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RP to miss Islamic finance boom in Asia this year


Islamic finance growth will stay strong this year, as Southeast Asia drives demand for financial products that comply with Islamic or Sharia law, debt watcher Standard & Poor's said. But the Philippines is unlikely to benefit from this since Islamic banking remains an uncharted territory here, an official of the country's lone Islamic bank said on Monday. "This type of banking is an alien notion to the public. [They don't know the difference] between Islamic banking and the conventional one," said Maharlika J. Alonto, head for accounting and finance of Al-Amanah Islamic Investment Bank of the Philippines. She said their focus remains informing the public about Islamic banking and crafting rules that are consistent with its unique characteristics. "We still have to iron out the taxation and regulatory framework," she added. Unlike traditional banks, Islamic banks do not charge interest, which the Koran prohibits. They earn by acting like an equity investor to its borrowers by forging partnerships, lease-to-own deals and similar arrangements. Bangko Sentral ng Pilipinas officials were not immediately available for comment. Alonto also said Al-Amanah's focus now is on stabilizing its operations after incurring losses for several years. "We haven't really talked about expansion yet. Our primary focus is really refurbishing and rebranding the bank," she said. "[Compared with other Islamic lenders in the region] we are lagging," Alonto said, even as she noted that capital infusion by the Development Bank of the Philippines was expected to strengthen their operations. "These are baby steps but God willing, our financing products that are Sharia-compliant will be available this year," she added. Alonto said Al-Amanah plans to lend up to P400 million this year, mostly in Mindanao, where eight of its nine branches are located. Standard & Poor's said Islamic banking sustained its growth last year even as most of the world's financial systems were trying to contain the global financial crisis. The rating firm said assets of the top 500 Islamic banks expanded by 28.6 percent to $822 billion by the end of 2009, compared with $639 billion in the prior year. "We believe Islamic finance has become a recognized and a specific segment of finance on its own with still bright growth prospects," Standard & Poor's credit analyst Mohamed Damak said in a statement. "We think Islamic finance is set to make further inroads in developed Western markets while Southeast Asian countries will likely fuel the Islamic finance advance in Asia in 2010," he added. But there were issues to be settled to continue growth. "Specifically in non-Muslim countries, and especially in Europe... they include the size of demand for Sharia-compliant products, regulatory and tax environments, the support of the political and financial communities, sovereign sukuk issuance, and the possibility of a common strategy for extending Islamic finance across EU countries," he said. DBP gained control of Al-Amanah in 2008 after buying the holdings of the National Government, state pension funds Government Service Insurance System and Social Security System and individual investors. Al-Amanah was created via Presidential Decree No. 264 issued by then President Ferdinand E. Marcos to serve the banking needs of the Muslim community. It has been operating as a commercial bank since 2006 but will revert to Islamic banking in 2013, which is the end of DBP's five-year development plan for the bank.

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