The Bangko Sentral ng Pilipinas (BSP) has issued new guidelines aimed at making Islamic banking more accessible and attractive to market players in the Philippines. With the release of BSP Circular No. 1219, approved by the Monetary Board on October 9, the central bank has introduced more flexible liquidity and reporting requirements for Islamic banks and Islamic banking units (IBUs).
The move is intended to support the development of Islamic finance in the country, which remains in its early stages. By easing entry barriers while maintaining prudential safeguards, the BSP hopes to encourage more institutions to participate in this emerging sector.
One of the key changes brought by the circular is a more adaptable approach to licensing, capitalization, and liquidity management. The amended regulations allow Islamic banks and IBUs to operate with a more tailored set of rules, recognizing their distinct business models and limited access to conventional liquidity instruments. For example, the circular now permits sukuk—Shari’ah-compliant alternatives to bonds—as eligible instruments for liquidity coverage.
The BSP emphasized that it will continue to engage with stakeholders and review the regulatory framework as the Islamic banking market evolves. Recognizing the sector’s infancy, the BSP stated that it will adopt a flexible approach to compliance, including leniency in report submissions during the early stages of operations.
For IBUs, the BSP introduced a “Type A” license category. Applicants must submit a corporate plan outlining their organizational structure and strategy for delivering Shari’ah-compliant financial products and services. Licensed entities are expected to begin operations within one year. Meanwhile, full-fledged Islamic banks will continue to follow the same minimum capitalization requirement as universal banks. Conventional banks with sufficient capital are also permitted to establish IBUs as separate branches, offices, or departments that comply with Islamic principles.
In addition, Islamic banks are now allowed to list their shares on any registered stock exchange in the country. This measure is expected to open up more funding opportunities for Islamic financial institutions and improve transparency and investor confidence.
Reporting requirements have also been relaxed. While Islamic banks and IBUs must still adhere to the Financial Reporting Package (FRP) and its supplemental version for Islamic institutions, the BSP will allow a three-year observation period. During this time, the regulator will assess the institutions’ compliance and familiarization with the required reporting standards.
Despite the passage of the Islamic Banking Law in 2019, progress in the sector has been slow. To date, only two Islamic banks have been licensed by the BSP. One of the major hurdles has been the substantial capital needed to establish both an Islamic bank and a comprehensive Shari’ah Governance Framework (SGF). The SGF is essential to ensure all operations are in line with Islamic law and must be overseen by a qualified Shari’ah Advisory Council.
By addressing these operational and regulatory challenges, BSP Circular No. 1219 is seen as a progressive step toward strengthening Islamic banking in the Philippines. The central bank’s latest measures aim to create a more enabling environment for Shari’ah-compliant finance, fostering financial inclusion and supporting the country’s broader economic goals.