliant firms, and the National Commission on Muslim Filipinos is drafting a policy framework for the industry. The UK, drawing from its own experiences, is an active supporter of all these initiatives. In supporting the hard work being done to help Islamic finance take off in the Philippines, we stand with every Filipino who is also banking on the financial future of Bangsamoro.