The Philippine Islamic finance industry is on track for significant expansion, driven by government-backed initiatives aimed at fostering the sector’s development, according to Fitch Ratings.
In a report released Thursday, Fitch noted that regulatory measures- including tax neutrality, incentives and new Islamic finance regulations – have created an environment conducive to the growth of Islamic banking. These efforts have already led to some activity, with Islamic banking units from established players such as Maybank Philippines and CARD Bank entering the market.
Despite these advancements, Islamic banking still accounts for less than 1% of the total banking market in the Philippines.
The country’s large unbanked population, especially in the Bangsamoro Autonomous Region in Muslim Mindanao, represents a significant opportunity for growth. Fitch sees this as a long-term potential for Islamic finance to cater to underserved segments of the population.
Fitch also noted the significant inflow of remittances from overseas Filipino workers (OFWs), many of whom are based in Gulf Cooperation Council (GCC) countries, where Islamic banking is prevalent.
The usage of Islamic bank accounts by these workers highlights the potential for the Philippine Islamic finance sector to capture a larger share of the remittance market.
Additionally, Fitch pointed to the Philippine government’s plan to incorporate Sukuk, or Islamic bonds, into its financing strategy next year. In 2023, the government raised $1 billion through its inaugural Sukuk issuance, which Fitch describes as a “milestone” for the country’s Islamic finance sector.
The upcoming Sukuk issuance is expected to prompt both government and private-sector entities, including financial institutions and corporations, to explore their own Sukuk offerings.
This move is seen as a critical step in developing the local Sukuk market and could lay the groundwork for increased participation in the Islamic finance space.
